And mirrored as well in two other cities from what I've read.
And that's what's wrong with the world. Companies spend too much time looking over their shoulders to be sure that Wallstreet approves. It was much better when Wallstreet just watched the companies that were doing well... the companies that made good products that satisfied their customers... and rewarded them by having their stocks increase. This business of Wallstreet calling the shots stinks.
Wallstreet doesn't make "products" that people use in their daily lives.
Wallstreet doesn't buy the products that companies sell.
With all due respect, he is correct. The purpose of a (for profit) corporation is to enhance and protect shareholder value/wealth. While Apple (and other corporations) may have other goals as well, anything in their mission statements, which contradicts their fiduciary responsibilities to shareholders, can and should be ignored.
Some may not like that fact. But as soon as Jobs and the other backers took Apple public, this was the deal they made... whether it was with the devil or not.
One takes a company public in order to raise additional funding and/or to (at least partially) cash out those who invested in the company in its private stage. And yes, it comes down to the number of people that want to invest in the company, or if they are emotional (think Facebook), they may be drawn in by a charismatic personality or hyped story. But whether it's longer term investing or shorter term, the enhancement of wealth is the primary purpose of a public corporation.
It really isn't about keeping people "happy". That's just an unquantifiable emotion, which changes from person to person. Return on investment is entirely quantifiable. And comparing a particular stock's return versus another stock or asset class is justified. Buying a stock based primarily on emotion or faith is usually just a good way to lose money... or forcing yourself to rely on luck.
I have been a fan of Apple and its products for roughly 30 years. And over that time, I've been in and out of the stock several times. But I try to maintain a wall between my Apple fandom and my assessment of the stock's future prospects. If/when I sell some or most of my AAPL shares, it will just mean that I determined that keeping the money in AAPL wouldn't provide the same level of return as some other investment.
I better understand where you're coming from now. And I don't really disagree with your point. No, I don't believe a company should jump through hoops for (activist) investors like Icahn or anyone else. But there is an old saying, when you buy a stock, you're not (really) buying the company. Apple's stock is a good example. The company (AFAIK) is doing just fine. But the stock has been a dog since last year. And what's good for the company or its product offerings may not be good for the stock, or me as an investor. From a fundamental standpoint, the best one can do is try to assess the stock based on the company's financials. On AAPL, at least in the medium term, clearly I was wrong - my 20/20 goggles should have told me to sell in the high 600's. The only thing that makes me feel better is that I had lots (and LOTS) of company.
But yes, my primary concern when making an investment is longer term wealth enhancement. Taking that into account, as long as my goals were in sync with the company and its goals, I would probably continue to hold. But if we fell out of sync and I believed that I could make a substantially higher return elsewhere, I would liquidate my Apple holdings and place the money in some other vehicle (whether it be another company's stock, an apartment building or whatever). But I'd still have my mouth watering for that Mac Pro that keeps dancing around in my dreams and I'd still buy myself an iPad Mini Retina for Christmas. I'd still be cheering for the company to be successful.
First, it's not that I posted that to argue with you or anyone else. Second, yes, while Apple was created to sell products, every business is created in order to sell a product or service (at a profit). Apple is hardly unique in that respect. My point is simply that Apple (and every other for-profit, public corporation) seeks (and must seek) to maximize profits as they sell those products. Why do you think Apple has virtually sealed most of its devices and makes even the RAM relatively inaccessible? Margins. If you want an iPhone with higher storage, instead of buying a 64GB chip off Amazon for about $50 and bumping up your 16GB iPhone yourself, you'll pay around $200 to go from 16GB to 64GB. The cost of smartphone memory is down to about 60¢ per gigabyte now. But that RAM premium is a major contributor to Apple's gross profit margins on iPhones of around 50%. In the last quarter of 2012, Apple had approximately 5% of the global PC market, but took 45% of the industry's profits. If they cut their prices or ran sales, wouldn't they sell more iMacs and MacBooks? Sales have been down. Wouldn't that help? No, they care about margins at least as much as volumes... probably more. So no, it's not just about "selling products". It's about selling (and marketing) those products in a way that maximizes profits. And that in itself enhances shareholder wealth. When the stock pops or drops around earnings time, notice that an increase in sales seldom makes up for a drop in margins in the eyes of the market. So they're not just trying to ship as many iPads and iPhones as they possibly can. Unlike Microsoft, BlackBerry and most of the others, you do not see fire sales for Apple products. They would rather underproduce and lose a sale than overproduce and lose margin through discounting.
As a shareholder, I applaud Apple's ability to sell its products at optimal profit levels. Apart from its issues in the 90's, it has been a good case study for any business school student in the way it balances meeting and managing customer expectations with maximizing profits - Ferrari would be another one. And I am not suggesting that these traders (calling themselves investors) should cause a company to change its way of doing business. Quite the contrary. But Apple's recent exercises in financial engineering (share buybacks, implementing and increasing the dividend, borrowing from the overseas cash reserves in order to get to the cash in a tax friendly way, where they choose to set up these satellite operations, etc.) have nothing to do with selling product. They have to do with maximizing profits and thereby enhancing shareholder wealth.
It's not really an either/or proposition and it shouldn't make Foghorn Leghorn uneasy about having to choose between giving up one of his girlfriends or her eggs to Farmer Brown. It's just a statement regarding the legal and business fact as to why the for-profit, publicly traded, corporate structure was formed to begin with.
Peace and have a Merry Christmas.
As I mentioned, I'm all for companies maximizing their profits - especially if I own their stock. I'm not criticizing the company for that. As a shareholder, I'm very happy about it. Apple does a very good job (probably better than any other company) of managing its supply chain in a way that component costs (and quantities) are kept to optimal levels vs. projected demand. Apple has one of the highest profit margins on hardware for any tech company. I'm happy about that too, just as I am about the $21/share gain today. Apple has amazing profit margins. So does Ferrari. So does the company that I currently work for. Maximizing profits is not a dirty term (at least not in my world). So I'm not sure why the truth of Apple's costs, pricing and profit margins is making people defensive. Again, it's a for-profit corporation, doing what for-profit corporations do - and doing a damn good job of it.
As for Apple's memory costs, IHI estimates that the current cost of 32GB of RAM in the iPhone 5S is $18.80. So one would assume it wouldn't be paying more than twice that for 64GB - certainly not five times that amount. IHS has the cost for 64GB of RAM in the 5S at $29 - far from $100. Brian Marshall, a senior managing director at researcher ISI Group, estimates that the mobile memory markup accounted for about one-fourth of Apple’s profit last quarter. Gene Munster of Piper Jaffray puts it at around two-fifths. (This lifted directly from a Bloomberg piece on the topic of Apple's profit margins).
This is the investor section of the site. Seems that people here (particularly) should be happy that Apple is kicking @$$ and taking names - not defensively blushing because it's not just a bunch of kind-hearted hippies, building computers for just enough money to buy some more parts and get some food from the local shelter.
No offense intended, Mel, but if Apple is indeed, as you claim, paying nearly 500% more for RAM in its mobile devices than is being estimated by various sources, then where exactly is the company's iPhone profit margin coming from? Unless certain Apple employees lied under oath during the court proceedings against Samsung, Apple earned gross margins of 49 to 58 percent on its U.S. iPhone sales between April 2010 and the end of March 2012.
"So while Apple may be making a bit more profit on their NAND, it's not that much more."
You seem to be saying that the premium charged for installed RAM is not a major contributor to the company's profits - not the 25% contributor that Marshall estimates and certainly not the 40% that Munster estimates. OK, so how much of a contributor, if any, do you think that premium represents? And can you provide any objective or reasonably substantiated data which would support your estimate or conclusion? Other than what I read from various sources, I really don't know. But I'd be anxious to learn that what is being estimated really is wide of the mark - truly, I would. So if true, then either Apple is making/saving a mint from other components buys and/or labor costs, reporting gross margins that are not accurate (engaging in fraud) or the company has some major, high ROI sideline businesses that we don't know about.
My own guess, based on the reality of what is going on: I figure that whatever Apple's exact percentage markup is on RAM, it likely is quite healthy. Otherwise there would be no real reason to seal off devices or make RAM hard/impossible to get to. If you were just making chump-change off it, why bother over a few cents/GB? Is there anything wrong/criminal/immoral/unethical about doing that? No! Why are people being so defensive about it? I don't know. Maybe Ralph Nader used to be a member here and he ruffled some feathers or something. :D
Merry Christmas, folks.
I'm not aware that I have ever suggested that they should not. So, I continue to be completely baffled as to why people are being so defensive about Apple's profit margins. This simply supports my original point that the primary purpose of the corporate structure (whether it's Apple, Google, Microsoft or Ford Motor Company) is to enhance shareholder value... profits. The Econ 101 supply & demand lesson is that pricing strategies typically follow charging what the market will bear. And Apple, like Ferrari and certain high end retailers, seemingly has a greater interest in margins than volumes. Amazon, for instance, has quite the opposite approach.
It appears that is a question. I would say that Apple has a well deserved reputation for producing well designed, higher quality computer and consumer products and for delivering a high level of customer service. And it does these things at a very comfortable profit margin. These things are not mutually exclusive, as some seem to be suggesting. Unlike Amazon, Apple does not sacrifice margins in order to capture market share. Apple has some low volume products (Mac Pro), but I'm not aware of any low margin products. Do you know of any??? I had an Apple printer in the early 90's. I thought it was a really good product. Why can't I buy an Apple brand printer now? I mean, just because the printer business is low margin and commoditized, shouldn't Apple just be focused on getting its customers the best printers possible? I've burned through two printers in the past year. Why doesn't Apple show HP and Lexmark how it's done? Given the choice of selling printers at a loss, it's more likely that Tim Cook and Peter Oppenheimer would just take stacks of $100's outside the big mothership HQ and set them on fire.
I have no doubt at all (because I have already seen it) that if there is a "good" product, but one which no longer generates acceptable profit margins, Apple will kill it faster than a fat kid can eat a chocolate cupcake.
Absolutely no where did I say or suggest that Apple's pricing on ANYTHING constituted "almost all profit." Mel, you're now creating strawmen and forming their (your) arguments as mine. If that is your (mis)interpretation of what I believe or have said here, then I am led to believe that with this error in judgment, you may also be making errors in estimating what Apple does or does not pay for this, that or the other thing.
What exactly has been said by me (not some alternate, make-believe version of me) that you are disputing?
Do you dispute this?
The Econ 101 supply & demand lesson is that pricing strategies typically follow charging what the market will bear.
Do you dispute this?
Apple, like Ferrari and certain high end retailers, seemingly has a greater interest in margins than volumes. Amazon, for instance, has quite the opposite approach.
Do you dispute this?
I figure that whatever Apple's exact percentage markup is on RAM, it likely is quite healthy.
In reporting earnings and especially during the court trial, are you saying that Apple and its employees committed perjury when they detailed profit margins under oath???
I'll say again: believe me, I really mean no offense toward you. But whether you have worked in the computer industry for a day or a decade, what objective evidence have you provided that suggests that you really know what Apple pays for components any more than the people at IHS or ISI Group??? You said that you don't care what anyone else says... apparently you know more than they do and your estimates are closer to the mark than Gene Munster's or Brian Marshall's estimates. I'm sorry, but despite your claims of industry experience, I have no real reason to believe that you know any more, and possibly not as much, about Apple's component costs as the analysts. That's not a poke at you - it's just that short of some objective, verifiable data being delivered by you, I have no reason to believe you over them. Why would I? I hope you understand that. And that you've attempted to inaccurately twist my words and beliefs... ya know, that doesn't help either. Demonstrating that one has an agenda tends to make people a bit suspicious.
Mel, may I ask you something of a personal nature? I am a strong believer in capitalism and market based pricing. To me, the word "profits" is not a dirty word. From my time in banking to the restructuring-focused work I do now for manufacturing based companies, the pursuit of profits (whether through increased pricing or mitigation of costs/losses/expenses) has been my career mission. You seem to be going to great lengths here to downplay Apple's (already publicly stated) profit margins. Why is that? Do you think that profits are something that one should be ashamed of? Do you feel that if it's shown that Apple does indeed have a "healthy profit margin" on RAM and other components, it's a suggestion that they are gouging their customers? Is that it? I really am a bit confused about this level of defensiveness.
As a consumer, I purchase what works best for me at the lowest price possible. But as a shareholder or owner of an asset, I support profit enhancement, as long as it does not jeopardize longer term growth. How I could be any clearer about my (actual) beliefs, I do not know.
I appreciate that, Mel. But I think I proved that I had a pretty decent handle on the difference between gross and net when the nice people at the Darden School of Business handed me my MBA a couple decades ago (my, how time flies). As a matter of fact, when I sold my first steer at auction and my dad handed me the net profits, and I had been shopping for a new 10-speed bike based on the gross, that cemented it as well as anything.
My own guess, based on the reality of what is going on: I figure that whatever Apple's exact percentage markup is on RAM, it likely is quite healthy.
For the record, I am not Brian Marshall posting under a screen name. I am also not Gene Munster. So no, in fact (and not fantasy), I did not claim any such thing regarding $18 for RAM. Credit was given to both of Munster and Marshall, and to Bloomberg, for the original figures referenced early on in my posts. So I've felt no need to claim that Apple spends any specific figure for RAM or anything else. When I say, I don't know, that is exactly what I mean. Only someone attempting to be intentionally dense would not get that by now. Seriously! What I have said, and do believe, is that Apple likely does make a healthy profit - and I do agree with both Munster and Marshall (though I don't know which, if either, is closer to the mark) on this point. Further, the only person who has repeatedly referenced this $300 figure is some guy named Mel Gross, who has demonstrated a curious habit of claiming that anything referenced in a post becomes the words and beliefs of the original poster. Unfortunately, because of his demonstrated lack of comprehensive abilities and tendency to claim that people have said or believe things that they have not and do not, he has little credibility in my view on this particular topic.
As I have now stated on more than a few occasions, I, personally, am not privy to the prices that Apple pays for components. And despite his "years of experience" doing whatever (could be assembling HeathKits, for all I know), there is still no evidence that this Mel Gross person is doing anything but making up fictional numbers and claiming them to be more accurate than those provided by analysts. And even though I was born at night... it was not last night. So I would not be prone to take the word of some anonymous poster on a chat site over those of reputable, though not infallible, analysts. They certainly could be wide of the mark. But unlike him, their numbers do have to play into the aggregate, while his do not seem to add up. According to this individual (I guess when I was impersonating Brian Marshall), I allegedly estimated that installed RAM sales contributed roughly 25% to the company's profits for the referenced quarter, and when I was impersonating Gene Munster, I put the contribution at roughly 40%. And I suppose when I was testifying in court, I put Apple's gross margins at 49 to 58 percent on its U.S. iPhone sales between April 2010 and the end of March 2012. I am clearly a busy and very talented character, capable of being many faces to many people. I once parallel parked a train. My 2 cents is worth 37 dollars and change. I am... the most interesting man in the world. I don't always drink beer. But when I do, I drink Budweiser. Stay thirsty, my friends.
In any following replies, I'll be curious to know what else I have said (that I didn't really say) and what else I believe (that I don't really believe).