updated 07:20 pm EST, Wed March 17, 2004
iPod buzz masking problems
MONEY Magazine's article titled "" says the buzz on the digital music player and "swank" storefronts are masking an ebbing bottom line, noting reduced CPU sales (resulting a shrinking marketshare), decreased profits (in part due to the lower-margin iPod and little-to-no profit at the iTunes Music Store), failure of the iPod to drive CPU sales, failure of the retail stores to increase marketshare, hidden retail store costs, no operational income, and little value in the stock. [subscription required to view entire article; highlights posted below]
- "Apple sold just over 3 million computers in its last fiscal year, which ended in September -- 900,000 less than it sold in fiscal 1996, the year before Jobs returned...Meanwhile, Apple's share of the worldwide personal-computer market has shrunk to 2 percent from 3.2 percent five years ago."
- "While Apple's sales of $6.2 billion last fiscal year were nearly unchanged from 1999, profits plummeted 90 percent to $69 million, from $601 million four years ago...Jobs' mass-appeal strategy has crimped the company's historically high profit margins. Apple's net profit margin is just 1 percent. That's down from 10 percent four years ago."
- "Out of the hundreds of people who were waiting outside Apple's SoHo store in the cold to buy an iPod, I could find only one whose positive experience with the music player led him to buy an Apple computer."
- "Tom Santos, one of the plaintiffs, estimates that Apple's stores would have lost as much as $80 million in 2003 had they been paying the same prices for inventory as the resellers paid."
- "And Apple's earnings would have been worse had it not been for $4.8 billion the company has in cash and short-term securities. In fact, the cash hoard made more money last year than Apple's operations -- which lost $1 million while the computer maker booked a $69 million gain on interest income."
- "Even when you factor in Apple's $13 a share in cash and almost no debt, the company's stock, at a recent $23, trades at 20 times estimated 2004 earnings. Dell's shares, on the other hand, go for 26 times projected 2004 earnings -- but its business is three times as profitable as Apple's."