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Businesses The Almighty Buck United States Apple

Tim Cook: What's Good For the US Dollar Is Bad For Apple 270

theodp writes: For years," Charles Erwin Wilson famously said back in the day, "I thought what was good for our country was good for General Motors, and vice versa." That was then. This is now. The Washington Post reports that a strong U.S. dollar is the biggest threat to Apple's business around the world. "The dollar has shot up about 22 percent against a trade-weighted basket of other currencies since the middle of 2014," explains Matt O'Brien. "And in Apple's case, that's meant what would have been $100 of foreign sales in September 2014 was just $85 by the end of 2015. That's not good when you get two-thirds of your revenue overseas." Apple blamed the strength of the dollar compared to other currencies for costing it $5 billion in revenue, "For perspective, that difference is the size of an average Fortune 500 company," quipped CEO Tim Cook.
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Tim Cook: What's Good For the US Dollar Is Bad For Apple

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  • by Anonymous Coward on Thursday January 28, 2016 @10:31AM (#51388243)
  • A strong dollar also reduces manufacturing costs, since manufacturing is overseas. This improves margins. I'm not seeing the issue.

    • Re: (Score:2, Informative)

      by Anonymous Coward

      It doesn't improve margins. The existence of a margin at all means that the absolute effect on sale price is larger than the effect on build cost. The margin as a percentage remains identical, but the absolute value of that margin drops.

    • by monkeyxpress ( 4016725 ) on Thursday January 28, 2016 @10:51AM (#51388387)

      Further Apple doesn't bring its foreign profits home anyway, so what does it care how much its earnings would be in USD? It has Irish bank accounts rammed full of iPhone money (that the nice Irish govt didn't charge them tax on either), while constantly moaning that it can't bring any of that into USD unless Uncle Sam gives a big tax discount.

      To confuse the Apple Troll mods, I'll add that Google is just as bad, and recently got exposed for doing a 'deal' with the UK govt to contribute a little bit towards us plebs.

      • by BronsCon ( 927697 ) <social@bronstrup.com> on Thursday January 28, 2016 @11:16AM (#51388633) Journal

        It has Irish bank accounts rammed full of iPhone money

        And that's why a strong US dollar hurts them; it's not just lost revenue on future sales, its lost value of past revenue.

        while constantly moaning that it can't bring any of that into USD unless Uncle Sam gives a big tax discount.

        And good ol' Uncle Sam's response was to bolster the local economy and boost the value of the US dollar, basically saying "it's better to pay taxes when the exchange rate is high than play stupid games until it tanks".

        I don't say it often, but when I do, I mean it: The US Government made the right call. I'm sure Apple has lost more value in the money they've kept overseas by now than they'd have paid in taxes, hopefully that is a lesson learned.

        • Those foreign profits are stored in Dollars so it has no effect on their stored cash either. Grand Cayman and all the other "hide money offshore" tax havens uses the dollar.

        • by tlhIngan ( 30335 )

          And good ol' Uncle Sam's response was to bolster the local economy and boost the value of the US dollar, basically saying "it's better to pay taxes when the exchange rate is high than play stupid games until it tanks".

          I don't say it often, but when I do, I mean it: The US Government made the right call. I'm sure Apple has lost more value in the money they've kept overseas by now than they'd have paid in taxes, hopefully that is a lesson learned.

          That assumes two things. First, the tax rate to reimpor

          • The real problem is that it makes Apple's goods more expensive. For example, Apple does things in US dollars.

            If that were the case, they'd be claiming to have lost $5b in sales to localized price increases, rather than having lost $5b in revenue from the sales they made. But they're claiming to have lost $5b on the sales they made, not $5b in sales, which indicates that they were not pricing their hardware in that way but, rather, pricing based on what the market would bear. They still made the same number of sales in foreign markets and pulled in the same amount of each respective foreign currency, it's just that

      • Further Apple doesn't bring its foreign profits home anyway, so what does it care how much its earnings would be in USD?

        Profits don't need to be "brought home" to be affected by the USD. Most international companies account everything in USD regardless of where the profits start or where they are ultimately accounted for in taxation terms.

    • Almost any change includes good and bad aspects; ergo, almost any change is an excuse to cry 'poor me' about the pain - and conveniently forget to mention mitigating factors.

    • Sort of.

      People are largely xenophobic, which leads to things like a hatred of all foreign species (a few invasive species are not classified as such because they're seen as native due to traditions involving them, while a *lot* of benign species are labeled invasive for being foreign). One of the more subtle xenophobias is a hatred of a weak local currency in the global market: they want us to be *strong*, stronger than foreigners, and thus have a dollar that commands *many* foreign dollars.

      This has a

    • A strong dollar also reduces manufacturing costs, since manufacturing is overseas. This improves margins. I'm not seeing the issue.

      Foreign exchange is often counter intuitive. In crude terms a strong currency helps importers but hurts exporters. If Apple in this case is the exporter. The stronger the currency gets the less units per dollar Apple's customers can buy. Since 2/3 of iphone sales are international Apple customers are unable to buy as many iPhones for the same amount of money.

      It doesn't have anything really to do with manufacturing costs. Apple's manufacturing costs are mostly contracted well in advance for large volume

  • by RogueyWon ( 735973 ) on Thursday January 28, 2016 @10:34AM (#51388267) Journal

    Having a strong currency is not always entirely in the national good. Sure, it's generally better than a weak currency (which is often a sign of political instability and a lack of international confidence in a country's prospects), but it does cause its own kind of problems. In particular, it can hurt exporters, as it costs overseas customers more to buy their goods.

    The strength of the Deutsche Mark was often problematic for German industry. That's one of the reasons why Germany has been so enthusiastic about adopting the Euro, which gives it a significantly "weaker" currency than it would have otherwise, and locks it into currency parity with most of the rest of its regional bloc.

    • by Fire_Wraith ( 1460385 ) on Thursday January 28, 2016 @10:42AM (#51388315)
      Yes - a strong currency is good for the consumers buying imported goods. It's bad for companies trying to export goods to overseas. Devaluing the currency is one of the measures that a country trying to kickstart its economy might take, to increase exports and tourism, and to boost domestic consumption by making imports more expensive. This is also why you see accusations of currency manipulation when the ratio is deliberately kept low for long periods of time, since market forces will tend to push towards a stable equilibrium of currency price.

      Apple is in an interesting position here since it's both an importer and exporter, but it sounds like the balance of those accounts is still negative to Apple when the dollar is strong. It's probably a little more complex than that too, since you've got both the Yuan-Dollar and Dollar-Other currency (Euro, Pound, etc) ratios to consider.
      • It's probably a little more complex than that too, since you've got both the Yuan-Dollar and Dollar-Other currency (Euro, Pound, etc) ratios to consider

        as well as all of that money they've been refusing to bring into the US because they don't want to pay taxes on it. They're really taken it in the poo over that, with exchange rates taking such a dive. Guess they should have brought it home and paid those taxes, eh?

        • Most of those overseas dollars were held in HK and other locales with exchange rates pegged to the USD. It's not fallen at all. The HKD is still trading within about 0.5% of its price a year ago. Hold your overseas profit in dollar-denominated accounts, or in pegged currency accounts and there's zero impact. It's the first thing most smart financial folks do - and they'll move currency between currency accounts (usually for free, like HSBC and others allow) to maximize earnings. I know the 6.6% appreci
        • as well as all of that money they've been refusing to bring into the US because they don't want to pay taxes on it. They're really taken it in the poo over that, with exchange rates taking such a dive. Guess they should have brought it home and paid those taxes, eh?

          You are conflating two issues. Yes Apple has been incentivized to keep their currency reserves in other countries to a substantial degree. That has little to do with this problem. 2/3 of Apple's sales come from outside the US and their base currency is the dollar. When the dollar gets strong people in other countries can afford to buy fewer Apple products for the same money because their currency buys fewer dollars. Apple is effectively a net exporter of their goods and a strong dollar hurts exporters

      • Imagine you have 1,000,000 customers with over $250 to spend on your product and 10,000,000 customers with over $150 to spend on your product.

        If your product has a manufacture cost of $220, you can sell it for $250 and get 1,000,000 customers. That's $250,000,000 of revenue and $30,000,000 of profit.

        If your product's manufacturing cost falls to $140, you can sell it for $150 and get $10,000,000 customers. That's $1,500,000,000 of revenue and $100,000,000 of profit.

        Weakening the dollar essentially doe

    • You're correct. Countries, the U.S. included, put a lot of effort into keeping their currency at just the right level. Too strong and too weak can both be problems, You have to find just the right balance.
  • Cautious (Score:5, Funny)

    by Thanshin ( 1188877 ) on Thursday January 28, 2016 @10:37AM (#51388283)

    I'll be cautious and save my answer for the next time we discuss these same news in a couple of days.

  • by Chas ( 5144 ) on Thursday January 28, 2016 @10:37AM (#51388287) Homepage Journal

    Any second now I'll be able to dredge up some sympathy for them.

    Any...

    second...

    now...

    Ah crap.

    *Pokes self in eye*

    There! Is that close enough to tears?

    Fuck Apple.

    • Re: (Score:2, Insightful)

      by Anonymous Coward

      As an IT person, it is hard to have any sympathy for Apple. They have so much cash, and could step into so many markets... but they have all but abandoned the enterprise sector (no XSan, no XServe, no rack-friendly models [1].)

      Apple has been a toy maker for so long, they think they can continue to do so. Sony had this attitude back in the late 1990s... but then just got steamrollered. If Apple is to have long-term stability, they need to use some of that large cash stash, and either spin off an enterpris

      • by JazzLad ( 935151 )
        This is a great comment, I am going to copy/paste it tomorrow when this story gets duped.
      • by deKernel ( 65640 )

        Wish you had not posted this as Anon because I think you have some good ideas.

        Personally, I think a good avenue is to get into the markets that smaller business's really require. As an example, provide some type of cloud based email/calendaring solution for smaller businesses (think Google for Business here). Most of which seem to like using their Macs so that would support their existing products. They could provide something like Google does for Outlook so the PC people could make use of as well. With tha

      • by jcr ( 53032 )

        (no XSan, no XServe, no rack-friendly models [1].),

        FYI, that whole market just isn't big enough for Apple anymore. When they stopped making the Xserve and Xserve RAID, they were already the #3 storage vendor, and they were about a year and a half away from becoming #1.

        The scarce resource for Apple is engineering time. When the same guys could be developing an Xserve or another iMac, it's not a hard business decision to put them on the product that sells in million lots instead of the one that sells in th

        • by deKernel ( 65640 )

          I hear you about diverting resources IF you are working under the premise that you must keep your costs fixed (aka not add to the resource pool). However, 99% of the time, you need to increase your resources to be able generate new products.

          • by jcr ( 53032 )

            Spoken like someone who has no idea how much effort Apple puts into recruiting.

            -jcr

            • by deKernel ( 65640 )

              I would agree that I am speaking without knowing all of the facts. I do find it interesting that Apple has a hard time finding talent to work for them though. I just wonder if they thought about opening an engineering center somewhere else than Cupertino since that is obviously an area where good talent is at a premium due to so many tech businesses.

      • I don't think the xServe and xSan sold very well. After all, had they been runaway successes, I doubt Apple would have discontinued them. No public corporation is going to throw away easy money "just because". If the server products were really thriving, and Apple *really* wanted to just be all about consumer hardware; they'd have just spun the business off into a subsidiary, like they have in the past with FileMaker and Claris.

        And really, Mac OS X doesn't make much sense as a server anyway, Unix underpi

        • by Chas ( 5144 )

          XServes and XSans were decent entry-level products.
          And they actually sold moderately well.

          However, there were some valid criticisms of the platforms. And Apple didn't want to invest the time and effort into addressing them, nor scale their offerings.

        • I don't think the xServe and xSan sold very well.

          Apple should have called them iServe and iSan. Then they'd have sold well.

        • No public corporation is going to throw away easy money "just because".

          Yes they will. For some reason there are these useless twats called MBAs who think that they are god's gift to management. They tend to run companies and I have seen cases where they wouldn't do something not because it didn't make money, but instead because it didn't make enough money. The company I am at had an opportunity a couple of years ago to make 5% on something with 0 effort and expense (things would be drop shipped from the actual manufacturer or something like that) but didn't do it because they

      • ... but they have all but abandoned the enterprise sector

        Corporate customers are absolutely horrible, margin destroying machines. Can you blame them? Two of my employers derived the majority of their revenue from enterprise sales, and both of those companies are shadows of their former self. Unless you have a monopoly (or near to it), you will be nickled and dimed into obsolescence, which is a good market for China where tehy can compete with each other on equal footing, but US based companies get run out

      • by Chas ( 5144 )

        The thing is, Apple simply doesn't WANT this business sector.
        They have no real understanding of it, and no real desire to become a real, enterprise-grade support organization. It's too important to them to be these foofy, artistic, independent "fuck the man" mavens.
        Plus, enterprise, while a lot of money flows around, is EXTREMELY cutthroat. So the margins tend to be smaller than you'd think.

      • and either spin off an enterprise company or make a division for this.

        Enterprises buy based on performance, not on shiny. Apple can't win in that market.

  • Maybe businesses should keep an eye out for foreign governments that manipulate their currency so much that they get a false sense of reality.

    Actually, Apple et al. have known about this all along. Now I'm trying to figure out what they are trying to extort by way of tax breaks to make up for their "losses".

  • No (Score:5, Insightful)

    by Rik Sweeney ( 471717 ) on Thursday January 28, 2016 @10:40AM (#51388307) Homepage

    Tim, iPhone sales are down for two reasons

    1. The smart phone market is over-saturated.
    2. Every bugger that wants an iPhone, has an iPhone.

    Stop trying to claim that things like sotck market fluctuations, El Nino, IS or Zika are to blame.

    • You forgot margin. They have incredible margin on their products. Their concern is total profit, not units sold. They could easily drop their prices in other markets to keep market share, but the net profit to them might be lower. It isn't like iPhones prices are anything relative to their cost. Their price is based on what people will pay.

      • They're in competition with Android and with tablets, phablets, and laptops. They're winning the competition against tablets and laptops. It's not just based on what people will pay, but on what people want to buy and how much they have. You have $100; do you by Crocs or an iPhone? iPhone drops their price to $100, but... Crocs are still a huge fad, and 70% of the population pays $100 for Crocs. What if everyone has $350 and the iPhone drops from $600 to $250? 70% of the population buys Crocs *and* a

        • People keep saying businesses just take profit and making things cheaper never brings prices down (look at gas stations and oil), but then they immediately claim competition will lower prices in the next sentence. I had to figure out how it really works, since people simultaneously arguing opposite behaviors as absolutes are obviously wrong.

          Absolutes != generalizations. Saying "always" and "never" with respect to how businesses operate is silly, as you point out, because even the smallest of businesses still deal with hundreds of variables.

          Here is how the two principles you're talking about harmonize:

          Sprockets n' Things can sell a sprocket for $50, and sell them well, despite the markup of $10, as the total cost of making them ends up being $40. SnT has learned that selling them for $50 is a good price: customers are satisfied and quality is g

    • Not to mention those blazingly faster new phones don't mean much to many consumers. I bought a Galaxy S5 to replace my 2.5 year old Motorola Droid about two years ago. Yeah it was faster, it could run some games that were more pretty than the old phone, I didn't really care. My Galaxy S5 is almost out of its 2 year contract and I was going to go to prepay since I had no interest in upgrading. Now that Verizon isn't paying for new phones but hardly dropped the cost of subscription, I'm definitely taking
  • by Anonymous Coward on Thursday January 28, 2016 @10:43AM (#51388325)

    They produce all their products overseas, they sell most of their products overseas, and they hide all their money overseas.

    What part of this company is American anyway?

  • by kilfarsnar ( 561956 ) on Thursday January 28, 2016 @10:48AM (#51388357)
    Somehow I don't have sympathy when the richest company in the world complains that they're not making as much money as before.
  • Sheesh.... talk about first world problems.
  • When steve jobs was alive, I am *sure* that apple stuff was cheaper. No, it never competed with the low end stuff, and maybe you paid a premium for Apple gear / OSX, fair enough.... BUT, now its just a rip off. http://www.apple.com/shop/buy-... [apple.com] $1,199 for 2.5 ghz, 8gb ram, 750gb HDD.... http://www.amazon.com/Toshiba-... [amazon.com] $459.99 for Intel Core i5, 8 GB, 1TB HDD Now, I accept the apple premium should be like 50% more..... BUT, we're talking over twice as much for a similar hardware. For info, I just
    • My question is: In this day-and-age, why is it reasonable for Apple products to have a 50% premium?

      It's not like they are using high end hardware any longer... they are utilizing the same commodity hardware that everyone else is using.

      In addition, many companies have some very stylish product lines that are arguably more distinguished than Apple products (which, more and more, these days look somewhat dated).

      Also, the services that they provide like iCloud and the AppStore are falling further and further be

    • fair enough

      Indeed, because when Jobs was still in charge, there was some actual value in paying that premium. Now it's just name trade. How well has that worked out for Sony?

  • why does it matter? If they are taking the dollars, converting them into Euros to pass through Ireland for their tax scam, then sending it down to the Cayman Islands, a strong dollar just means it converts into more Euros, right?

    • Because that's not what what they are doing. They are taking their Euros and keeping it Euros. They are taking their Yen and keeping it in Yen. Their dollars, they keep in dollars. To convert anything to dollars they would have to pay 40% in taxes to the US government in addition to any taxes they paid to the local governments.
  • this is rich.

    What he said was, in other words, was that Apple didn't do well insulating themselves from the currency fluctuations they once were able to do so well at.

    And in the process they devised a clever financial instrument that found great utility for other uses. Some not so glorious.

    Too bad. That's the risk in global sales. Welcome to the real world.

  • That's not good when you get two-thirds of your revenue overseas.

    And we know Apple accounts for all revenue it receives and accurately reports it on its taxes. It doesn't hide any revenues overseas.
  • All apple ever really gave a shit about.
  • by enjar ( 249223 ) on Thursday January 28, 2016 @11:28AM (#51388711) Homepage

    This affects all American businesses doing business overseas -- and that's a lot of businesses, not just Apple. American goods are selling at a considerable price premium versus competing goods in those markets. Long term, that's not a fantastic place to be as it acts like a export tariff on US goods and makes them less competitive. Also when you are selling overseas what sales you make take a cut due to exchange rates. It's demoralizing to see your sales force bust their ass to log a big YOY sales growth in their country but then have exchange rates eat that up and make it a 0% growth (or a loss) on the bottom line.

    And I know we all like to throw barbs at Tim Cook sleeping on his mountain of cash, but this applies to all US business, not just Apple.

  • Seriously: "strong" != "good" in the context of a currency, depending on how you define good.

  • It's not so much that the US dollar is "strong", it's that European governments are screwing up even worse than the US government.

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