Did anyone honestly think that Apple would continue the stellar revenue, profit, and stock price growth that came after the iPhone’s launch in 2007? Seriously?
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?
AdamC says
Perhaps the question to ask is which company has GM comparable to Apple.
I bet the folks at wall street think every company has the same GM as Apple.
Jim says
This whole “Apple couldn’t figure out what to do with its money other than give it away” meme is surface-level analysis and, frankly, just lazy thinking. First of all, they’re not giving it away, they’re returning it to their investors who, in case you’re unclear on the concept, own the company. Second, Apple will retain more than enough money to maintain and grow their business. Apple’s profit margins were bound to come down; even they were astounded at how fast they grew and how large their cash horde had become because, quite simply, there was no precedent for it. That they’ve descended to 40,000 feet does not change the fact that they are still flying high, and would for years even if they never released another ground-breaking product. Now, on the very good chance that they do release a new hit product or two, their profit margins would likely return to that rarified air up in the stratosphere.
Greed Spotter says
Spoken like a true 1-percenter who loves greed. No, stockholders are not deserving of either a dividend or a stock buy back to prop up an ailing stock which has been manipulated downward by the greedy.
No, Apple is not ‘returning’ money to stockholders because the stockholders did NOT give the money to Apple in the first place. Apple earned it as profit. Apple is under no obligation to provide a dividen or to buy back stock. It’s doubtful Steve Jobs would have done what Tim Cook is doing. Look what it’s gotten Apple so far. The stock hasn’t exactly skyrocketed in value since Apple announced the dividend and the buyback, now has it?
I’ve followed Apple for 20 years and totally agree with Kate, but I’ll go a few more steps. Apple’s current BoD and management are just lazy incompetents who feed the greed of stockholders who cry like babies. That pile of cash isn’t be ‘returned’ to stockholders. It’s being given away to shut them up in the hopes the stock will go higher which will shut them up even more.
Competition is more intense in smartphones and tablets than ever and Apple’s chances of knocking down 50% gross margins are slim to none, and closer to none than zilch.
BTW, investors own Apple’s stock, but don’t run the company. Unless Tim Cook is in charge in which case the stockholders obviously ‘own’ Tim Cook.
Apple may continue to make great products and produce good profits for years, but the era of Steve Jobs’ Apple is over, as Apple slides beside Microsoft on the long and winding downhill road.
ptmmac says
Anyone who claims to know what will happen to Apple over the next 3 years is just blowing smoke. The company may falter or it may continue to innovate. I suspect it will be some where in the middle. The team running the company were no slouches and have been actually running the company for over 2 years now. I certainly doubt that Apple will be able to steal as much of a lead on the rest of the industry as it has enjoyed over the last 4 years on it’s next new product launch. It is possible, because if you look back over the last 10 years Apple has been headed mobile for almost all of that time span. It took that long for even a stripped down version of OS X to run on a phone. The point is that back when they started working in this direction, there was no inkling of how important this plan was to the whole companies future. If you believe that Apple has never innovated or produced any new products over the years that is you call, but I believe that they have and are innovating on very specific products. So the point is just complaining about the business choices the CEO is taking with the current cash on hand is really irrelevant. The key will be what they do with the resources they are using. Having an extra 100 Billion Dollars laying around is not considered a bad problem to have. It is the very definition of a good problem. If you listened you will realize the company is not giving all of it’s current cash away. It is using the extra for the positive option of buying back stock when it is undervalued. Mr Market says Apple can’t and Apple’s management says they can. You certainly can doubt them, but you can’t accuse them of being unwise in the use of this money until the next 3 or 4 years goes by.