apple news/media reports
09/18/2006, 10:30am, EDT
Monday, September 18th
Apple seeks higher iPod margins
Apple's recent refresh of its iPod digital media players reveals that the company is seeking higher profit margins, rather than gaining market share. Gartner Research says that Apple's lack of aggressive pricing is the primary sign that the company is working toward higher margins, which could give the Cupertino-based company's competitors breathing room to catch up to the market leader, according to Macworld UK. "Apple is in a secure position atop the portable media player market and has decided to strategically focus on its margin this time," said Joseph Unsworth and Jon Erensen of Gartner Research. The new iPod shuffle is estimated to cost around $30 to build, as one example, but sells for $79.
Apple could have priced its new 8GB iPod nano lower than $249, based on estimated material costs of $130. The company's 4GB iPod nano -- which is priced at $199 -- holds an estimated cost of just $90, while its 2GB version for $149 likely costs around $70 to build. The research firm also disagrees with Apple's decision to drop the 1GB iPod nano, and says the expected shortage in flash memory won't be as dire this year, allowing Apple's competitors more time to secure larger pieces of the market.
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I doubt Apple is strategically focusing on its margins now more then it ever has. Instead, the market worked in its favor this time. Consequently, it is passing some of the savings on to customers.
Moreover, Apple does not seem to be losing any market share. If it was, it could always lower its prices even more. It is Apple's competitors that should be lowering prices.
And, to beat the dead horse, as others have said, prices dropped while specs increased. I don't see how NOW they're going for margins. They've always had good margins on iPods, and are dropping the price, which means they're not getting as much margin as they could (come on, 60 MM iPods sold with the old prices means people are ok paying 299 for a 30 GB iPod, so the willingness to pay is there).
Of course they couldn't cut the price. As we know from the MacBook, apple apparently needs to pay a large royalty fee to someone for producing any device in black (could this be some charge from the Apple Corps lawsuit? Their albums used to be black, so they need to pay to keep them from being sued again?).
But one thing that high margins imply (rather then the not-so-intelligent comment about market share) is that Apple isn't concerned about the competition at this point in time. If they were, they would be priced more competitively (i.e. lower).