Apple COO Jeff Williams 'Very Aware Of' Concerns Over Apple Product Cost

[DanBig]

PixelDestructor said: ↑
Wanna explain why macOS has been ignored for years if you care so much about products? It still has bugs from years ago that have never been patched, forget new features.
Why has the Mac Pro still not received an update? Why is the MacBook Pro forcefully sold with a Touch Bar? If you care so much about your products why are you still selling the 6th Generation iPod Touch or the 4th Generation iPad Mini? There are so many segments of Apple's product line that show a complete lack of care and attention to detail compared to just 10 years ago.

Sadly, this is 100% true. Oh Steve, how I miss the Apple you built.

The set order on whats important to fix is wacko! They never seem to get to the rough edges only the core. Most software companies have a crew tasked with fixing the small stuff. As an example iTunes media naming is still a mess after years of prodding, this is such a simple fix it just never gets done.

 

[Carnegie]

Read the post above yours. The facts show Apple profit margins on iPhones were once higher, double digits higher.; into the 70% range. Now its back around 60%. But mostly have remained near steady.

The bill of materials used to be just under $200 for a $600, or 1/3. Now it is $400 for a $1000 phone, so 40%. Higher material cost of the phone cost.

And no one batted an eyelash about price of a 3GS or iphone 4 with higher Apple margins per unit.

More expensive insides equals more expensive phones even with lower profits Apple takes.

Yes, hardware gross margins have been fairly stable. If anything, they've come done in recent years.

But those BoMs aren't right. Based on what Apple reports, they can't be. The aggregate gross margin for iPhones last quarter was, at most, about 40%. Yes, some models would have had higher gross margins. Apple uses higher margins on those high-end offerings (e.g., those with more storage) to offset lower margins on other offerings (e.g. those with base storage). It's Apple's way of allowing more people to be able to afford their products. Those who aren't as price sensitive can pay a premium for top-of-the-line; those who are can get better value in not top-of-the-line - but still high-quality - models.

I think a lot of people misunderstand what drives Apple's incredible profitability. It isn't ridiculous margins. Apple's gross margins are pretty reasonable. They compare favorable with similarly situated products. They're even more reasonable when we consider that the health of Apple's direct distribution channels means that it is able to capture a fair bit of what would otherwise be the retail, rather than wholesale (or production), margin. So its 34% (for products) gross margin last quarter effectively included part of the retail margin which wouldn't be included in the gross margins of many other, comparable, product makers.

What drives Apple's incredible profitability is (1) its operational efficiency and (2) its scale when it comes to selling premium products. (Those things are related.). Apple's products are so incredibly popular. No other company has ever had as much success selling high-end products to the masses. iPhones, e.g., sell in such ridiculous quantities that, even with reasonable gross margins, the gross profit generated is enormous. And that enormous gross profit exerts extreme leverage on Apple's operating expenses. So Apple's operating expenses (as compared to other companies') eat up a relatively small piece of its gross profits. If, e.g., Samsung or Huawei sold as many high-end smartphones as Apple does, they'd make massive profits from their smartphones as well. It isn't higher gross margins (on comparable products) that is the difference. It's volume.

 

[TheShadowKnows!]

That smirk says it all: Winning!

 

[curtvaughan]

Steel - heavy! Not as strong as Aluminum-Magnesium alloy.

Even automobile manufacturers are using aluminum when they can, not just in the chassis but also the engine.

Kids in school know this.

You are correct about heaviness; however, steel alloys have considerable more durability than aluminum variants. Aluminum has two pluses: light weight and rust resistance. Just look at bicycle manufacturers. Aluminum is lighter, but aluminum tubing must be larger in circumference than steel tubes to adjust for strength/stress issues. Titanium is probably the best of all worlds - fairly light weight, rust resistant, and strong. Its main drawback is high price. Pro cyclists rarely ever use steel anymore, generally preferring carbon fiber with aluminum being second in preference. They also have the luxury of only needing their bicycles to last through one racing season. Sporting autos also use carbon fiber and aluminum for the same reasons - light weight and corrosion resistance, but not for durability. Bent or dented aluminum or cracked carbon fiber is next to impossible to repair, but that's a secondary issue for people who purchase products made of these materials. It makes a lot of sense to construct laptops with either aluminum or carbon - their light weight and corrosion resistance, combined with relative low stress in common use, make them good choices.

 

[cmaier]

PixelDestructor said: ↑
If you care so much about your products why are you still selling the 6th Generation iPod Touch or the 4th Generation iPad Mini?

They’d rather not be selling iPod touches or iPad minis at all, but they are doing it because customers love them and still want to buy them, and it’s better than cancelling the products entirely?

 

[LordVic]

> “It’s something we’re very aware of,” he said. “We do not want to be an elitist company. That’s not — we want to be an egalitarian company, and we’ve got a lot of work going on in developing markets.”

Hmm... This statement definitely contradicts reality.

"WE WANT EVERYONE TO BE ABLE TO AFFORD OUR DEVICES".... WE JUST don't want everyone to be able to afford them!

Is anyone complaining about the cost of the Apple watch?

I Think the watch is currently one of the more appropriately priced devices.

However... given that, watch they will raise the price 30% in 2019 just to keep in line with everything else

 

[UK-MacAddict]

It was released in 2008 for I think $1799, dropped to $1,299 2 years later in 2010, then I think back acceptable levels in 2012. So about 4 years to recover back to consumer levels. The XR was already a step back in cost so they are ahead of schedule.

This isn’t an exact science by the way. Just an example of costs coming down, which obviously will happen.

The XR isn’t the flagship phone though. It’s gimped on features. The iPhone XS should be priced at what the XR is and the XS Max should be £1000 maximum.

 

[cmaier]

The XR isn’t the flagship phone though. It’s gimped on features. The iPhone XS should be priced at what the XR is and the XS Max should be £1000 maximum.

I’d hardly call the XR “gimped.”

 

[Carnegie]

What he meant to say is that they've been milking extreme profit from customers for as long as they could but the new Samsung Galaxy S10e has wiped the floor offering new features customers want and improving existing features so they now have to resort to PR spin. With regards to R&D, AW sensors were stolen.

https://www.macrumors.com/2019/01/22/apple-settles-lawsuit-biometric-sensor-valencell/

Apple got all of the claims asserted in Valencell's original complaint invalidated.

The settlement in that case likely involved Valencell agreeing to drop its suit in exchange for Apple agreeing not to pursue more actions which might have invalidated even more of Valencell's patents.

I've posted about this elsewhere, so I won't go into details. But if you look at the actions before the PTAB, you'll see that one by one Apple managed to successfully argue that Valencell's asserted claims were invalid. Shortly after the last one was invalidated Apple and Valencell notified the district court hearing Valencell's suit that the issues had been resolved - i.e., the case had been settled. Just after that happened, the parties asked the PTAB to close several open actions which Apple had brought (and which had been instituted) relating to other Valencell patents which might have been invalidated.

 

[DanBig]

Not disagreeing with your sentiment, but innovation certainly DOES often mean throwing away something that works for something less.

Innovation does not mean loosing ability! It means enhancing and improving ones work flow (or product), not impending it!

 

[curtvaughan]

So why does Apple make the case of the more expensive Apple watch with the sapphire crystal out of stainless steel if it isn’t as strong as an aluminum alloy?

Actually, stainless steel would be stronger than aluminum, and like aluminum, it is corrosion resistant. Its main disadvantage is in comparative heaviness, but with a small device like a watch that's largely not an issue.

 

[UK-MacAddict]

UK consumers are amongst the most gullible!
Apple has brisk sales even when the prices are £999 here vs $999 in the US.
Even the current Pixel 3 UK prices (£739) is outrageous compared to US prices ($599)!!

Samsung doesn't price products with the same £ and $ figures (£799 vs $899 for S10 I think).
Been in the industry long enough to know that foreign exchange argument is baloney!

I agree, which is why I don’t buy all my Apple products in the UK.

Apple need to sort out foreign exchange rates to be more realistic and balanced with their home market. I think Tim Cook has already said they would be looking into that. Hopefully it’s not just in the emerging markets but places like the UK too.

 

[TonyC28]

Cost is a concern and it’s nice to hear him say that, but we should remember what his concerns are. They want to sell things at the maximum price the market will allow. Business 101. If iPhone sales decline year after year they’ll have to rethink their pricing strategy on iPhones or try to decrease their dependence on them.

 

[curtvaughan]

There never was a reality when this was actually true. I've been using every release of OS X since Panther, and they all sucked in their respective ways and had their individual quirks, instabilities and bugs. There never was a time in which macOS/OS X actually was more stable or more robust than the NT-based Windows branches.

I see two strong points about OSX/MacOS. It is BSD Unix based, and over most of its existence has been much less of a target for malware and viruses, both due its Unix-based design and its being a much smaller target than ubiquitous Microsoft OS's. Apple has traditionally had a performance advantage over Windows, since they control both the OS and the hardware on which it runs. Apple gave up on the server market, being too highly priced compared to PCs for backend use. It's much more cost effective to buy high end PC server hardware and slap Linux on it. No one really cares about how servers look, and Apple is very much into cosmetics.

 

[Carnegie]

For let's say the top 10 execs, compensation since Steve's passing is likely well north of $1 billion (much of it Tim's). During that time. Since Steve's passing, Apple has bought back more stock than any company in history - by A LOT. Likely $1 trillion in buy backs once the repatriated profits are finally fully "invested" in US jobs. That is likely the biggest difference between Steve & Tim. I do not think Steve would have given in to investor pressure for the buy backs. A trillion dollars can go a long way re: R&D + innovation (if there are good ideas).

What do you think Mr. Jobs would have done with Apple's growing cash pile? At some point, it doesn't make sense to just let it keep growing and do nothing with it other than earn a few bucks in interest.

Do you think he would have done a huge acquisition? I don't think he'd have been inclined toward that. So, at some point, it makes sense to start returning some of it to shareholders. And I say that as someone who is generally not a proponent of (healthy) companies returning capital, unless they are at a point where they have more capital than they might conceivably use in the foreseeable future. I'm not, e.g., a dividend-seeking investor. I think the point in equity ownership is that, for myriad reasons, you think someone else will make better use of capital at a given point in time than you would. When that changes, you sell.

As for R&D, we're talking about money that is left over after Apple spends all that it thinks makes sense on things such as R&D and small acquisitions. Apple already spends a great deal on R&D, that's part of why the cash pile wasn't just a little bit bigger. Money used for share buybacks (at least in Apple's case) isn't money taken from other possible uses. It's money left over after other possible uses - those which Apple believes would make sense - are exhausted.

 

[mrochester]

To be completely honest, he is not wrong...
If you don't like the Apple prices don't buy it. Eventually, people will spend their money else where and they will adjust their prices. Its like BMW prices, if you don't like it buy a Nissan or Toyota..

Apple is not the standard or has the majority market share of any market, and all their products have an alternative.

Just like everyone else I would like to see Apple have cheaper prices, but there is 0 reason for you to opt for the Apple product.

If Microsoft was increasing prices on software like Windows I would be more worried since they have 80%+ of the market share, all the world software runs on Windows, people can't opt out of Windows simply because hospitals, gov.s , corporates, small businesses, factories, even ATM machines will probably freeze operations.

There is not 1 corporate or govs that relies on MacOS as their main driver.

I am willing to pay the Apple price simply because Apple is the only company that provides an enjoyable, stable, and reliable OS that cares about the user privacy. That is not available else where and its worth it for me.

This. There are plenty of alternatives to Apple products if you don’t like what they do and how much they cost, as long as you are prepared to make whatever compromises are necessary to buy the alternative.

Much more worrying is if you don’t like what Google are doing with Android. Your ONLY option is Apple.

 

[UK-MacAddict]

I’d hardly call the XR “gimped.”

Ok a bit far to say gimped. But the price of the XR would have got you the flagship iPhone 7 Plus a few years back.

There is nothing on the new phones, other than Face ID being the biggest difference, that should have caused such a massive price hike here in the UK.

OLED screens have been around for 8-9 years on smartphones before Apple jumped on board.

 

[LordVic]

It's funny to me that people nowadays are so quick to criticize Apple and their products' prices. Apparently I'm old because I remember when Apple was a luxury brand... I mean, even the first iPhone was $699 for the 8GB model... something that was UNHEARD of at the time. I mean, I switched to that phone from a Motorola V600 which was, what, $160 at the time? And I went from a behemoth Gateway laptop that was huge and made out of plastic for somewhere around $550 to a 12" PowerBook G4 that was around $1,200. You're paying for not only performance, but the quality. I'm typing this on a 2013 MacBook Pro and I don't see myself getting rid of it anytime soon because it runs flawlessly and probably will for at least a few more years. And not only that, but when I *do* decide to upgrade to something new, I can guarantee that I'll be able to sell this laptop for at LEAST a third of what I originally paid for it... if not more. The resale value never seems to cross critics' minds for some reason.

It's entertaining because nowadays, everyone has/wants/needs a computer for their everyday lives, so everyone just assumes that every computer (or phone, or tablet, or whatever) should be priced to fit everyone's budget. That's just not how things work, whether millennials want to accept it or not. Want a cheap laptop? Go to Dell. Want a cheap phone? Check out Motorola. What a cheap tablet? Go to Costco and get some Amazon Kindle Fire Tablet Alexa blah blah blah. Want performance and quality and something that will cause you the least amount of headaches? Then work a few hours overtime and buy that Apple device you're complaining that you can't afford.
[doublepost=1551055828][/doublepost]

If you're willing to spend a grand on a phone, a $15 charger isn't going to sway your decision. And here: https://www.apple.com/shop/buy-mac/macbook-pro/13-inch-space-gray-2.3ghz-dual-core-128gb# ... literally right on Apple's website, a MacBook Pro without a Touch Bar, and it's not even in the refurb store (where there are more options).

The original iPhone barely moved until there was a dramatic price cut. it originally launched at $599 and due to poor sales and over-estimating the market acceptance, were forced to drop the price to 399 by September. Anyone who bought at 599 were offered a rebate. Unfortunately, this kind of nullifies the point you were trying to make as Apple at one point accepted that they couldn't define whatever they wanted for price if that price was above market acceptance.

The market in laptop space was also significantly different then than it is today. those window $550 laptops were garbage and intended to be garbage. they were large, bulky plastic messes and designed to be that way. It wasn't really until 2012 or newer that Windows manufacturers realized there was a market for high quality laptops (Apple's MBA really changed the landscape and helped push Ultrabooks and quality).

but today? you can essentially find competition with nearly identical build quality. in many cases by todays standards, many of those companies are now releasing some products that are arguably better quality than what apple is releasing. But Apple's laptops are still 30%+ more expensive.

your entire post screams "back in my day we had to walk in 10ft of snow, uphill, both ways, damn kids!"

Apple does NOT exist in a pricing bubble where there's no competition and they can do whatever they want at any price. Keep changing enough, charging enough and reducing features enough and you risk alienating small groups of buyers. Do it enough over long enough time and you wind up driving away enough peopel that it actually impacts the bottom line.

we have already seen thsi trend in Macs. by mid 2017 Apple's computer sales were already lower in volume and trending down. They are now at 2010 (if not lower) levels. This indicates that there's a significant enough cutsomer base who have decided to shop elsewhere due to either pricing, or lack of perceived features/ quality.

As for iPhones, we have now 1 quarter with significant drop in sales volume (9 milliion less units sold in a single quarter, over the holiday season). while not a trend yet, this should be paid attention to as it indicates that SOMETHING potentially convinced 9+ million users that the current offerings at their current price points are not offering as much value as they did previously.

 

[kazmac]

Quality sucks in last few years. I paid 3k for 2018 MacBook Pro with Apple Care + and in less than 3 months, I visited Genius Bar for automatic Freezing and restart issues. They did not fix the problem. I don't know what to do with this issue. I am feeling like I paid 3k for a brick as there is no fix.
They are just charging premium prices for defective unites and claiming they concern about quality of their products.

Shame on you APPLE.

Not surprised with the response as they’re so out of touch they wonder why sales are beginning to slip.

Your issue with the MBP: That’s me with iDevices and the overall nasty attitude. And the comment about the bend in the 2018 iPad Pros being normal. A manufacturing defect some have to deal with for a higher price. To say nothing of touch disease / irresponsiveness in the 2017 and 2018 models.

I wouldn’t mind paying slightly more if the build quality of hardware and software were still rock solid.

I am hesitant in buying another Mac too despite my very rough attempts at trying moving to Windows. The issues in the news Macs are making me skittish too. Pay more, get less, and play Russian Roulette in the process.

I will not pay $1k for another iPhone again and I certainly won’t overpay on a Mac now either.

 

[mrochester]

What do you think Mr. Jobs would have done with Apple's growing cash pile? At some point, it doesn't make sense to just let it keep growing and do nothing with it other than earn a few bucks in interest.

Do you think he would have done a huge acquisition? I don't think he'd have been inclined toward that. So, at some point, it makes sense to start returning some of it to shareholders. And I say that as someone who is generally not a proponent of (healthy) companies returning capital, unless they are at a point where they have more capital than they might conceivably use in the foreseeable future. I'm not, e.g., a dividend-seeking investor. I think the point in equity ownership is that, for myriad reasons, you think someone else will make better use of capital at a given point in time than you would. When that changes, you sell.

As for R&D, we're talking about money that is left over after Apple spends all that it thinks makes sense on things such as R&D and small acquisitions. Apple already spends a great deal on R&D, that's part of why the cash pile wasn't just a little bit bigger. Money used for share buybacks (at least in Apple's case) isn't money taken from other possible uses. It's money left over after other possible uses - those which Apple believes would make sense - are exhausted.

Too many people think that you just have to throw money at something to solve a problem. And they see Apple with loads of money and wonder why they haven’t invented the impossible yet, because all it takes is money, right?

It’s an incredibly naive view. Money doesn’t solve problems. People, time and talent solves problems.

 

[curtvaughan]

They’d rather not be selling iPod touches or iPad minis at all, but they are doing it because customers love them and still want to buy them, and it’s better than cancelling the products entirely?

I'm starting to think Apple has that as a prime motivator for any of their non-iPhone products.

 

[DNichter]

The XR isn’t the flagship phone though. It’s gimped on features. The iPhone XS should be priced at what the XR is and the XS Max should be £1000 maximum.

Yup I know, but the base model Air's at the lower costs weren't anything special either. The XR just shows that Apple are trying to work down costs. No doubt the flagships will continue to drop also. My guess is $899 for XS variant and $999 for Max variant this year, but we will see.

 

[LordVic]

People, time and talent solves problems.

All of those cost money.

 

[Jimmy James]

Dismissing huge margins by citing stuff like R&D etc ... meanwhile, just look at the actual profits (profit, not revenue) they have according to their own earning reports. The whole argument falls apart when looking at the actual numbers.

Example: NOTHING can justify the ridiculous SSD upgrade prices (even with same performance metrics) but pure greed. Greed which begins to damage their image.

Took the words from my mouth. The ssd pricing is the “upgrade” price, not even the outright price.

 

[Zdigital2015]

I’m surprised you find the pencil charging a problem. It’s always attached to my iPad so it’s always charged - i like this much better than the old pencil (which had lots of charging options and yet, for me, was always discharged).

Now, the stupid tap thing, on the other hand (I can’t do the tap thing. It’s like trying to use chopsticks with my non-dominant hand - my fingers just don’t go that way, and whenever i try to do it the pencil falls out of my hand),.

One of my co-workers purchased a 2018 12.9-inch iPad Pro along with a Pencil 2 and finding a case that provides sufficient protection for the device while allowing him to charge the Pencil has proven difficult. He ended up purchasing a silicon case with no cut out for the Pencil and has to peel away the case to charge the Pencil when necessary, which seems to be more often than the original Pencil.

I do like the fact that you can charge the Pencil 2 in this way, I dislike that Apple chose not to develop any other form of wireless charging for the Pencil 2 and include it with the $129 device. I know AirPower is coming and it should take care of this...does anyone know if the Pencil 2 can charge via Qi wireless charging pad or is that verboten?

In the end, I spend $25 on a Belkin Apple Pencil Case and Stand to keep everything together and protected.