iPad Component Costs Estimated to Begin at $219.35

[AskMeIfICare]

Apple's profit margins are historically under 15% with gross margins around 30%.

I forgot to comment about this point and it's all a matter of creative accounting. When a company grows and invests, a 30-40% profit is whittled down to "15%" due to said growth, expansion, acquisition, and other write-offs. Please keep in mind that "profit" and dividends are largely irrelevant in the markets today. All that matters is your performance potential and this dictates your stock price. Apple has had a P/E ratio as high as 40-1 and their market cap is around $50 billion.

My own prediction is that Mac will have 30% of the OS market (and a $250 billion market cap) in 5 years unless Google pulls a miracle...but lately Google cannot seem to do anything right other than search.

Bottom line is in the markets of today, actual profits are irrelevant. All that matters is what the shareholders are willing to pay for your stock.

The one thing that I don't understand is why so many people on this forum take these issues so personally. It's just business. At least everyone on these forums has the power to learn and decide for themselves.

 

[Carniphage]

On Pricing...

The price of a product is determined by what the market thinks it is worth. It is not determined by the producer adding a percentage to a build cost.

Here's how pricing works:

Crudely, the profit of a given product = the number of units sold x the profit per item.

When a company sets a price, it has to fine-tune the price to bring it in line with the value that the market expects.

Too high a price and the quantity of units sold will be reduced. And profits will suffer.
Too low a price will sell lots more units but reduce the profit-per-item. And profits will suffer.

Just like Goldilock's porridge, there is a sweet spot in the middle which delivers maximum profits. Not too much. Not too little.

Consequently, there is very little actual freedom for the manufacturer. The market signals what the correct price is. If the company then ignores that signal, they throw profits away.

All manufacturers understand how to set prices to optimise profits.

If Apple products have larger than average margins, the cause is not greed or policy. The cause is the market. High margins mean that the market values those products much more highly than their their component parts.

C.

 

[SDub90]

Their mark up is significantly lower than I expected. I'm sure they're depending apps to make up for R&D, distribution costs, and various other expenses.

 

[BaldiMac]

Look again at the numbers. It's all there in what I wrote. Note that I stopped at 30% standard markup to give them a gross (not net) profit of $120,000,000 per million units. That's IF they sold them at $350.

But they're selling them at $499. So that's an additional $150,000,000 per million.

I think we are confusing terms here. What is "standard markup" and why is it 30%? Patent and other licensing costs (that we have no idea of) would need to be added to the per unit price in order to compute gross profit. We also have no idea of Apple's average selling price for the iPad.

Add that on top of the $120,000,000 for "R&D" which is a generic term for all of those things that you mentioned rolled into one (Steve Jobs wearing casual wear onstage is a form of marketing to win the hearts and minds of those who trust him more because he looks like a "regular guy" and that's why I made the sneakers comment) neat package of marketing, depreciation, research, etc.

R&D is not a generic term for "marketing, distribution, patent licensing, overhead, and retail cuts." They are different things.

 

[BaldiMac]

X

 

[AskMeIfICare]

I think we are confusing terms here. What is "standard markup" and why is it 30%? Patent and other licensing costs (that we have no idea of) would need to be added to the per unit price in order to compute gross profit. We also have no idea of Apple's average selling price for the iPad.



R&D is not a generic term for "marketing, distribution, patent licensing, overhead, and retail cuts." They are different things.

Standard markup of 30% covers overhead and allows for a profit ranging from 7-15% as is the typical range of acceptable profitable business models. Not only does Apple earn from their storefronts, but they do so as suppliers to said storefronts. Apple also owns stake in most of the manufacturers so there's profits made that direct Apple investors do not see but instead investors in those lesser-known companies. In other words it's technically impossible to say exactly how much money is earned by those in the know other than what we can see in public accounting records with the SEC.

I said "R&D" as per the definition I was defining for the point if discussion to include those things so I didn't have to write each sentence out each time I wanted to reference it. Example f(n) = a long-arse equation. Instead of saying "a long-arse equation" and getting carpal tunnel, I say f(n). Let's stick to the big picture here instead of discussing semantics please. If you don't see the big picture of what I wrote, then there's no point of a discussion. If it's me who is not making sense to you, then I'll accept that. But let's stick to the topic please.

 

[diabolic]

Standard markup of 30% covers overhead and allows for a profit ranging from 7-15% as is the typical range of acceptable profitable business models.

Acceptable to whom? I know several businesses where a 100% markup above wholesale price (not cost of components) is considered standard.

If Apple really was "price gouging" and "screwing their customers" it wouldn't be sustainable. Based on sales and revenues, I think their business model is more than successful.

While many complainers wish it, the reality isn't that Apple is tricking stupid consumers into buying sub-par products for exorbitant prices. Apple is delivering products that consumers want to buy.

 

[AskMeIfICare]

I think we are confusing terms here. What is "standard markup" and why is it 30%? Patent and other licensing costs (that we have no idea of) would need to be added to the per unit price in order to compute gross profit. We also have no idea of Apple's average selling price for the iPad.



R&D is not a generic term for "marketing, distribution, patent licensing, overhead, and retail cuts." They are different things.

Let's look at this from a different way: Apple anticipates the sales of iPad to be at least 4-7 million units (initially) as from the numbers I've read.

In a worst case scenario, 4 million * $270 = $1.1 billion on the base model alone. After you pay staff, direct marketing (of which Apple does very little and has never needed to do due to their loyal customer base like no other), and misc overhead for the development of said product, do you think it cost anywhere near $1 billion dollars to make the iPad?

Again, it was made from components built to their specifications. The actual engineering was done by a small internal team of engineers. The larger the research team that actually touches the product to design it, the greater the chance of leaks.

People love to quote the numbers of employees at Apple. But how many of the actually work at headquarters and are instead run of the mill staff at Apple storefronts? Most.

The reality is that a small number of people actually researched and developed the iPad built from made to order components. Another small group, probably overextended and on loan from iPhone, scaled up the OS and the apps. In other words, they had most of the pieces in puzzle before this was even a serious project. When you are Apple and at this stage of the game, it's a relatively easy thing to do. Adding that lame chip is just to throw people off to make it look like they actually "innovated" instead of scaled up or scaled down iPhone OS and OSX respectively. As I said before, if iPad is a flop, it won't matter because it's a test. The chip will be popping up in all kinds of other products so Apple cannot lose.

For those with short attention spans, read a page back on my stance before jumping on what I've said here since I see it coming already.

 

[AskMeIfICare]

Acceptable to whom? I know several businesses where a 100% markup above wholesale price (not cost of components) is considered standard.

If Apple really was "price gouging" and "screwing their customers" it wouldn't be sustainable. Based on sales and revenues, I think their business model is more than successful.

While many complainers wish it, the reality isn't that Apple is tricking stupid consumers into buying sub-par products for exorbitant prices. Apple is delivering products that consumers want to buy.

Have you not heard the term, "A sucker is born every minute?"

I was born in the States. I now live in a country where people who make $15 per day will save everything they can just to buy a Mac book and sit in Starbucks just to make people think they are "somebody".

It sounds unthinkable but I see it daily. These kinds of people are the unseen majority of Mac hardware buyers, especially the iPhone. I would bet that most Mac hardware is not even sold in the States anymore. What's more is that the resale of Mac is high not because people from the first world nations are buying it, but it's coveted in the 3rd world.

This goes for anything that is a fashion gadget. I had a Sony Vaio I bought for $900 4 years ago. Two years later I had several offers when I wanted to sell it for $800. All because it was Vaio.

So I don't know about you, but until a new fashion gadget maker comes along, Apple will remain the king for the foreseeable future. Again keep in mind that Apple doesn't make their profits selling computers. They make it selling low-end gadgets like iphone and ipod. The computers are just for show and tell.

 

[diabolic]

So I don't know about you, but until a new fashion gadget maker comes along, Apple will remain the king for the foreseeable future. Again keep in mind that Apple doesn't make their profits selling computers. They make it selling low-end gadgets like iphone and ipod. The computers are just for show and tell.

Business is about marketing, sales, and profit. That's really not a bad thing.

 

[LagunaSol]

I now live in a country where people who make $15 per day will save everything they can just to buy a Mac book and sit in Starbucks just to make people think they are "somebody".

Troll plays "Starbucks card." Not-news at 11.

What's more is that the resale of Mac is high not because people from the first world nations are buying it, but it's coveted in the 3rd world.

Odd, since I sell my old Macs locally (in the U.S.) to local buyers - not "3rd world" buyers. I suppose all these local folks are just snapping up used Macs to ship to Mozambique.

 

[AskMeIfICare]

Business is about marketing, sales, and profit. That's really not a bad thing.

You are talking to a capitalist (venture, brick and mortar, and internet). I agree with you 100%. I just can't stand fanboys and I love discussion sometimes

 

[dejo]

Again keep in mind that Apple doesn't make their profits selling computers. They make it selling low-end gadgets like iphone and ipod. The computers are just for show and tell.

Computers account for 28% of Apple's revenue last quarter (compared to 22% for iPods and 36% for iPhones). Are you saying that their profit margin for their computers is much lower than for the iPods and iPhones?

 

[LagunaSol]

I just can't stand fanboys and I love discussion sometimes

Troll follows "Starbucks card" play with "fanboy card" play. Troll moves to Ignore list.

 

[AskMeIfICare]

Troll plays "Starbucks card." Not-news at 11.



Odd, since I sell my old Macs locally (in the U.S.) to local buyers - not "3rd world" buyers. I suppose all these local folks are just snapping up used Macs to ship to Mozambique.

Starbucks NOT IN THE STATES. Your silly "argument" might have a point if you were paying attention.

Let me get this straight. So you are implying that you have a tracking device inside of your hardware before you sell it and you do background checks on those who buy it from you? Fascinating!

I know half-a-dozen people who buy only Mac (yes ONLY Mac since there's a waiting list of people who should be buying FOOD) on E-Bay through a contact, i.e. relative in the States who turns arounds and sends it here. One individual sells about 1000 units alone per year this way.

Need I continue or do you wish to further demonstrate your ignorance on what goes on in the rest of the world?

 

[AskMeIfICare]

Computers account for 28% of Apple's revenue last quarter (compared to 22% for iPods and 36% for iPhones). Are you saying that their profit margin for their computers is much lower than for the iPods and iPhones?

Revenue is not equal to profit. They are vastly different things.

 

[AskMeIfICare]

Troll follows "Starbucks card" play with "fanboy card" play. Troll moves to Ignore list.

@smugstereotypicalfanboy see my name

If you think that your opinion matters to me, seeing as how you've yet to demonstrate a valid one, you're barking up the wrong there bubba.

 

[LagunaSol]

Starbucks NOT IN THE STATES. Your silly "argument" might have a point if you were paying attention.

My "argument" about Starbucks had nothing to do with where that Starbucks is - merely that the "Mac user trying to look cool in Starbucks" line is a classic trolling device that transcends international borders.

Let me get this straight. So you are implying that you have a tracking device inside of your hardware before you sell it and you do background checks on those who buy it from you? Fascinating!

I'm 99.999% sure the local people I'm selling my Macs to aren't running international Mac resale operations.

Need I continue or do you wish to further demonstrate your ignorance on what goes on in the rest of the world?

Your theory that Mac resale value is only high because people are buying them to ship to 3rd world countries is idiotic.

Begone.

 

[dejo]

Revenue is not equal to profit. They are vastly different things.

I know they're different, but they are related. So, how about you provide some figures to back up your claim that "Apple doesn't make their profits selling computers"? I seriously doubt that their profit margin on computers is that much lower than their iPods and iPhones.

 

[hayesk]

What about distribution, R&D...

Pepsi doesn't have to put out a new flavour every six months. Regardless, people are willing to pay it, so what's the problem. It's not like anyone needs Pepsi anyway.

Nobody needs an iPad either, but access to technology certainly does give you a leg up in today's workforce.

 

[AskMeIfICare]

My "argument" about Starbucks had nothing to do with where that Starbucks is - merely that the "Mac user trying to look cool in Starbucks" line is a classic trolling device that transcends international borders.



I'm 99.999% sure the local people I'm selling my Macs to aren't running international Mac resale operations.



Your theory that Mac resale value is only high because people are buying them to ship to 3rd world countries is idiotic.

Begone.

I realize that it's a trolling tactic IN THE STATES. Here it really happens in all of its stereotypical glory. You wouldn't see the world the same if you could see people sacrificing what they do all in the name of "American junk" as the saying goes. As an American myself I cannot say much when I see or hear it.

Earlier I was placed on your "ignore" list. It's nice to see how fanboys are true to their word. I know that this is an OCD thing. I have it myself in some things, but forums are just something I do when I need a change of scenery from a real life.

Ok fine....so your 99.9999% certainty applies to everybody else? The world obviously revolves around you and you are a model for the behavior of everyone else? This is fun!

My observations are my observations. Show me where I said that "Mac resale value is ONLY high" because of that. Thank you for making my point for me about your attention span or your level of reading comprehension. But the world loves a clown so I gotta love ya.

 

[AskMeIfICare]

I know they're different, but they are related. So, how about you provide some figures to back up your claim that "Apple doesn't make their profits selling computers"? I seriously doubt that their profit margin on computers is that much lower than their iPods and iPhones.

It's in PDF form on the SEC report released by Apple for the last 2 quarters. It's public domain and I think there's even a copy on the Apple website homepage, or at least a link to where it's available.


You are correct in your statement of relative profit margins. But I'm talking about net profit. In this, their near exponential growth in NET profit is due to small ticket items.

 

[gnasher729]

This is just gross profit...R&D and other administration and sales costs are not included in these calculations

This is NOT gross profit. Gross profit is the difference between the sales price of a single unit, and the total cost of getting that single unit into a customer's hands. The component cost gets you a bag of parts in some place in China. Now I'd like these jokers posting here to take a bag of parts in some place in China, and open a shop in New York and sell the stuff. Without losing too much money.

 

[BaldiMac]

Standard markup of 30% covers overhead and allows for a profit ranging from 7-15% as is the typical range of acceptable profitable business models.

Just what I thought. It's a number that you pulled out of thin air.

Not only does Apple earn from their storefronts, but they do so as suppliers to said storefronts. Apple also owns stake in most of the manufacturers so there's profits made that direct Apple investors do not see but instead investors in those lesser-known companies. In other words it's technically impossible to say exactly how much money is earned by those in the know other than what we can see in public accounting records with the SEC.

Basically, you are saying that you don't know enough to draw valid conclusions.

I said "R&D" as per the definition I was defining for the point if discussion to include those things so I didn't have to write each sentence out each time I wanted to reference it. Example f(n) = a long-arse equation. Instead of saying "a long-arse equation" and getting carpal tunnel, I say f(n). Let's stick to the big picture here instead of discussing semantics please. If you don't see the big picture of what I wrote, then there's no point of a discussion. If it's me who is not making sense to you, then I'll accept that. But let's stick to the topic please.

Huh? That's not what you said. You said, "..."R&D" which is a generic term for all of those things that you mentioned rolled into one." It is not. If you wanted to use an umbrella term for all of those items, you could have said that and chosen one that is more appropriate.

Let's look at this from a different way: Apple anticipates the sales of iPad to be at least 4-7 million units (initially) as from the numbers I've read.

In a worst case scenario, 4 million * $270 = $1.1 billion on the base model alone. After you pay staff, direct marketing (of which Apple does very little and has never needed to do due to their loyal customer base like no other), and misc overhead for the development of said product, do you think it cost anywhere near $1 billion dollars to make the iPad?

Again, it was made from components built to their specifications. The actual engineering was done by a small internal team of engineers. The larger the research team that actually touches the product to design it, the greater the chance of leaks.

People love to quote the numbers of employees at Apple. But how many of the actually work at headquarters and are instead run of the mill staff at Apple storefronts? Most.

The reality is that a small number of people actually researched and developed the iPad built from made to order components. Another small group, probably overextended and on loan from iPhone, scaled up the OS and the apps. In other words, they had most of the pieces in puzzle before this was even a serious project. When you are Apple and at this stage of the game, it's a relatively easy thing to do. Adding that lame chip is just to throw people off to make it look like they actually "innovated" instead of scaled up or scaled down iPhone OS and OSX respectively. As I said before, if iPad is a flop, it won't matter because it's a test. The chip will be popping up in all kinds of other products so Apple cannot lose.

For those with short attention spans, read a page back on my stance before jumping on what I've said here since I see it coming already.

You are not making a point here. Your 1.1 billion is a number without context. You are simply pulling meaningless numbers out of the air.

 

[AskMeIfICare]

Just what I thought. It's a number that you pulled out of thin air.



Basically, you are saying that you don't know enough to draw valid conclusions.



Huh? That's not what you said. You said, "..."R&D" which is a generic term for all of those things that you mentioned rolled into one." It is not. If you wanted to use an umbrella term for all of those items, you could have said that and chosen one that is more appropriate.

Thin air? 7-15% is "acceptable". I didn't say it was ideal. In typical establishments valuation is determined by multiplying net revenue by a period of 5 years. Therefore if your net profit is $50,000 in your company, your company is appraised at $250,000. Do I need to discuss P/E ratios with you next? Screw it. I can keep it simple. Stable companies on the stock market, especially small cap stocks command a 10-1 P/E ratio. Therefore their profit paid to shareholders is 10% of the stock price. That 10% falls in the low end of the middle of the 7-15% acceptable range. Historically the stock market has returned a 12% net return.

Satisfied?