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

[flat five]

What you just said equates to higher profit margins that their competitors, which is exactly what I was eluding to.

not necessarily..

profit margins are a percentage..

if you spend $100 to get your product on a shelf with a 40% margin, your item will cost $140 and you gross $40..

if i spend $140 to get my product on a shelf with a 40% margin, my item will cost $196 and i gross $56.

same margin but i make more money..
the trick is being able to sell the higher priced item to the customer.. and apple is one of the best* at doing that.

(*just to be clear.. i'm not necessarily using 'best' as positive word.. i personally think e v e r y t h i n g being fed to consumers via corporations is a scam/ripoff in some form or another )


[edit] those numbers are just for sake of conversation btw.. the items will actually cost more than that to the consumer.. retailer profit etc.[/edit]

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Um, how about looking at their yearly profits compared to revenue and amount of cash on hand.....that's a pretty clear indicator that they are pulling way more profitable than other CE companies or any of the industries I listed.

already did that.. here -->

https://forums.macrumors.com/posts/21151158/

 

[skratch77]

How is there no crazy margins when the 16k gold watch is nothing more then a regular iwatch with 800-900 worth of gold added to it and what justifies the huge price premium over the regular watch?

Or the 300 dollar price tag on 128gb when it cost them a few bucks more over the 64gb chips.

Or the 300 dollar price tag on ssds over the same drives on pcs?

 

[clibinarius]

Come on, calling bigger screen innovation... Are you serious? Even NFC? NFC were already used in payment many years before. Your whole thing is kind of funny! Samsung is good at innovating in the Fab area, they are excellent at that; but their "innovations" on the phone are quasi nonexistent.

And what are Apple's "innovations?" GUI...that was there. Grid with apps? Nope...Hmm...Safari? Hardly.

The industry was moving in that direction. Apple was there first and showed where it should go. But there was nothing new there beyond combining existing techs and ideas. That's innovation, and Apple did it well. But...compared to what Samsung does? You're essentially saying, once someone does something, they have bragging rights forever? Then fine. Apple ripped off HTC with the bigger screen. But what are these "innovations" you talk about? Answer: iOS is a blatant ripoff of WebOS and PalmOS. Sorry. Perhaps you never used them. On top of my iPad and iPhone, I do have an old HP Pixi and a Touchpad. Trust me on this: There's nothing unique, especially post Scott Forstall, about it anymore. It seems since his axing, Apple's just shamelessly stolen everything he left out of iOS from WebOS.

Which isn't a problem. I love WebOS, and it is moribund. So good on Apple for getting away with it. But until you tell me how exactly Apple innovates when you probably haven't used WebOS or Palm OS, I don't think I need to have you tell me my opinions are "funny" in light of some things. https://www.youtube.com/watch?v=CW0DUg63lqU

 

[Rogifan]

Apple doesn't own the equipment. Not sure where you got this idea from? Foxconn owns the equipment. Mainly, a bleep-ton of CNC machines and probably some casting and injection molding machines. You won't find this equipment on Apple's inventory list. I'm sure they help pay for it but they don't own it, not outright. I don't mind being corrected, if you have a citation.

Here's what Apple reported in their 10Q, fiscal quarter ending December 2014 (this quarter isn't available yet).


http://www.sec.gov/Archives/edgar/data/320193/000119312515023697/d835533d10q.htm

Other Obligations

In addition to the commitments mentioned above, the Company had other off-balance sheet obligations of $3.9 billion as of December 27, 2014, that were comprised of commitments to acquire capital assets, including product tooling and manufacturing process equipment, and commitments related to advertising, R&D, Internet and telecommunications services, energy and other obligations.

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How is there no crazy margins when the 16k gold watch is nothing more then a regular iwatch with 800-900 worth of gold added to it and what justifies the huge price premium over the regular watch?

Or the 300 dollar price tag on 128gb when it cost them a few bucks more over the 64gb chips.

Or the 300 dollar price tag on ssds over the same drives on pcs?

Do you have sources for these claims?

 

[flat five]

But until you tell me how exactly Apple innovates

they buy innovative tech companies which are small enough to move quickly.. package that tech in some of the world's leading industrial designs (arguable).. develop software that's relatively easy to use and doesn't cause too many problems.. sprinkle some sweet marketing on top

=

apple

--------
maybe not the most innovating tech companies out there.. but certainly one of the most innovative corporations as a whole.

 

[Edd.Dantes]

I'm really interested to know why the stainless steel band costs $450?
That's just insulting.
the moment I heard that price,I lost my (little) interest in Apple watch altogether.

Because it has an Apple tax. Some Apple products are nice but non warrant that sort of cost. People need to realize that this is Chinese stainless, say what you will but it's not as nice as old American stainless or European stainless. You can buy a nice Swiss made watch for the cost of just the band that Apple is charging.

P.T. Barnum comes to mind.

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Here's what Apple reported in their 10Q, fiscal quarter ending December 2014 (this quarter isn't available yet).


http://www.sec.gov/Archives/edgar/data/320193/000119312515023697/d835533d10q.htm


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Do you have sources for these claims?

Ok, I will concede to your citation. I didn't read the report but I believe it. I'm sure Foxconn/Pegatron has quite a bit of their own equipment though.

Thanks for the source!

 

[Edd.Dantes]

And what are Apple's "innovations?" GUI...that was there. Grid with apps? Nope...Hmm...Safari? Hardly.

The industry was moving in that direction. Apple was there first and showed where it should go. But there was nothing new there beyond combining existing techs and ideas. That's innovation, and Apple did it well. But...compared to what Samsung does? You're essentially saying, once someone does something, they have bragging rights forever? Then fine. Apple ripped off HTC with the bigger screen. But what are these "innovations" you talk about? Answer: iOS is a blatant ripoff of WebOS and PalmOS. Sorry. Perhaps you never used them. On top of my iPad and iPhone, I do have an old HP Pixi and a Touchpad. Trust me on this: There's nothing unique, especially post Scott Forstall, about it anymore. It seems since his axing, Apple's just shamelessly stolen everything he left out of iOS from WebOS.

Which isn't a problem. I love WebOS, and it is moribund. So good on Apple for getting away with it. But until you tell me how exactly Apple innovates when you probably haven't used WebOS or Palm OS, I don't think I need to have you tell me my opinions are "funny" in light of some things. https://www.youtube.com/watch?v=CW0DUg63lqU

Most Apple fanatics rarely stray from pro-Mac websites. No way they could know that the iPhone 6 & 6 Plus were blatant ripoffs of the HTC One but with heavy radii on the corners. I mean it is the most obvious thing I have ever seen. They didn't even steal the best feature, which was speakers. The HTC One is still the sexier phone. If you argue this, you have never held or used one. And now that they have tons of lawyers, patents (honest and tons purchased) they can get away with almost anything. When they get busted, they will just pay the fee and keep on going. Better to ask forgiveness, than permission.

And iOS is just a modified version of OSX that is just BSD with an encrypted layer #

People in most areas are just plain afraid to open up Apple's products. By that, I mean, make them open, like their core really is. Apple left the OSX86 community alone because it yielded some OS sales and more software sales... Ultimately, people liked the OS and would be more likely to buy Macs, than if Apple had mounted a full assault against the movement. They could have locked it down but they were playing the long game.

Something that is hard to find, via Google, is that a guy (team?) managed to fool with the iOS kernel and get the OS running on Android (generic) hardware. They never said, but everyone assumed, they got hit hard with a cease and desist from Apple. I would love for that project to be started back up because Apple cripples mobile hardware. I still cannot figure out why it hasn't happened. It's been 8 years. I love iOS (mainly iOS 7, as iOS 8 is trash). I don't know why the Chinese or Russians haven't taken the time to open iOS up. It can't be that hard. Just don't brag about who you are and don't get caught doing it. Once it is on the interwebz, Apple can't stop it. People will be using much cheaper hardware to get a better iOS experience that, even they, can't offer. And no, they can't offer the best iOS experience.

 

[KPOM]

And what are Apple's "innovations?" GUI...that was there. Grid with apps? Nope...Hmm...Safari? Hardly.

The industry was moving in that direction. Apple was there first and showed where it should go. But there was nothing new there beyond combining existing techs and ideas. That's innovation, and Apple did it well. But...compared to what Samsung does? You're essentially saying, once someone does something, they have bragging rights forever? Then fine. Apple ripped off HTC with the bigger screen. But what are these "innovations" you talk about? Answer: iOS is a blatant ripoff of WebOS and PalmOS. Sorry. Perhaps you never used them. On top of my iPad and iPhone, I do have an old HP Pixi and a Touchpad. Trust me on this: There's nothing unique, especially post Scott Forstall, about it anymore. It seems since his axing, Apple's just shamelessly stolen everything he left out of iOS from WebOS.

Which isn't a problem. I love WebOS, and it is moribund. So good on Apple for getting away with it. But until you tell me how exactly Apple innovates when you probably haven't used WebOS or Palm OS, I don't think I need to have you tell me my opinions are "funny" in light of some things. https://www.youtube.com/watch?v=CW0DUg63lqU

Sure. It's not like Apple did anything like release a 64-bit processor or fingerprint sensor that took Samsung 18 months to match.

 

[JAT]

Most Apple fanatics rarely stray from pro-Mac websites. No way they could know that the iPhone 6 & 6 Plus were blatant ripoffs of the HTC One but with heavy radii on the corners.

That's pretty ridiculous. I happen to own both a 6 and a One. Other than being generally smartphone-shaped with glass and metal in them, there are almost no similarities.

And geez, about the rest of your post....people have been jailbreaking iOS for years. Since before there was an App Store. What do you mean they are afraid to open it up.

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Realistically, Samsung sells about the same number phones worldwide but Apple is more profitable. Samsung has the added benefit of manufacturing much of their own components. So I very highly doubt their margins are the same as every other company.

That's because Samsung discounts their phones, Apple does not. The difference is not in the cost, but in the revenue.

 

[uid15]

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

How about tooling, and manufacturing the machines that make the tooling machines? Lest we forget, Apple have to spend TENS OF BILLIONS on custom CNC and mass production precision machining alone. Oh, yeah - people think all that is free, the same people who've never been anywhere near a commerical manufacturing project. Who'd be the first ones to complain if the long provided and expected tolerances and fit/finish of Apple products didn't meet the standard they are reknowned for? Oh yes... US.

Hang on... wait; what about all the data centres and connections to them which provide Siri, FaceTime and iMessage FREE of charge? They cost nothing to build or maintain? Ah, righty ho then.

Realists... pffft. bah!

 

[greg555]

For as long as I can remember, people seem to think that R&D costs are somehow included in the gross margin.

No. Gross margin is what allows R&D (and marketing, and Tim Cook's salary, and other non-manufacturing expenditures) to be paid. Gross margin is price minus manufacturing & parts cost.

So if Apple sells 20 million Watches at an average GM of $150, that's $3 billion to repay the R&D and other non-manufacturing costs, most of which were speculatively expended well before the first Watch even shipped.

Finally, someone who understands gross margins.

 

[IbisDoc]

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

Yeah, the R&D to take a $20 memory chip and insert it the exact same way as a lesser memory chip, and charge the customer an additional $100, is immeasurable. Has nothing to do with profit margin. Great point.

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I'm really interested to know why the stainless steel band costs $450?
That's just insulting.
the moment I heard that price,I lost my (little) interest in Apple watch altogether.

R&D on stainless steel.

 

[OtherJesus]

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".

Who do you think designed and paid for the machines and processes that manufacture the actual finished devices?

 

[JAT]

Fixed it for you.

You know, you claim to understand costs, but you've ignored the simple math on public documents and just mouthed off, instead. Pick your source for this, apple.com, bloomberg.com, finance.yahoo.com, etc.

iPhone
iSuppli cost estimate: $199
Price: $649
Supposed margin for rumor site click bait: 69%

Apple filings
FY14 margin: 39%

And the iPhone is a HUGE portion of their profit, 56% of sales. Its margin must be near 39 or it would have swayed the total company margin somewhere else.

 

[Edd.Dantes]

Sure. It's not like Apple did anything like release a 64-bit processor or fingerprint sensor that took Samsung 18 months to match.

That doesn't matter because they rob the whole OS of RAM. 64bit means nothing when the OS "silently" crashes from memory errors. Go read some memory dumps. The thousands that your phone produces each day.

 

[KPOM]

That doesn't matter because they rob the whole OS of RAM. 64bit means nothing when the OS "silently" crashes from memory errors. Go read some memory dumps. The thousands that your phone produces each day.

They still managed to equal performance of quad-core processors running at twice the clock speed. Microsoft somehow managed to convince people that the only advantage of moving to 64-bit was accessing more RAM. ARM v8 was like moving from the Pentium to the Core.

 

[Edd.Dantes]

Actually Apple does own an enormous amount of manufacturing equipment including CNC mills-- tens of thousands of them.

From what I've read, they tend to focus their purchasing on strategic equipment. I'd doubt they own many wave-soldering machines, for example, as those are commonplace and a commodity item. But high-quality/high-throughput CNC machines are strategic to them (and have been since the earliest unibody MacBooks), so they made sure to establish their primacy for them.

Similarly, they have written billion-dollar checks for fabs operated by others, such as Samsung in Texas.

They don't pay for fabs. Fab time and fab priority but never fabs. Contracts are included in that. They don't own any fabs or fav equipment. Those checks are for contracts that secure chips and fab time, so that Samsung can build the fabs and not be left holding the bag.

Apple writes promise checks, not checks for fabrication equipment/property. Why? Because fabs are not their business and will be obsolete in 2-3 years time. Relatively speaking.

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That's pretty ridiculous. I happen to own both a 6 and a One. Other than being generally smartphone-shaped with glass and metal in them, there are almost no similarities.

And geez, about the rest of your post....people have been jailbreaking iOS for years. Since before there was an App Store. What do you mean they are afraid to open it up.

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That's because Samsung discounts their phones, Apple does not. The difference is not in the cost, but in the revenue.

You didn't understand anything I said, so I can't argue further.

 

[KPOM]

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

So what would happen if Foxconn sold that part to Lenovo or Xiaomi?

It's Apple's part. Foxconn is a contractor.

 

[Edd.Dantes]

You know, you claim to understand costs, but you've ignored the simple math on public documents and just mouthed off, instead. Pick your source for this, apple.com, bloomberg.com, finance.yahoo.com, etc.

iPhone
iSuppli cost estimate: $199
Price: $649
Supposed margin for rumor site click bait: 69%

Apple filings
FY14 margin: 39%

And the iPhone is a HUGE portion of their profit, 56% of sales. Its margin must be near 39 or it would have swayed the total company margin somewhere else.

Unless math is broken, that is around 327% profit; not 69%. If iSuppli is correct.

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So what would happen if Foxconn sold that part to Lenovo or Xiaomi?

It's Apple's part. Foxconn is a contractor.

Correct but semantics is lost on the people of this forum.

If they sold that part to someone besides Apple, a lawsuit would ensue but until Apple pays for it, it is Foxconn's part. See how that works? Its's Apple's design but not their physical product until they pay for it. Am I arguing with idiots here?

 

[JAT]

Unless math is broken, that is around 327% profit; not 69%. If iSuppli is correct.

I would indeed have to say your math is broken if you think you can have profit higher than revenue.

Price = revenue
iSuppli = cost (supposedly)

Revenue - cost = margin
Margin / revenue = percent format

Which is 69, dude.

 

[Edd.Dantes]

They still managed to equal performance of quad-core processors running at twice the clock speed. Microsoft somehow managed to convince people that the only advantage of moving to 64-bit was accessing more RAM. ARM v8 was like moving from the Pentium to the Core.

My last post, then I'm done with this thread.

Ok, here's the deal... Apple's Ax cores are HUGE. Their dual cores are almost the exact same size as 2 additional cores. So, Apple's Ax, once they acquired PA Semi, made their duals essential quads. How awesome is that for all the tech world to say how awesome Apple is when they just make their cores larger (take up the same space as quad-core snapdragon/reference). Yes, they are slightly custom cores and run more optimized than reference ARM cores but you can't defy physics. They are ARM cores, with ARM instructions #

Read more about their die size, not just here but other places of your choice: http://tabshowdown.blogspot.com/2013/11/apple-a7-vs-nvidia-tegra-4.html?m=1

And your Pentium to Core argument would work if iOS wasn't in a constant crash cycle due to absolute RAM starving.

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I would indeed have to say your math is broken if you think you can have profit higher than revenue.

Price = revenue
iSuppli = cost (supposedly)

Revenue - cost = margin
Margin / revenue = percent format

Which is 69, dude.

If I make a bar of soap for $199 and sell it to you for $649, what is my profit margin?

 

[JAT]

You didn't understand anything I said, so I can't argue further.

Didn't I. You sure are good at not saying anything useful and then claiming others don't know anything.

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If I make a bar of soap for $199 and sell it to you for $649, what is my profit margin?

$450. Seriously, are you tired or something?

 

[Edd.Dantes]

Didn't I. You sure are good at not saying anything useful and then claiming others don't know anything.

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$450. Seriously, are you tired or something?

If you can't see the antenna lines, aluminum unibody construction of both devices and see the similarity, I can't help you.

On to Jailbreaking, read about the iOS kernel, XNU... I'm not talking about exploits in the code to gain "root-ish" access. I'm talking about the damn kernel!

I said percentage, not monetary numbers. Go beyond your 3rd grade math.

And yes, I know that a lot of that profit goes into R&D and marketing but my number is correct. 69% is wrong.

 

[pacalis]

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

People should think that R&D is a sunk, non-variable cost, is what they should think.

And a big one: manufacturing

Ahem... Apple products are not manufactured. They are designed and assembled.

Anyway, I was thinking the components of this thing were $60-80. Guess, I forgot to consider the variable costs of the anodized unicorn-hoof, nano-particles.

 

[BvizioN]

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

Meanwhile on the planet Earth things are a bit different....