Even though the consensus appears to be that the expected margin reduction is due to iPads, new MacBook Airs and other "yet to be announced" lower margin products, I think the real reason is that Apple will be forced to reduce the iPhone pricing as of next year to compete more effectively with the flood of Android based phones.
Yeah, agreed. That and lower priced competition in general.
Apple has been running high margins for years. That has allowed them to make more money with less work, which is a great place to be.
But the owners now want to see even more money, which they think will flow from lowering margins (by lowering prices, not by increasing costs). Management seems to agree that this might work well at this point in time.
It will be interesting to see if Apple introduces low-priced stuff in the future. The iPad surprised me (and lots of others) with the sub-$500 price point. Apple TV at $99 is another one. Steve mentioned once in connection with the iPod that certain features were left out in order to reach a lower price point.
I think that Apple will eventually position itself as a company that offers great value, rather than a company which has great products, but charges extra for its logo. IMO, that is the direction that they going. IMO, the current price (mis?)perception is their biggest Achilles Heel.
Clearly Steve is no longer trying to have a small portion of the market with a premium priced product, 50%-60% gross margins (aka Apple premium). He's going for a larger market share. Previously, there was always a risk that Apple will be the early market leader, only to lose it to lower priced competitors. This time, Apple seems to be playing for keeps. They are trying to dominate new segments of the market with initial low price.
...
Google's Android system really is the only potential competitor. Although Google seems to be unsure which horse to ride, Android or Chrome.
It will be interesting next few years.
You hit the nail on the head.
Apple doesn't want a repeat of the late 80s with the iPod, iPhone, and iPad. They have not been in the position of such a large market since then. To squander it in the name of ridiculously high margins would be foolish. I don't think will ever again let a product like Windows95 destroy market domination.
Android is a real competitor to the iPhone, but as long as carriers keep it fragmented, it won't threaten the iPhone. Android may have more overall market share, but not phone sells better than the iPhone. I don't think any single phone or carrier even comes close. Fragmented indeed.
I believe that Apple is looking to boost Macintosh market share and bring more people "Back to the Mac". The halo effect is real. It's just a long term plan. Really long term. 10 years ago, iPod didn't exist. 10 years from now... Apple could be bigger than M$ ever was.
I wonder how the Steve cloning plan is going? I will miss the Steve if anything were to happen.
And I need to correct myself here. Of course OSX has multitouch. What it doesn't have is the concept of 1:1 touch:screen interaction, which is what I was trying to get at. iOS apps that rely on elements of the screen exactly following your fingertips are going to be hard to implement on OSX.
OSX might incorporate some iOS features for touch for specially designed apps, but it will always be a mouse interface for the power users.
Remember that the iOS IS OSX underneath. The only differences are the graphical interface on top. One OS to rule them all?
Why this obsession with margin percentages? Of course they are important as a relative indicator of financial health, but they should not be taken out of context. Companies do not thrive or fall on percentages. Absolute numbers is where we should be focusing our attention on when analyzing the results of Apple or any other company.
So what if Apple's gross margins decline a few percentage points, and because of market penetration more than compensate in total "real" revenue and net profit growth.
They are taking strategic steps to capture and defend the markets they have created through very aggressive innovation.
Because Revenue * Margins = Earnings (more or less). Lower margins mean less profit on the same revenue.
Comments
Even though the consensus appears to be that the expected margin reduction is due to iPads, new MacBook Airs and other "yet to be announced" lower margin products, I think the real reason is that Apple will be forced to reduce the iPhone pricing as of next year to compete more effectively with the flood of Android based phones.
Yeah, agreed. That and lower priced competition in general.
Apple has been running high margins for years. That has allowed them to make more money with less work, which is a great place to be.
But the owners now want to see even more money, which they think will flow from lowering margins (by lowering prices, not by increasing costs). Management seems to agree that this might work well at this point in time.
It will be interesting to see if Apple introduces low-priced stuff in the future. The iPad surprised me (and lots of others) with the sub-$500 price point. Apple TV at $99 is another one. Steve mentioned once in connection with the iPod that certain features were left out in order to reach a lower price point.
I think that Apple will eventually position itself as a company that offers great value, rather than a company which has great products, but charges extra for its logo. IMO, that is the direction that they going. IMO, the current price (mis?)perception is their biggest Achilles Heel.
Clearly Steve is no longer trying to have a small portion of the market with a premium priced product, 50%-60% gross margins (aka Apple premium). He's going for a larger market share. Previously, there was always a risk that Apple will be the early market leader, only to lose it to lower priced competitors. This time, Apple seems to be playing for keeps. They are trying to dominate new segments of the market with initial low price.
...
Google's Android system really is the only potential competitor. Although Google seems to be unsure which horse to ride, Android or Chrome.
It will be interesting next few years.
You hit the nail on the head.
Apple doesn't want a repeat of the late 80s with the iPod, iPhone, and iPad. They have not been in the position of such a large market since then. To squander it in the name of ridiculously high margins would be foolish. I don't think will ever again let a product like Windows95 destroy market domination.
Android is a real competitor to the iPhone, but as long as carriers keep it fragmented, it won't threaten the iPhone. Android may have more overall market share, but not phone sells better than the iPhone. I don't think any single phone or carrier even comes close. Fragmented indeed.
I believe that Apple is looking to boost Macintosh market share and bring more people "Back to the Mac". The halo effect is real. It's just a long term plan. Really long term. 10 years ago, iPod didn't exist. 10 years from now... Apple could be bigger than M$ ever was.
I wonder how the Steve cloning plan is going? I will miss the Steve if anything were to happen.
And I need to correct myself here. Of course OSX has multitouch. What it doesn't have is the concept of 1:1 touch:screen interaction, which is what I was trying to get at. iOS apps that rely on elements of the screen exactly following your fingertips are going to be hard to implement on OSX.
OSX might incorporate some iOS features for touch for specially designed apps, but it will always be a mouse interface for the power users.
Remember that the iOS IS OSX underneath. The only differences are the graphical interface on top. One OS to rule them all?
Why this obsession with margin percentages? Of course they are important as a relative indicator of financial health, but they should not be taken out of context. Companies do not thrive or fall on percentages. Absolute numbers is where we should be focusing our attention on when analyzing the results of Apple or any other company.
So what if Apple's gross margins decline a few percentage points, and because of market penetration more than compensate in total "real" revenue and net profit growth.
They are taking strategic steps to capture and defend the markets they have created through very aggressive innovation.
Because Revenue * Margins = Earnings (more or less). Lower margins mean less profit on the same revenue.
Today is iAV Day (iPad AT&T / Verizon). The two, have adjacent stores in a local strip-mall. I plan to mosey on down and see what the interest is.
Apple could wait a few weeks and announce iPad availability at Radio Shack.
Then, they'd have thousands of retaillers selling iPads for the holiday season...
Perfect time for a promotional:
-- bundled case
-- bundled iStore Card
-- special pricing
-- all of the above
Another possibility:
There is this server farm in North Carolina...
They could use it to offer:
-- iTunes subscriptions - streaming music, movies, TV
-- enhanced MobileMe
-- personal media hub - home movies, photos, AV collection
-- interface iLife '11 apps
-- TimeMachine backup
-- combo of free / fee / family pack
This would need to be rolled out over a couple of months to avoid server surge, but that could easily be handled in several ways.
.
Declining margins?!?!?
NOOOOOOOOOOOO!!!!! Apple is DOOOOOOOOOOOMMMED!!!!
Sell your shares while you still can!!!11!!1one!!!!exclamation point!!!!
This joke never loses its humor.