Time and time again we have to deal with the same non-sense, the stupidity from some posters that do not understand the difference between BOM and actual cost per device and the fact that they truly DO NOT WANT to understand it. They are here just for bashing and laugh at the ones that buy this device or any other product made by Apple.
That's stupidity and ignorance.
However, even if the BOM was 2 dollars, so what? It's totally irrelevant. This is the best tablet out there besides the new 9.7" iPad (ecosystem, UI speed, tablet apps) and that's all that matters.
Close. If starting BOM is $188, then subtract that from $329 & you get a difference of $142. $142 is approximately 43.16% of $329. That's a decent starting gross margin.
That's not at all how it works. The raw cost of material goods is nowhere near the actual cost to Apple.
Time and time again we have to deal with the same non-sense, the stupidity from some posters that do not understand the difference between BOM and actual cost per device and the fact that they truly DO NOT WANT to understand it. They are here just for bashing and laugh at the ones that buy this device or any other product made by Apple.
That's stupidity and ignorance.
However, even if the BOM was 2 dollars, so what? It's totally irrelevant. This is the best tablet out there besides the new 9.7" iPad (ecosystem, UI speed, tablet apps) and that's all that matters.
Heck it's just a guess anyway.
Besides, anyone who's been here for very long at all knows that Apple is more efficient at building devices and pays less for comparable components than the rest of the industry due to their huge volumes and negotiating skills. Because of that their component costs could even be less than iSuppli estimates.
The biggest problem right now is not the margin. It's actually the rumor 'low yield rate' of the iPad mini.
It seems like even without long lines buying, the mini ran out of stock quickly. That means not a lot have been produced. If they continue to be out of stock for the next month, a lot of people will have lost their patience and just go and buy other tablets for holiday gifts.
That's why they are calling it a 'gross' margin. Just like what you make before taxes is your 'gross' pay, etc.
The 'net' margin is likely much much lower, especially this year where they probably have higher R&D etc costs.
Gross margin is more than just subtracting BOM. They are wrong in calling it ‘gross’.
It seems like even without long lines buying, the mini ran out of stock quickly.
That could be due to a number of things, including shorter but steady lines all day rather than folks showing up to wait overnight like the punchline in a Samsung ad. More folks buying online.
Or even Apple being cautious. They don't want to be saddled with tons of units that don't sell because they don't have huge warehouses etc to hold things. They likely figure more folks will want the LTE units so yes they might have under produced a little on this line, knowing they could ramp up quickly if the iPad Mini was selling. And they would have sales patterns to guide them in which models to ramp up the most. It is actually a smart move that might not be quite the disaster you think
fuus
Gross margin is more than just subtracting BOM. They are wrong in calling it ‘gross’.
True, but that is their logic.
And in classic AI, really all blogs, form, the information is merely quoted without any editorials particularly pointing out the bad info like poor definitions, lack of the full picture etc
Many people do not understand gross margin. Accounting can be tricky. What is a direct vs indirect cost? Then there is the math.....
I would take Cook's word for it that the mini is well under the average gross margin for Apple. In other words, they priced it aggressively. We'll see in their next quarter's conference call how the mini fared and whether it brought down their average margins appreciably.
That said, the low BOM did surprise me, if it's at all accurate.
I realize that there is an argument going on about Price - BOM/ Price times 100 does not equal gross margins. The simplicity of this relationship is one of it's benefits. In Apple's business, it skips all the complexity created by the capital outlay for equipment, special prices for products supplied, and other contractual issues. The fact that Apple purchases most of the expensive machinery necessary to make its products and writes it off on their own books, and guarantees a purchase price for the total output of a factory makes the decision to build for Apple a low risk high profit exercise for the manufacturer. The flip side is no one outside of Apple can correctly calculate the BOM Apple pays for it's goods. The simplest way around this is the formula above. It will understate Apple's costs at the beginning of the development cycle and overstate their costs at the the end.
An oversimplification can be justified if its use is understood and the limitations of the guess are laid out. I have to defer to Asymco on this one. Horace has consistently been correct when he has described the marginal expenses Apple has given in it's guidance as low. I believe Apple is not being manipulative in doing this. I believe they are simply giving an average of what their costs will be if demand is low versus high as an estimate of what they will face next quarter. So far in the most recent quarter's in memory Apple has always been demand limited. This has meant that the average done at the beginning of the quarter is unreasonably low since there was no product sold at the lower demand profile. If there ever were a quarter when the demand was not in excess of the supply then Apple's conservative guidance would not only be warranted, but an honest guess as to what would happen over the next 3 months.
The added expenses that everyone has listed elsewhere in this discussion are all real expenses. They will be swamped by the effect of high demand on expenses if the demand occurs as it has during the last 10 or 12 quarters. The estimated BOM is a reasonable street price for a small order of screens (10,000 or so). This price would be way high if the order locked up the whole output of one or more factories producing these products. I would expect at least 10%-15% drop in the BOM if the contract kept the factory at full tilt production levels. Maybe more if the high risk capital necessary to refit the factory was supplied by the buyer. This is how Apple buys all of their products. It is the real strategic value of all that cash "sitting around doing nothing". There is no bank in the world who wouldn't accept a check or draft written by Apple do its core business. None of their partners have ever lost money making their products for them either.
It is also true that over the whole quarter Apple will drive down the costs for new tech by paying incentive bonuses for certain levels of production at each of it's suppliers factories. This will be averaged into the monthly total to reduce costs. If my memory is correct, the last "monster quarter" was from Jan- March 2012. This corresponds to the second quarter after a refresh of product (iPhone 4s) in the market place when demand and efficiency were at an all time high. If Apple beats that quarter's income and sales volume by a large percentage (more than 40%) you can look for Wall St to get back on board the Apple express.
Gross margin includes cost directly related to the sales of an item; labor, logistics, BOM.
It does not include rent, aministrative cost, R&D, etc. These are subtracted for net profit. Its hard to quantify these in to the item. So they are subtracted from gross profit at the end of the month/quarter/year.
The biggest problem right now is not the margin. It's actually the rumor 'low yield rate' of the iPad mini.
It seems like even without long lines buying, the mini ran out of stock quickly. That means not a lot have been produced. If they continue to be out of stock for the next month, a lot of people will have lost their patience and just go and buy other tablets for holiday gifts.
They are posting 2 weeks back order which means they are delivering everyday. Just today they announced that you can order online and pickup in the store the very next day. If people wait until two weeks before Christmas to order then perhaps they will be taking the risk they won't get it in time. If you want one, best to order early. They are not out of stock. They run out everyday. Big difference.
Jesus!!! What happens to appleinsider ? 43%???? Did you include R&D, advertisement, shipping & handling, marketing, employees, iOS cost, other bundle softwares, A/S, etc ?
Jesus!!! What happens to appleinsider ? 43%???? Did you include R&D, advertisement, shipping & handling, marketing, employees, iOS cost, other bundle softwares, etc ?
Thank you.
Don't forget free unlimited Shared Photo Streams, limited My Streams, email and document/app storage. All with no ads.
Gross margin includes cost directly related to the sales of an item; labor, logistics, BOM.
It does not include rent, aministrative cost, R&D, etc. These are subtracted for net profit. Its hard to quantify these in to the item. So they are subtracted from gross profit at the end of the month/quarter/year.
Correct. But the bigger failing is that most of the prices are just guesses. Perhaps educated guesses, but guesses non the less.
I almost think these guys assume a margin and then fudge the figures to make it work.
Remember their 40%-50% margins on basic full size iPads. Court documents revealed lower end margins were about 23% IIRC.
That kind of discrepancy means they are really missing significant elements in their estimates.
Comments
Quote:
Originally Posted by SolipsismX
BOM now equals gross margin?
Exactly.
Time and time again we have to deal with the same non-sense, the stupidity from some posters that do not understand the difference between BOM and actual cost per device and the fact that they truly DO NOT WANT to understand it. They are here just for bashing and laugh at the ones that buy this device or any other product made by Apple.
That's stupidity and ignorance.
However, even if the BOM was 2 dollars, so what? It's totally irrelevant. This is the best tablet out there besides the new 9.7" iPad (ecosystem, UI speed, tablet apps) and that's all that matters.
Quote:
Originally Posted by Shameer Mulji
Close. If starting BOM is $188, then subtract that from $329 & you get a difference of $142. $142 is approximately 43.16% of $329. That's a decent starting gross margin.
That's not at all how it works. The raw cost of material goods is nowhere near the actual cost to Apple.
Quote:
Originally Posted by arch
profit margin and gross profit margin are two different things! AI also doesnt seem to get this right
What's worse, this nonsense will be propagated throughout the news organizations as if it were true.
Quote:
Originally Posted by pedromartins
Exactly.
Time and time again we have to deal with the same non-sense, the stupidity from some posters that do not understand the difference between BOM and actual cost per device and the fact that they truly DO NOT WANT to understand it. They are here just for bashing and laugh at the ones that buy this device or any other product made by Apple.
That's stupidity and ignorance.
However, even if the BOM was 2 dollars, so what? It's totally irrelevant. This is the best tablet out there besides the new 9.7" iPad (ecosystem, UI speed, tablet apps) and that's all that matters.
Heck it's just a guess anyway.
Besides, anyone who's been here for very long at all knows that Apple is more efficient at building devices and pays less for comparable components than the rest of the industry due to their huge volumes and negotiating skills. Because of that their component costs could even be less than iSuppli estimates.
That's why they are calling it a 'gross' margin. Just like what you make before taxes is your 'gross' pay, etc.
The 'net' margin is likely much much lower, especially this year where they probably have higher R&D etc costs.
The biggest problem right now is not the margin. It's actually the rumor 'low yield rate' of the iPad mini.
It seems like even without long lines buying, the mini ran out of stock quickly. That means not a lot have been produced. If they continue to be out of stock for the next month, a lot of people will have lost their patience and just go and buy other tablets for holiday gifts.
1. Apple lowering prices is not Apple's style
2. When it comes to analysts and the numbers they pulled out of their butts, Apple is a Honey
Badger
Or even Apple being cautious. They don't want to be saddled with tons of units that don't sell because they don't have huge warehouses etc to hold things. They likely figure more folks will want the LTE units so yes they might have under produced a little on this line, knowing they could ramp up quickly if the iPad Mini was selling. And they would have sales patterns to guide them in which models to ramp up the most. It is actually a smart move that might not be quite the disaster you think
True, but that is their logic.
And in classic AI, really all blogs, form, the information is merely quoted without any editorials particularly pointing out the bad info like poor definitions, lack of the full picture etc
Quote:
Originally Posted by Apple ][
Maybe they understand, but it seems that a lot of other people don't.
Most people dont seem to understand what gross margin is, let alone cost of goods, and the other associated costs.
Many people do not understand gross margin. Accounting can be tricky. What is a direct vs indirect cost? Then there is the math.....
I would take Cook's word for it that the mini is well under the average gross margin for Apple. In other words, they priced it aggressively. We'll see in their next quarter's conference call how the mini fared and whether it brought down their average margins appreciably.
That said, the low BOM did surprise me, if it's at all accurate.
I realize that there is an argument going on about Price - BOM/ Price times 100 does not equal gross margins. The simplicity of this relationship is one of it's benefits. In Apple's business, it skips all the complexity created by the capital outlay for equipment, special prices for products supplied, and other contractual issues. The fact that Apple purchases most of the expensive machinery necessary to make its products and writes it off on their own books, and guarantees a purchase price for the total output of a factory makes the decision to build for Apple a low risk high profit exercise for the manufacturer. The flip side is no one outside of Apple can correctly calculate the BOM Apple pays for it's goods. The simplest way around this is the formula above. It will understate Apple's costs at the beginning of the development cycle and overstate their costs at the the end.
An oversimplification can be justified if its use is understood and the limitations of the guess are laid out. I have to defer to Asymco on this one. Horace has consistently been correct when he has described the marginal expenses Apple has given in it's guidance as low. I believe Apple is not being manipulative in doing this. I believe they are simply giving an average of what their costs will be if demand is low versus high as an estimate of what they will face next quarter. So far in the most recent quarter's in memory Apple has always been demand limited. This has meant that the average done at the beginning of the quarter is unreasonably low since there was no product sold at the lower demand profile. If there ever were a quarter when the demand was not in excess of the supply then Apple's conservative guidance would not only be warranted, but an honest guess as to what would happen over the next 3 months.
The added expenses that everyone has listed elsewhere in this discussion are all real expenses. They will be swamped by the effect of high demand on expenses if the demand occurs as it has during the last 10 or 12 quarters. The estimated BOM is a reasonable street price for a small order of screens (10,000 or so). This price would be way high if the order locked up the whole output of one or more factories producing these products. I would expect at least 10%-15% drop in the BOM if the contract kept the factory at full tilt production levels. Maybe more if the high risk capital necessary to refit the factory was supplied by the buyer. This is how Apple buys all of their products. It is the real strategic value of all that cash "sitting around doing nothing". There is no bank in the world who wouldn't accept a check or draft written by Apple do its core business. None of their partners have ever lost money making their products for them either.
It is also true that over the whole quarter Apple will drive down the costs for new tech by paying incentive bonuses for certain levels of production at each of it's suppliers factories. This will be averaged into the monthly total to reduce costs. If my memory is correct, the last "monster quarter" was from Jan- March 2012. This corresponds to the second quarter after a refresh of product (iPhone 4s) in the market place when demand and efficiency were at an all time high. If Apple beats that quarter's income and sales volume by a large percentage (more than 40%) you can look for Wall St to get back on board the Apple express.
Gross margin includes cost directly related to the sales of an item; labor, logistics, BOM.
It does not include rent, aministrative cost, R&D, etc. These are subtracted for net profit. Its hard to quantify these in to the item. So they are subtracted from gross profit at the end of the month/quarter/year.
Quote:
Originally Posted by drobforever
The biggest problem right now is not the margin. It's actually the rumor 'low yield rate' of the iPad mini.
It seems like even without long lines buying, the mini ran out of stock quickly. That means not a lot have been produced. If they continue to be out of stock for the next month, a lot of people will have lost their patience and just go and buy other tablets for holiday gifts.
They are posting 2 weeks back order which means they are delivering everyday. Just today they announced that you can order online and pickup in the store the very next day. If people wait until two weeks before Christmas to order then perhaps they will be taking the risk they won't get it in time. If you want one, best to order early. They are not out of stock. They run out everyday. Big difference.
Jesus!!! What happens to appleinsider ? 43%???? Did you include R&D, advertisement, shipping & handling, marketing, employees, iOS cost, other bundle softwares, A/S, etc ?
Quote:
Jesus!!! What happens to appleinsider ? 43%???? Did you include R&D, advertisement, shipping & handling, marketing, employees, iOS cost, other bundle softwares, etc ?
Thank you.
Don't forget free unlimited Shared Photo Streams, limited My Streams, email and document/app storage. All with no ads.
Quote:
Originally Posted by lightstriker
Gross margin includes cost directly related to the sales of an item; labor, logistics, BOM.
It does not include rent, aministrative cost, R&D, etc. These are subtracted for net profit. Its hard to quantify these in to the item. So they are subtracted from gross profit at the end of the month/quarter/year.
Correct. But the bigger failing is that most of the prices are just guesses. Perhaps educated guesses, but guesses non the less.
I almost think these guys assume a margin and then fudge the figures to make it work.
Remember their 40%-50% margins on basic full size iPads. Court documents revealed lower end margins were about 23% IIRC.
That kind of discrepancy means they are really missing significant elements in their estimates.
Quote:
Originally Posted by arch
((selling price-BOM)/Selling price) * 100
yes you're correct. made a big mistake.
Buying a new iPad is like voting... do it early and often.