Did anyone honestly believe Apple’s notoriously exorbitant profit margins would actually grow forever? For those that did, and there are plenty of analysts, shareholders, market watchers, customers, and tech media pundits in the group, you’re to blame for the mess Apple seems to be in today.
An Embarrassment Of Riches
When Apple was made up mostly of the Mac, gross margins were the highest in the PC industry, often around 30-percent. The iPhone changed all that.
From the iPhone’s launch until recently, Apple’s gross margins were, well, grossly higher than any of the company’s now many competitors.
Apple may have disrupted the smartphone and tablet business, but competition is desperate to win back some of those losses in profits to the iPhone maker.
Did anyone think Amazon and Google would sell hardware at nearly cost? They were desperate and had to do something to slow down Apple’s march toward 50-percent margins. They did the unthinkable.
Did anyone think Samsung would devote ten times what Apple spends on marketing to bring the Galaxy line of smartphones and tablets to compete with iPhone and iPad? Samsung was desperate to cut into Apple’s slice of the industry’s profits.
It’s Gross, You Know?
Apple’s gross margins are an embarrassment of riches. Blame that on the iPhone. But don’t blame Apple’s falling margins completely on the iPhone. That’s the fault of intense competition and the growth of the iPad.
Apple just can’t make as much money on a $329 non-subsidized iPad mini where competitors sell hardware at cost, as it can on a $650 iPhone where mobile carriers pick up some of the tab.
While stock analysts, market watchers, tech media pundits and critics alike await Apple’s new high growth product, be it iWatch, iGlasses, or iTeeth, the product to watch is already here. It’s the iPad. That’s the one growing by leaps and bounds.
Why does Apple continue to get chewed out, so to speak, by the aforementioned list of watchers? Let me call it the low hanging fruit. In the absence of real analysis, it’s just too easy to say Apple can’t innovate, or that Tim Cook is no Steve Jobs, or that Apple is doomed. Biting into Apple these days is sport, done more for the headlines and subsequent hits, page views, and advertising impressions than it is for actually eliciting an understanding of what’s going on.
What’s Going On?
If the highly watched and often accurate Horace Dediu expected Apple’s margins to increase, then how are the aforementioned critics expected to think different? They didn’t. Apple suffers because they took the low road.
There is a reality to what is happening to Apple’s stock that seems somewhat inverse to the lack of reality which drove the stock to $700 a share. What goes up, must come down. What goes around, comes around. And, somewhere akin to the law of large numbers, Apple– or any company– can’t continue to grow at the rate Apple grew between 2007 and 2011.
That fact can’t be that hard to understand. Unless you bought at $700, and decided to wait for the stock to go back up even as it was in free fall. Hey, welcome to capitalism. Unfortunately, this new, kinder, gentler, more realistic Apple wants to feed the beast of greed by buying back stock, by tossing out dividends left and right. All that does is feed the greed and doesn’t seem to have done anything to help the stock or Apple’s bottom line.
Despite an increase in Research and Development, Apple’s management and board seem so devoid of creativity that they cannot figure out what to do with $100-billion except give it away. Does anyone believe that’s what Steve Jobs would have done?