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The Cost of the iPod
Posted by
Zonk
on Sat Jul 01, 2006 02:06 PM
from the not-such-a-great-secret dept.
from the not-such-a-great-secret dept.
An anonymous reader writes "The New York Times is running an article today entitled Apple's Got a Secret. They discuss the cost behind making the ever-popular iPod ... a secret the company is keeping close to its chest. As a result of the company's signature secrecy and antiquated way of tracking profits, analysts are beginning to question the 'trust me' nature of buying Apple stock." From the article: "Geographic disclosure was adequate when pretty much all Apple sold were computers, Mr. Renck said. But the iPod has changed everything. Sales of Macintosh computers now trail those of iPod, which last year made up 46 percent of revenue. 'Apple clearly has its feet in two separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry,' Mr. Renck said."
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The article underneath is much more interesting! (Score:5, Funny)
SMOOTHIES FOR THE ROAD Why would anyone want a blender powered by a bicycle? "Because human beings love human power," according to the Web site for the Byerley Bicycle Blender, or B3.
Cool!
That was actually surprisingly good article (Score:5, Insightful)
"How about actually doing their job and analyze the company they are covering? What a thought -- actually doing some independent research without the companies giving them all the information on a platter."
He's got a point. It shouldn't be too hard to figure out what an iPod costs to make, within a margin of error, of course.
Re:That was actually surprisingly good article (Score:5, Insightful)
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Re:That was actually surprisingly good article (Score:4, Interesting)
He's got a point. It shouldn't be too hard to figure out what an iPod costs to make, within a margin of error, of course.
That's not the point. Apple is a public company and has a duty to disclose to its' owners what the profit margins are on various products. That's pretty standard. If Apple doesn't disclose the margin of their primary product to their shareholders, I also wouldn't touch the company. In fact, it may even be an SEC violation.
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Re:That was actually surprisingly good article (Score:3, Informative)
Particularly under the "Financial History" tab? I'm not a stock broker, but I would think the annual reports required by the SEC would cover this.
Re:That was actually surprisingly good article (Score:3, Insightful)
Re:That was actually surprisingly good article (Score:3, Informative)
Re:That was actually surprisingly good article (Score:5, Informative)
From the marketwatch articleRenck is complaining for one of two reasons:
It's not really Renck's place to make that conclusion on Apple's behalf.
The determination is between Apple's CFO, Apple's auditing firm, and the SEC.
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Re:That was actually surprisingly good article (Score:5, Insightful)
But it is his place to have all the info possible at his disposal in order to advise his clients though, right?
At the end of the day, whether or not Apple is meeting the requirements for a publicly traded firm is not for Renck or his firm to determine. However, Renck can assert whatever he wants to his clients, as his revenue depends to some degree on the accuracy of his analysis. What it seems like he's saying his ability to assess is hampered by the admitted lack of disclosure, and this is enough to make him skittish about the stock.
His assertion does not seem unreasonable by any measure.
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Re:That was actually surprisingly good article (Score:3, Informative)
Up until they passed a disclosure law a few years back, companies would frequently accidentally or on purpose play favorites by giving some analysts exclusive access to some information. I suppose these analysts would then release the information in a manner that wouldn't cause the stock to dive, maybe by only giving it to their favorite customers. As you might see, this is bordering on insider trading, which is illegal.
In the olden days, an analyst would contact
Re:That would be Regulation FD (Score:4, Informative)
Here's some links:
SEC's Fact Sheet:http://www.sec.gov/news/extra/seldsfct.htm [sec.gov]
How one corporation explains it on its website:http://www.investor.jnj.com/guidelines.cf
How Wikipedia describes it:http://en.wikipedia.org/wiki/Regulation_FD [wikipedia.org]
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tripe! (Score:3, Insightful)
Analysts are there to guide investors on what is value, what is growth. Apple is clearly not "value". Analysts that said "sell" Apple stock in 2004 and kept saying it stubbornly in the face of such performance should be out of work.
Re:That was actually surprisingly good article (Score:4, Insightful)
It's not really Renck's place to make that conclusion on Apple's behalf.
The determination is between Apple's CFO, Apple's auditing firm, and the SEC.
You are incorrect on two counts. First, Renck has the right to try to influence the decision of those people by publishing his opinion. It makes no sense to say that the only people who should speak of a decision are those directly involved. According to that logic, online commentators should not discuss Hamden because it is essentially between the Bush administration, the Supreme Court and a bunch of foreigners.
Second, the aggrieved party here is the shareholders, not the SEC, the auditing firm or the CFO. Renck is telling shareholders that they are taking on extra risk investing in a company that does not use transparent accounting. Not only is that his right, it is his job. He never claimed that they were doing something illegal. You're conflating the argument of an analyst (that Apple is a risky investment) and that of a Slashdot poster (that Apple may be breaking the law). Someone on Slashdot postulated that PERHAPS it was illegal. He also has a right to express his opinion.
So do I: it is totally ridiculous to say that Apple's 5% marketshare in PCs, it's much larger market share in music playing devices and its still larger market share in online music have "essentially the same future prospects." For example, the online music business is very vulnerable to changes in copyright law. The handheld business is potentially vulnerable to growth in MP3-playing cell phones (as someone else noted). And the computer business is vulnerable primarily to marginalization or dropping profit margins due to competition from Dell and other commodity PC vendors. I don't know enough about disclosure law to claim that Apple is breaking it, but I do know enough about Apple's business to say that one can easily imagine one of Apple's businesses going kaput while another soars and vice versa.
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Re:That was actually surprisingly good article (Score:3, Informative)
-jcr
Re:That was actually surprisingly good article (Score:3, Insightful)
You're right up to this point...
on various products.
Apple's fiduciary duty is to increase shareholder value, and tipping their hand to the competition by disclosing every trade secret that some twat on Wall Street thinks they should would be a bloody stupid thing to do.
-jcr
Re:That was actually surprisingly good article (Score:4, Informative)
I think it's right for analysts to draw attention to this, as a warning to investors that they are taking a gamble on opaque accounting; on the other hand, there is an implication to the analysis that the iPod is carrying an ailing computer business which I think is misleading - he is particular wrong in one major respect :
'Apple clearly has its feet in two separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry'
Besides lumping two things together that most companies keep separate (computer manufacturing and software creation), it also utterly fails to comprehend that it has been Apple's ability to develop it's own software than has resulted in it's success in the consumer electronics business. Most CE firms don't have that level of software engineering in-house (many don't have hardware engineering either, but that has traditionally been where companies like Toshiba or Sony have invested their R&D)
As an example - I've just bought a new Fuji camera (on grounds of it being able to do reasonable ISO 3200 shots). Nice bit of hardware - you can even go to manual mode and set your own exposure or aperture settings, which isn't bad for a consumer level camera. The interface on the camera is good - a really nice touch I noticed was that in just doesn't display any of the advanced options if you have the camera set in 'Auto' mode, set my a manual dial on top. Nice solution to balancing functionality and simplicity.
Guess what happened when I tried to install the supplied software - not only did it fail to install, the installer completely crashed the system (XP), resulting in a hard-reset (causing a boot-up disk scan).I can't even comment on the quality of the software because I couldn't install it. That is my 'out of the box' experience.
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Re:That was actually surprisingly good article (Score:3, Insightful)
Apple stock holders need to know the overall costs and profits of the Apple iPod business so that they can see how much its running. Why do they need to know the production cost of an individual iPod? So they can point out ways to reduce costs? Stockholders are NOT managers.
If you have doubts that a company the size of Apple is incapable of optimizing the production costs of its product
Or maybe not. (Score:4, Insightful)
'Apple clearly has its feet in two separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry,' Mr. Renck said.
You can say that again! (Score:5, Funny)
'Apple clearly has its feet in three separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry... and the music download industy.'
'Apple clearly has its feet in four separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry, and the music download industry... '
Re:You can say that again! (Score:5, Funny)
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Re:You can say that again! (Score:4, Funny)
YES! Put the Apple accountant in.... the comfy chair!
That will make him talk.
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Re:You can say that again! (Score:2, Funny)
Two Business Models: One for the rich and one ... (Score:5, Insightful)
Yeah, it's not like iPods ("consumer electronics") would ever interact with computer hardware or software in any way. It's also not like iPods themselves are computer hardware that run computer software...
Re:Two Business Models: One for the rich and one . (Score:5, Insightful)
The fact that they're technically similar doesn't mean they are similar businesses in similar markets. Clearly the Mac is in a very different kind of market to the iPod, as evidenced by one having like 3% market share and one having 50%+ ... and that's what matters to the shareholders.
Shareholders should really have this information; the iPod is going to start facing tough competition from the mobile phone manufacturers soon, and knowing how much they could slash prices by to maintain market share is important. I myself use my phone rather than a dedicated mp3 player these days .... the iPod is probably a better music playing device but it's not that much better, and it's not worth it to me to carry about two devices when one + a pair of headphones is nearly as good. And the phones will only improve.
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Market != Business Model (Score:3, Insightful)
Re:Market != Business Model (Score:3, Informative)
We were referring to business models, not markets. It is possible to use the same business model to service different markets. For example, the markets for computer programming books, popular psychology books, fashion magazines, and soft-core pornography is quite different, yet all these can be delivered to the consumer using the same business
Kinda Obvious. (Score:5, Insightful)
I had this problem myself when I was selling speedstream DSL modems. I had purchased a gros (144) for 9$ each. I made the mistake of telling people what I had paid for them, and everyone wanted them for ~10$. They were selling for 120$ retail at the time, or 10$/mth with the ISP. No one wanted to pay 50$, even though it was a great deal, because they knew what I had paid for them, and how much profit I was making. I ended up only breaking even, because word got around what my profit was on each sale, and everyone wanted to bargain me down to what I had paid.
The fact that apple doesn't want to tell what they cost to produce makes me think that their margins are pretty obscene, and they know it would make people angry to know just how much they're pocketing.
Re:Kinda Obvious. (Score:3, Interesting)
I think the reason why people want to know how much money they are making is because they want to know how to price the Apple stock. Right now the PE is about 30, and the question is how much more will this company grow. Personally I think Apple stock is a dud because Apple is nearing its peak.
Apple is a funny company that has highs and lows. Right now they are on a high, but with the introduction of the Intel chip they are sliding down (eg computers cost more, quality pr
Re:Kinda Obvious. (Score:2)
Re:Kinda Obvious. (Score:2)
Very good point. And if I might add, people knowing how much Apple is pocketing would not be in the best interest of an investor as Apple's revenue would be injured and most likely their stock as well.
Re:Kinda Obvious. (Score:3, Insightful)
If people know how much money you're making on a sale, then they feel bad about paying for it. They see the value of the item as what it actually costs to produce, not what it is being sold for. .e.g If my friend gets a great deal on a bucket of apples (say 5$), and offers to sell them to me at 10$ a bucket.. I won't feel too happy about that, knowing full well he is taking advantage of and making profit off my skin. If I don't know how much he paid, then I assume he is keeping my best interest in mind, an
Re:Kinda Obvious. (Score:3, Informative)
Apple has quarterly financial meetings for their shareholders. They always mention their product-by-product profit margins, and they're almost always around 25-30%. Lower (25%) on Mac Minis and iPods, and higher (30%, and even as high as 35% sometimes) on high-end systems like MacBook Pros and G5 towers. Soft
Computers now their own classification? (Score:5, Interesting)
Computers (and peripherals) are Consumer Electronics. You see inside that tiny Consumer Electronic Ipod thingy your kids have there is a tiny computer running tiny software. Ipods are specifically a peripheral to a computer, be it Mac or PC. Same business model, Apple makes attractive easy to use consumer electronics. (Covers up Newton>) BTW, why not just link to the artcle three links and two blogs deeep. http://www.marketwatch.com/News/Story/Story.aspx?g uid=%7BEE4732BB-BCFC-49FE-9CA3-6E11FC25122D%7D&sit eid=mktw&dist= [marketwatch.com]
FTA:
Accounting standards, he adds, require that segments generating more than 10% of a company's revenue be broken out by several metrics, including sales, profit and assets. The iPod first passed that threshold in early 2004. Commenting on the issue, in a statement on current accounting and disclosure issues, the SEC staff has said it believes segment information should be broken out unless "separate reporting of segment information will not add significantly to an investor's understanding of an enterprise [because] its operating segments have characteristics so similar that they can be expected to have essentially the same future prospects." Renck goes so far as to say he believes Apple should do a separate breakout for computers, iPods, music-related products, peripherals and software and service. "Their business has changed and they should be doing it differently," he says. "Transparency is what everyone wants, and they don't want to be transparent."
Dude, I want a transparent Ipod too.
Re:Computers now their own classification? (Score:2)
Transparent and nano-sized? Apple'd love to sell those. I mean, if I drop it on the floor, it doesn't matter if it scratches: I'll never find it if it landed two feet away.
Re:Computers now their own classification? (Score:2)
Pills that treat every major disease costs $0.25 (Score:5, Insightful)
R&D costs money. So does good design.
We love Apple (Score:4, Insightful)
It drives me up a wall how this company always gets a free pass on this and other sites. Apple is not the greatest computer company ever. They are certianly not Open Source or even close to it. They make pretty boxes for a lot of cash, and now there boxes are just another PC brand.
Atleast they are built better than Dell, I'll give you that.
Re:We love Apple (Score:2)
What about their ethics? (Score:2)
http://www.macnewsworld.com/story/6C07rmGkmpn1Oe/
It details some of the ethical concerns in Apple's manufacturing, or outsourcing to manufacturers that do this. And then again maybe I'm some bleeding-heart, I dunno.
Hearsay and models (Score:4, Insightful)
Therefore it seems to me a major part of the analyst job is at least to smell check the numbers released a firm, and in reality to generate independent data on major products services. Instead of complaining that Apple is not releasing profit margins, any analyst should be celebrating that Apple is now using mostly off the shelf compenants with widely known acquisition and integration costs. Furthermore, manufacturing costs should not be impossible as these seem to be also widely known in the competative market.
As far as the markets, Apple has for a long time produced solutions. They produced a solution for graphic artists, a solution for home users, etc. This is why the fact that the mac was closed was not a big issue. When one bought a mac, it was a solution. Now apple has found some success with music and video solutions. It is not new becuae it is applying integrated technology, both hardware and software, to solve a problem. Some analyst get confused about solutions becuase they have been raised with MS philosophy of suppling components that others will turn into solutions. Compenents work for some people, but most of us buy a completed car, a completed refrigerator, a completed TV, and don't expect the manufacturer to deny responsibility because a component is made elsewhere.
The only thing that has changed is that computing technology has become consumer technology, not the Apple has all of the sudden become a consumer technology company.
Nothing to See Here... (Score:3, Interesting)
Investors will make decisions to buy or sell Apple stock based on a number of factors, the least of which revolve around gross margin disclosures to investors or just how much information Apple executives are willing to share outside the company. Analysts can and will examine, regurgitate and then pontificate about the most minute information available on a company, but the only meaningful question investors should have about buying or selling Apple stock is, "Will I make money if I buy this stock?" or, "Will I make more money if I sell this stock?" It really is that simple, and it doesn't take an analyst to figure it out.
What analysts may know or not know about Apple's business is secondary and, in most cases, immaterial to calculating the profitability of owning Apple stock. If you trust that Apple's management team knows what they're doing, than buy the stock, even if the executives won't tell analysts how much money Apple makes every time an iPod is sold. If you think Apple is hiding crucial information that affects your own profitability as a stockholder, than your best move is to unload any Apple shares you currently have and not to buy any more. Stock tips from the New York Times are worth about as much as you've paid for them, and it shouldn't take a rocket scientist with reams of mathematical proofs to demonstrate such an obvious fact.
What/who is going on...? (Score:4, Interesting)
Re:What/who is going on...? (Score:3, Interesting)
Creative has been trying to play hardball lately.
The Recording and Movie industry aren't happy with Apple's success.
Many in the free software crowd don't see Apple as much better than Microsoft.
I'm sure SCO wants a piece of the action for the Unix-derived OS X.
This is largely business as usual for any American company that can make a headline.
McDonalds is evil... Burger King
Re:What/who is going on...? (Score:3, Interesting)
Re:economic model and pressures on governments (Score:2)
Or you could just go to PirateBay with your friends, but you wouldn't get the cool iTunes store interface. Your loss.
And dig this! The RIAA has been bullying kids and grandmothers! Astounding!
Re:economic model and pressures on governments (Score:2)
Ok, you are obviously not from the US or the UK- most likely you are from France. Frane has enough problems on its own. Trying to villify the US (while satisfying) does not accomplish anything in France, where you work, live and will spend your life. Concentrate on that.
I heard that the French Government is corrupt. I won't say to what point, but pensez-le avant ouvrant la bouche. Tout le monde ont problems, et vous jugez des autres pays trop rapidement.
"Faites atten
Re:What secret? (Score:3, Informative)
Re:What secret? (Score:3, Insightful)
When you release too much information, everybody on the Street decides they can play Monday-morning quarterback, and tear you apart with second-guessing.
What Apple is basically saying, by only releasing the minimum amount of information is, "we're going to run this business as best we know how, and you can trust us or not, based on our past performance." Some people -- a lot of people, apparently -- are willing to trust them and buy the stock. Some people aren't; which is fine. This guy apparently fal
Re:Apple shifting focus (Score:3, Insightful)
Every DVD player I've used to date still has a shitty interface. If Apple came up with a DVD player with an interface as good as the iPod's, I'd buy it in a heartbeat. Throw in some computer capabilities, like automatic detection and playback from streaming sources courtesty of Rendezvous, I'd even buy my friends some.
which I think has been their greatest failure to date.
If by failur
Re:Dev++ (Score:4, Insightful)
I know this is a slight oversimplification, and bound to get me modded down, but just how innovative are iPods, really?
BW screen? I know, we'll make the screen colour.
10GB hard drive? I know, we'll make the hard drive 20, 30, 40, 60GB.
The iPod is too big? We'll make a smaller one with a 1.8" HDD, not a 2.5".
The iPod mini is too big? We could use these CF card and flash memory chips that the digital camera industry have turned into commodities and make one based on that.
Music is boring! We'll add video support.
These aren't "innovations" in any sense of the word. It's systematic small tweaks and mods - don't read me as saying they've not been getting better, they have - but it's not the "OMG!!! APPLE HAVE REVOLUTIONISED THE INDUSTRY BY GOING FROM A 40 TO A 60 GIG DRIVE!" that some people like to believe.
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