Apple's gross margin too narrow?

Yeah, Apple's last several quarters have demonstrated that Apple doesn't know how to make money, or enough money anyway. Please. This guy is clearly not paying attention. Apple is slowly converting itself from a high profit low volume vendor to a high volume high profit company. That profit per unit is getting lower is part of what Apple is trying to accomplish, to stay competitive, and grow volume. How many times in the past, oh, say, 25 YEARS, have these analysts criticized Apple for just the opposite: trading off volume sales and marketshare for higher profit and lost markets? I'd say just about every other day.

If Apple can continue to leverage the consumer space with the iPod and eventually a media center, it can afford to lower profit margins on Macs to grow that market. Great! Carefully, slowly, Apple seems to making all the right moves right now.

Raise Prices!..

I'm kidding...people complain that Apple is too expensive (Dvorak) and now someone complains that Apple doesn't make enough money off of their products? I'm sure there's a bunch of spreadsheets at Apple which indicate where drive prices are heading and how they affect the product (and margin). As far as i can tell...Apple is driving hardware sales with(free) iTunes and (Somewhat free) Quicktime along with the affordable to expensive range of iPods. This feeds into other hardware sales...obviously since Apple's market share isn't stagnant or falling.

I'm confused... I'm looking at two articles, right next to each other on MacNN. One is telling me that the profit margin for an iPod is a hearty 50 percent, the other telling me that it's an anemic 22 percent. Am I missing something?

Let's not forget that during that quarter Apple ran down it's inventory of iPod minis and had to build an inventory of iPod Nanos before their introduction. This transition has skewed many numbers such as the drop in overall iPod sales.

That drop versus an increase in Mac's sold seems to completely counter this guys explanation for the lower margins. Less iPods were sold, more Macs were sold. Lower margins can't then be blamed on the iPod, at least not entirely.

One day an analyst will wake up, get out of bed an make the decision to think through his/her comments before talking out loud, North Korea will stop plotting to take over the world, we'll discover that faster than light travel is possible after all, the secret to cold fusion and how to make the perfect omelet. Yes I'm a dreamer but I think 4 out of those 5 things are actually possible. You can guess which one isn't.

First, one guy says it could affect profitability. The second actually stated that margins would drop, but overall profit and earnings per share should be OK. And of course, since it wasn't a glowing review, all you shout "Analysts don't know what they're talking about!". Guess what? They do!

Apple's highest profit margins came from their computer lines. However, they have shown that computers are now their secondary concern (how many new iPods were released this year vs. new macs, right, thought so). Second, lower margins can be offset with more sales, for which the iPod has been doing so far (sell more, make more total profit).

However, if you actually think Apple's sales of the iPods are going to keep increasing forever, your nuts. And once the sales start leveling off, guess what, lower margins on steady sales means lower profits.

Note, BTW, they don't actually say "Watch out, next quarter is going to suck!". They're giving a future forecast and analysis. Its their job. And, yes, Apple could make changes that affect that. Duh, that's what businesses do (and if you don't think that Apple has its own analysts who aren't telling them the same thing, you're still dreaming. So Apple knows the same thing, and I'm sure their plans are to deal with it as the time comes.

To me, the worst you should say about this is "Duh! Who can't figure that out. More commentary from Mr. Obvious." But it isn't wrong analysis.

The previous article was just breaking the iPod down to its components, summing up how much they think each piece costs, and then saying "The rest is profit!" They didn't count in the cost of R&D, overhead, marketing, or the like. Hell, $50 of the new iPod price probably goes to pay for fuel for steve's plane!

Don't have anything real to report on?

I see Apple's gross margin at 36.9%, which is 16.3 points better than the industry average.