Tim Cook: Component Cost Breakdowns on Apple Products Are Nowhere Close to Being Accurate

[flat five]

I'm amazed at the lengths people go to defend anything Apple says or does...even when it's deflecting the fact they make ridiculous margins on their stuff.

it's not about defending.. it's just about being accurate.

'ridiculous margins' ? what's that, a guess?
the numbers are out there.. or, at least enough numbers to see they're not using insanely or ridiculously higher percentages than anybody else is.

it's more like you should be the one defending your ridiculous margin claim.. again, is that just a guess or can you show the numbers that you're basing the claim on?

 

[ThisIsNotMe]

It's not free but it's not a lot for Apple since they sell a lot of the same products. And yes I caculated it from the R&D numbers Apple actually gives.

Anyway have the numbers for the watch been posted anywhere yet?

Its because Apple actually invests in R&D with an actual product in mind where as companies like Google invest in R&D in vapor-wear and as a form of non-currency based salary.

 

[Edd.Dantes]

I've never seen one that is anywhere close to being accurate," Cook said. "The actual costs are much cheaper."

Fixed it for you.

You don't have a 700+ billion dollar cap and sell expensive products. Tim Cook is the bean counter. Devices are actually cheaper. That's exactly how I read it.

People, they don't sell enough hardware/software to become the most valued company, by making razor thin margins. They make HUGE margins.

ETA: Why is everyone claiming R&D so much? Apple makes almost nothing. They hand suppliers specifications or suppliers hand them "our capabilities" and they design around that. They have a small hardware portfolio that works around standards. Some parts are custom made but most are not. They design the shell of an iPhone... Most all other components are tailored to fit but not custom. iPhones are mostly made up of Samsung, LG, Sharp, etc.

Now if everyone was saying "IP protection and patents.", that, I would agree with.

There's a reason they are the most valuable company... They have super-low overhead and don't really own or make anything. They have tons of patents and buy companies, not sure how this is magical. They should be doing more with the money they have. I've been saying this for years. A for-profit company shouldn't give money back to stockholders, it should be the best company it can be. Don't sit on 150+ billion in cash. Change the world. Something Apple hasn't done since 2007. They've milked the iPhone, which garnered in the "Apple Inc." change, and have done nothing amazing since. iPad not mentioned because tablets had been around 10+ years before it and did nothing but increase the size of the iPhone screen.

 

[kdarling]

For as long as I can remember, people seem to think R&D is free.

People also usually think it's more than it is.

For example, people often talk about billions spent to create the iPhone, when it's been leaked that it only cost about $150 million... and $100 million of that was in standard cellular testing labs that every manufacturer has.

And a big one: manufacturing

Apple doesn't manufacture iPhone, iPad or Watch parts. Others do, and then Apple pays someone to assemble those parts.

Assembly cost for iPhones, for instance, is now estimated to be about $8 per unit.

Especially when it comes to paying cellular royalties that are based on device wholesale, this method of having someone else be the manufacturer helps Apple a lot. Insiders say that Apple pays some royalties based only on the ~$240 price that Foxconn charges them per boxed phone.

(Cook) went on to say that the Apple Watch's functionality is "absolutely incredible" with a lot of new features and innovative technology.

Always with the "incredible". Somebody please send Cook a thesaurus!

 

[paradox00]

This is not a direct factor in the cost of their devices. Why? Because Apple doesn't manufacture any of the parts in their devices. The cost they pay for components that are manufactured for them would have the manufacturing costs built into the price of the component.

It's a common misconception that there is such a thing as an "Apple part". There are parts that Apple has manufactured by other companies that meet their specific quality and performance standards, but there is no such thing as an "Apple part".

Yes, others produce "Apple parts", yes Apple pays them for them, but you're dead wrong that the cost to manufacture doesn't directly impact Apple. They throw billions into expanding factories and purchasing specialized equipment to be used exclusively to produce Apple products. Apple also pre-purchases huge volumes of parts that take a long time to see the cost savings kick in.

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Fixed it for you.

You don't have a 700+ billion dollar cap and sell expensive products. Tim Cook is the bean counter. Devices are actually cheaper. That's exactly how I read it.

People, they don't sell enough hardware/software to become the most valued company, by making razor thin margins. They make HUGE margins.

You do realize their gross margin is reported in their earnings right? Simple math would tell you that they would be much higher if total cost was lower that the component cost estimates we see.

 

[jcmeyer5]

Since Tim Cook took the time to address it, you know it isn't higher than what is estimated, and may well be lower

 

[Rogifan]

So because Apple wasn't the first to do a smartwatch there's no R&D associated with Apple Watch?

 

[Edd.Dantes]

You do realize their gross margin is reported in their earnings right? Simple math would tell you that they would be much higher if total cost was lower that the component cost estimates we see.

What are they?

 

[johnnyturbouk]

$200 billion in the bank, $60+ billion a year in profit. Yep, definitely low margins.

lol, exactly what I thought. Although, did you factor in the cost of the magical experience? Priceless!

 

[flat five]

What are they?

gross margins are ~38%
http://www.apple.com/pr/library/2014/10/20Apple-Reports-Fourth-Quarter-Results.html

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lol, exactly what I thought. Although, did you factor in the cost of the magical experience? Priceless!

you say that in jest but you're just as much a sucker as the rest of us.

 

[Pilgrim1099]

Always with the "incredible". Somebody please send Cook a thesaurus!

With such fluff talk he makes, he needs to be thrown out the window. Now.

 

[fertilized-egg]

$200 billion in the bank, $60+ billion a year in profit. Yep, definitely low margins.

And sometimes defend no matter what. Not to mention that the article states Apple products, not just the watch.

This article isn't just about the Apple watch. Apple makes huge margins. Fact. How do you find that to be a ridiculous statement?

What is there to defend? You made a completely false implication.

Yes AppleScruff1's statement is a ridiculous straw man argument. Nowhere in the the article "low" margin is mentioned. It's stated "Watch margins are lower than the company average". That means nothing about the company margin being low, just that 1) Apple Watch margin is lower than other products' 2) Analysts do not know all the components in the COGS. Which isn't a shock to anyone given no one knows what exactly yields on these things are, let alone other amortized costs.

I don't know how he got the idea that anyone in the article implied the margin is "low". But it's par for the course.

Having said that, If Apple Watch has a lower margin than Apple's average figure, that's actually pretty low number for the industry. It's lower than pretty much all other watchmakers and even some smartphone makers' known margins.

 

[Rogifan]

This is not a direct factor in the cost of their devices. Why? Because Apple doesn't manufacture any of the parts in their devices. The cost they pay for components that are manufactured for them would have the manufacturing costs built into the price of the component.

It's a common misconception that there is such a thing as an "Apple part". There are parts that Apple has manufactured by other companies that meet their specific quality and performance standards, but there is no such thing as an "Apple part".

So who's part is this?

 

[Edd.Dantes]

http://www.statista.com/statistics/267728/apples-net-income-since-2005/

I'd say around 2010-2011, Apple's R&D was fully paid for.

A company, such as Apple, should be... I stress this again... Changing the world!!!

They are now netting 30-40%, Jesus! They put out an over-priced watch #

Tim Cook is riding a wave. If they didn't have the money in the bank, this would be John Sculley, part 2.

They release 2015 MacBooks that are the speed of what, 2011 models, and have virtually no ports? They might as well be iPads with keyboard covers. Then they release a watch? Something that many people keep in the drawer because they have an iPhone... Or they wear a watch and won't buy one from a company that is notorious for constant iterations that separate them from their money.

Where is the next "iPod"... The one device that turned the company around...

They have more money than they have ever had and technology is more advanced than it has ever been but all I hear from Cupertino is crickets. They want to make tons of money and give none of that back in the form of awe inspiring products. Elon Musk is the guy I want running Apple!

 

[Rogifan]

What are they?

40.8%

http://www.apple.com/pr/library/2015/04/27Apple-Reports-Record-Second-Quarter-Results.html

 

[Edd.Dantes]

So who's part is this?

Apple's Solidworks design, Foxconn made product. Apple owns it, once they have PAID Foxconn for it.

 

[AppleScruff1]

Yes AppleScruff1's statement is a ridiculous straw man argument. Nowhere in the the article "low" margin is mentioned. It's stated "Watch margins are lower than the company average". That means nothing about the company margin being low, just that 1) Apple Watch margin is lower than other products' 2) Analysts do not know all the components in the COGS. Which isn't a shock to anyone given no one knows what exactly yields on these things are, let alone other amortized costs.

I don't know how he got the idea that anyone in the article implied the margin is "low". But it's par for the course.

Having said that, If Apple Watch has a lower margin than Apple's average figure, that's actually pretty low number for the industry. It's lower than pretty much all other watchmakers and even some smartphone makers' known margins.

And your reply is par for the course too. I'm sure Tim has no idea how much the watch costs Apple to produce as he stated in the article.

 

[flat five]

ETA: Why is everyone claiming R&D so much? Apple makes almost nothing. They hand suppliers specifications or suppliers hand them "our capabilities" and they design around that. They have a small hardware portfolio that works around standards. Some parts are custom made but most are not. They design the shell of an iPhone... Most all other components are tailored to fit but not custom.

i do custom design/build and your statement would borderline on being insulting if i felt you knew what you were talking about. or if i weren't possibly misinterpreting what you've said.

but it sounds like you're saying i charge way too much for design of my projects since i use sheets of 4x8 plywood and standard dimensional lumber (2x6 etc..)

no 'real' R&D involved.. the lumber manufacturers already handled that side of things.


=================

Apple's Solidworks design, Foxconn made product. Apple owns it, once they have PAID Foxconn for it.

do you honestly believe, at any stage of the process, that foxconn owns that thing?

i'm leaning towards the 'you don't know what you're talking about' side as opposed to the 'i may be misinterpreting you' side.

 

[perezr10]

People also usually think it's more than it is.

For example, people often talk about billions spent to create the iPhone, when it's been leaked that it only cost about $150 million... and $100 million of that was in standard cellular testing labs that every manufacturer has.



Apple doesn't manufacture iPhone, iPad or Watch parts. Others do, and then Apple pays someone to assemble those parts.

Assembly cost for iPhones, for instance, is now estimated to be about $8 per unit.

Especially when it comes to paying cellular royalties that are based on device wholesale, this method of having someone else be the manufacturer helps Apple a lot. Insiders say that Apple pays some royalties based only on the ~$240 price that Foxconn charges them per boxed phone.



Always with the "incredible". Somebody please send Cook a thesaurus!

It's true that Apple hires out the manufacturing but don't forget that Apple remains the "general contractor". Apple still has to have people on the payroll for scheduling, demand planning, logistics, quality control etc. They still have significant overhead spread over all the material costs. Also, it is common in many material purchasing agreements for the ODM (manufacturing agent) to not own the tooling but pass the cost on to the brand. This would mean that Apple would have to pay for the tooling and directly absorb monthly depreciation. I don't think anyone truly knows the inside details of how Apple handles these types of agreements and they would be specific to each company anyway.

Apple reports their Gross Margin. That is known. If someone makes a reasonable guesstimate as to the material and labor then by definition the rest is OVERHEAD. And it must be huge.

 

[KALLT]

Its because Apple actually invests in R&D with an actual product in mind where as companies like Google invest in R&D in vapor-wear and as a form of non-currency based salary.

Nah, the difference is that Apple rarely discloses its research unless it actually releases a product, whereas Google shares a bit more of it during the development process. The sheer amount of patent applications alone, many of which are never realised, is enough to refute your claim.

 

[flat five]

@mod. delete please
thnks

 

[PinkyMacGodess]

For as long as I can remember, people seem to think R&D is free.

Those are the same people that are probably behind the push to kill basic research, which was often paid for by the government back in the birth of the internet days.

The one thing that, to my thinking, separates this country from most of the other countries is that their governments often do fund basic research and even comp much of the more advanced research as well.

Research is one of those things that you can't see, and the thing about basic research is that a lot of it ends in a dark alley with nowhere to go but back the way you came. Corporations are usually about instant profit, and basic research, being 'basic', isn't known to be very profitable, but in the long run can be VERY profitable.

It's amazing to think about the Zerox PARC center. If they had leveraged everything they came up with, everything that they developed, they would OWN the industry...

 

[Rogifan]

Apple's Solidworks design, Foxconn made product. Apple owns it, once they have PAID Foxconn for it.

Foxconn manufactures to Apple's specifications using equipment and materials paid for by Apple.

 

[clibinarius]

When it comes to Samsung that is a reality. All they gotta do is tune into the Apple Keynotes and start copying

Yeah, as that's where they got the bigger screens from, or NFC support and ideas, or earlier adaptation of LTE, etc.;

No matter how much you like it, Samsung innovates plenty. As Jobs said..."Great artists steal." Apple is great at taking existing technologies and making them marketable and well used. I'm typing this on a Macbook Air, I am waiting for my steel Apple Watch, and I viewed this thread on my iPhone 6 plus. My iPad is obsolete. I have an unused Core 2 Duo Blackbook, and another old Macbook Air somewhere. I am a fanboy. I will openly admit it. But that said, I can tell you how much Apple steals. Or improves. Depends how you want to look at it. Last I checked, iOS's GUI reminds me a lot of Palm OS, and the way you close Apps in iOS 7 is the SAME EXACT WAY AS WEBOS.

This is R&D: Apple, like all other companies, needs to measure competing technologies to see how much it would cost to license, what their liabilities are, etc.

 

[mejsric]

So who's part is this?

Apple just bought it.. Something like.. Wow.. I like it.. Give me 1 million of it.