If you think Tim Cook is 'robbing' you, then so was Steve Jobs

Posted:
in General Discussion edited November 12
The company is making more cash than ever as a whole, but AppleInsider delves into the figures to see how much of that is through increased sales of hardware and how much is from Apple skimming more profit per device since Cook took over.

Illustration showing Apple logo as bar chart graphic
Illustration showing Apple logo as bar chart graphic


There's no doubt that iPhones, iPads, and just about everything Apple makes is more expensive now than before. Yet alongside that fact there's also an idea that the company is simply being more greedy and is milking us for ever more money because it can.

It's not as if Apple used to be a social club and only recently become a business, but still there's a limit. There's a point where Apple is making so much more profit per device that users start complaining. Apple talks a good talk about being focused on design but if it's really raking in so much more cash per product than talk is all it is.

Ideas and claims aren't enough, though. We want facts. We've taken Apple's gross profit margin figure for every year that we can get reliable, comparable data for. That's since 1994 -- and between now and then the company's actual income has risen so much that every businessman or woman in the world must drool nightly.

There's a big difference between cash coming in the door and what a company's profit margin is, though. Even if Apple is selling rather a lot more hardware today than it did in, say, 1994, it's also having to spend a great deal of cash to make them.

Luca Maestri, Apple's Chief Financial Officer
Luca Maestri, Apple's Chief Financial Officer


So while the income figures don't tell us anything, the percentage profit does. We can directly compare how much profit Apple makes over the years by focusing only on the gross profit margin.

Methodology

To be clear, what we wanted to find out was a percentage figure for how much profit Apple makes each year. That calculation is a standard business accounting one and we used it on data taken from Apple's own annual report filings online. While the format of this has varied slightly since 1994, each report contains a top-line figure for sales and costs for the current year plus the two preceding ones.

Full disclosure: we found a discrepancy in the figures for 2008 as reported both then and as a preceding year in the 2010 reports. However, it amounted to a 0.9 percent difference so we presume there was an accounting correction and have taken the later figure as the final one.

Enviable profit margin

You're not going to grieve for Apple when you see these figures. Data from the latest 2018 annual report suggests an overall profit margin of 38.34 percent.

If that sounds big, remember that compared to any other technology company in the world, it's gigantic. For at least the two decades, computers have been sold on hair-thin margins -- but never and still not by Apple.

Steve Jobs (left) and Gil Amelio
Steve Jobs (left) and Gil Amelio


The one thing this figure isn't, though, is evidence that Apple is getting more out of us per device as a percent in hardware sales. This year's figure is actually lower than any since 2014.

True, it's a close-run thing. In 2017 the gross profit margin was 38.47 percent, just 0.13 percent more. In 2016 it was 39.08 percent; in 2015 it was a remarkable 40.06 percent. Then in 2014 it was 38.59 percent.

Not since 2013 has the profit margin been lower than it is today and then it was just 37.62 percent or 0.72 percent less. That 2013 figure is notable, however, because the year before saw 43.87 percent gross profit margin.

There are good profit margins and there are ones that make you check the batteries in your calculator. Apple's 43.87 is stunning and its low in recent years of 37.62 isn't much less impressive.

The key thing there, though, is the phrase 'recent years'. Having gone back this far, we took it a step further and looked at how Apple's gross profit margin has fared under its last few CEOs.

Tim Cook versus Steve Jobs

Given that Apple's CEOs rarely change over at convenient accounting times, it's a little blurry who you can call responsible for which portion of Apple's financial history.

However, if we say Tim Cook was 2012 to the present day, that means he's kept Apple at an average 39.43 percent gross profit margin.

Taking Steve Jobs as CEO from 1998 to 2011, you see much greater range. He averaged 30.94 percent gross profit margin over those years but it went from a low of 25 percent in 1998 when he had to right the ship quickly, to a high of 40.48 in 2011 when he clearly didn't.

That's a difference of 15.48 percent in gross profit margin between when Jobs took over from Gil Amelio to when Tim Cook took over from Jobs.

Tim Cook (left) and Steve Jobs
Tim Cook (left) and Steve Jobs


Just to complete the picture, former CEO Amelio got two years in charge with 1996's margin being 10 percent and 1997's being 19 percent. While we don't have data for the whole tenure of his predecessor, Michael Spindler, we do know that for both of his last two years, the gross profit margin was 26 percent.

It's not all iPhones

Don't take from this that under Jobs, Apple made 40.48 percent profit from every Mac sold. The company didn't sell a Power Macintosh 6100 for $1,699 in 1994 ($2,894 today) and go laughing to the bank with $687.76 ($1,171.51 today). Similarly, Apple is not today making 38.34 percent from every iPhone. It doesn't sell an iPhone XS Max with 512GB storage for $1,449 and pad out its collective wallets with $556.42.

No, that's the kind of margin it gets on AppleCare and its Services instead. You know, that segment that Apple has been talking about for three years, and is still is considered under-appreciated by most investors.

Until January's earnings report, we can't make a precise calculation about margin percents from AppleCare or any of the company's many, many other services. The figures we've got are overall ones and it's reasonable to assume that it costs Apple more to physically assemble and ship an iPhone XR than it is to email you a receipt for AppleCare.

However, AppleCare is not all profit unless everybody's iPhones miraculously never have any problems or damage. In reality, there's going to be a significant cost to Apple of covering issues through AppleCare and we cannot prove what that is.

Nobody can actually prove what the gross profit margin on Apple's various services like AppleCare, ApplePay, the iTunes Store and, for instance, selling us all more iCloud storage. Nobody outside Apple can do this because the company doesn't publish how much these services cost to run -- at least not today.

So we can see from the annual report that the entirety of Apple's services for financial year 2018 earned the company $37,190,000 but for all we know, it spent $37,189,999 running them. However, just because we can't prove figures, that doesn't mean others haven't made a stab at calculating it.

Financial analysis company Above Avalon, for instance, has analyzed all the data that Apple does publish including ones such as how much it has paid to app developers. Since Apple keeps between 15 and 30 percent of all app sales, the company has estimated the profits of that part of the business.

It's made similar calculations and estimates in its latest analysis. The site's summary findings are that Apple is currently making around 55 percent gross profit margin on all its services.

The report claims that 75 percent of iCloud is pure profit, compared to 60 percent for AppleCare and 80 percent for Apple Pay. Remarks by Tim Cook and Chief Financial Luca Maestri support the supposition that Services are boosting margins -- because they have confirmed that it does on more than one occasion.

Money changes everything

You can have gross profit of 50 percent but if you only sell a buck's worth of goods, that's not going to help you much. Apple, though, has increased its sales incredibly and maintained a very strong profit margin. It's done so from the company's most difficult times to today when, at least from the outside, it looks like these are the best financial times for Apple ever.

Apple's Quarterly Profits 2006 to 2018 (graph by Malcolm Owen)
Apple's Quarterly Profits 2006 to 2018 (graph by Malcolm Owen)


The company has always been strong on making profits and that is very impressive. It's not, though, some sign that the firm is now prioritizing money over design. It's not a sign that Apple is now greedily putting money before the quality of its products, or is cheating its owners somehow.

At least not more than it has in the past.



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Comments

  • Reply 1 of 155
    Just saw a comment on Facebook about the market drop being led by Apple: "$1000 phones, what do you expect!"  LOL
    razorpit
  • Reply 2 of 155
    Next from the Wall Street crowd, "In the last six years Tim Cook is unable to significantly raise Apple's margins..."
    Soliradarthekathydrogenraoulduke42
  • Reply 3 of 155
    Is this report talking about gross margins or profit margins? Do you have a comparison of average selling prices over time?
    edited November 12 aylk
  • Reply 4 of 155
    lkrupplkrupp Posts: 6,530member
    Just saw a comment on Facebook about the market drop being led by Apple: "$1000 phones, what do you expect!"  LOL
    Well, the critics and haters have to have something to bitch about don’t they? For years it was performance, now it’s price. All the top flagship smartphones are approaching $1K but let’s single out the iPhone for ridicule. No amount of editorializing will stop the carping. The haters and disgruntled desktop crowd think they’ve found a new path to Apple’s doom and they will milk it for all it’s worth. Let them wallow in their negativity. Let them stew in their own hate filled juices. Let them be consumed by their own inadequacies. Let them think people who remain fans of the company are delusional.
    andrewj5790gilly33racerhomie3williamlondonwatto_cobrajony0
  • Reply 5 of 155
    Margins in the 40% range are very good for a company selling physical goods.

    But they pale in comparison to the margins over at Google (average of 61% for the past 10 years) or Microsoft (average approaching 70% and a record high of 80%). Yet I don't see anyone giving them a hard time about how much money/profit they're raking in.
    bobolicioustribalogicalchiad_2gilly33racerhomie3chasmrepressthiswilliamlondonTomE
  • Reply 6 of 155
    chasmchasm Posts: 997member
    Thanks for this. I know it’s an economic truism that the public broadly thinks of costs as fixed or getting lower over time, and that’s not wrong with companies that sell roughly the same thing over many years, like McDonalds. But if you are in the technology sector, and especially if your Apple, you are constantly reinventing re-designing your products — which is an enormous extra expense of R&D and manufacturing compared to, say, the shoe maker.

    The reason Apple is still here is because of that approximately 38% average profit margin, and it’s nice to see that they’ve maintained that level at around the same figure. I have an examined it that closely, but I would wager that if you adjusted for inflation, nearly all of Apple’s hardware is actually cheaper now (in real dollars) than it was in 1994. To be fair, the top-tier iPhone has more than doubled in price from its debut 11 years ago (when there was only one tier — but check out how much cheaper the entry-level Apple Watch or a MacBook Pro has gotten since their respective debuts.
    andrewj5790bobolicioustribalogicalchiaradarthekatracerhomie3watto_cobra
  • Reply 7 of 155
    lkrupplkrupp Posts: 6,530member
    chasm said:
    Thanks for this. I know it’s an economic truism that the public broadly thinks of costs as fixed or getting lower over time.
    I’m not sure I agree with this statement. Everything goes up in price due to inflation. I think the public is well aware that the price of food, energy, goods, services, and the like continue to rise. A gallon of milk costs more today than ten years ago. Food producers give the illusion that prices are stable but you only get 4lbs of sugar instead of 5lbs now, twenty ounces instead of 32 ounces.
    gatorguy
  • Reply 8 of 155
    There is gross margin, which, after the crisis period after Jobs' return to the helm stabilized pretty consistently at just about 38% on average, give or take a bit. It's a very consistent Gross, and has been for well over a decade now. They keep their pricing across all their lines (hardware, software, services, etc.) at levels clearly designed to maintain that +/- 38% gross margin. They've been incredibly adept at keeping it there. I was interested in a similar comparison of Net Margins over the same period. How much did the business cost, how much of that steady Gross did they have to spend to keep it all running, and running profitably? How steady are the Net Profits? That, in the end, is a better measure of whether a company is "gouging" or not. Gross is fine, but Net is where the 'bottom line' sits. If a company manages to keep their net always at or above break even (even in slimmer quarters) then they're doing it right. This chart seems to indicate (for the last 5 years, at least) that they are. Scroll down to see a longer list (uncharted) of margins going back to 2006 when they were at or around 10%. Apple was still recovering, helped in part by the iPod, and just before iPhone. Then the magic happened. They've been in the 20-percentile range for most of the past decade. This is before-tax profit, I believe. So not at all gouging, considering they have a pretty specactular global demand. They see more profit in better quarters, and typically razor thin in slimmer quarters (summer), but they aren't in the red, ever. That's where a company should be to remain healthy. https://ycharts.com/companies/AAPL/profit_margin So, after-tax profits in the area of 15% ~ 20%, which is still above average but not exactly gouging, especially with products they can't make enough of for a couple of months after they release. Their services are all pretty reasonably priced, none are at all higher than the market in general. iCloud (I pay $3/mo for the 200GB of storage, which is reasonable, and it's extremely secure), Apple Music @ $100/year is basically the same as Prime's annual. I think the $100 ~ $120 annual for unlimited content access is becoming kind of a standard. The rest, Apple Care has been affordable,, and Apple's support is second to none. You get what you pay for... All to say, if anyone accuses Apple of gouging, that's nonsense. You can only accuse them of making "high end" products, that sport a premium price tag, but also have the quality to match. I know of very few people who kept a Samsung "smart phone" for 5 years without a glitch or the slightest decrease in performance (other than battery life)... I've owned iPhone 1, 3GS, 5S, and now X... I had the 5S for about 5 years, and never a single issue. It performed the same from day to the day I traded it in for the iPhone X. Same is true of my 9 year-old iMac (replaced last year as my main workstation, but still going as an "everyday computer"), my soon-to-be-replaced 5-year old MacBook Pro... Problem-free, running strong, and worth every penny I paid for them. This is why the "premium" is so worth it. Total Cost of Ownership (TCO) is still lower than all the disposable crap in the PC world. So, is it really gouging because we have to pay a bit more up front? Not when it ends up performing better and costing less in the long run... And that's my big fat 2-cents worth on the topic. :D
    elijahgradarthekatd_2racerhomie3pakittpakittwatto_cobra
  • Reply 9 of 155
    Sane mind writing a sane article... breath of fresh air. .... specially today !
    andrewj5790radarthekatchasmpakittwatto_cobra
  • Reply 10 of 155
    lkrupp said:
    chasm said:
    Thanks for this. I know it’s an economic truism that the public broadly thinks of costs as fixed or getting lower over time.
    Everything goes up in price due to inflation. I think the public is well aware that the price of food, energy, goods, services, and the like continue to rise. A gallon of milk costs more today than ten years ago. Food producers give the illusion that prices are stable but you only get 4lbs of sugar instead of 5lbs now, twenty ounces instead of 32 ounces.
    It's all relative. Wages should also rise to keep up with inflation (but they don't always do that). When people talk about the cost of things "in 1990 dollars" it's comparing the relative cost of products. The fact is, relative to inflation, those costs have gone down. You can think of it like this (in oversimplified terms): Back when the minimum wage was $3 and change, a gallon of milk cost about $1. Now, the minimum wage is around $8, and a gallon of milk costs about $2.50. Pretty much no change as a percent of income. So the price isn't actually greater relative to inflation and income overall... In most cases however, although the "dollar amount" is higher (but not always), the actual relative cost of things is less compared to what it cost 10 years ago to buy the same thing. Consumer electronics are a perfect example of that. I bought a 60" UHD HDR "smart TV" for $500 and change last year. The higher end models can cost $2,000... but in 1990? A 50" Plasma screen cost $5,000. And that was in 1990 dollars. That would be something like $20,000 now... As long as income rises to match inflation, and the relative cost of goods keep coming down, small increases in things like "fruit and dairy" are easily offset. We feel like we get more for our money. If, if, if... Most people don't feel like their income is keeping up, but that's more a political issue which I'm not going to delve into here...
    elijahgwatto_cobra
  • Reply 11 of 155
    AppleCare profits are pretty high, very few people actually use this extended warranty. I know better than to buy an extended warranty. I personally never had to use them for Apple products, my iMac is 6 yrs old next month and never been in the shop. My kid on the other hand has used their apple care on their phones. I have gotten Apple care from time to time when I think the tech leap was enough to think Apple may have not gotten it 100% right, also knowing that Apple does give people who had Apple care less hassle when you do have a problem.
    watto_cobra
  • Reply 12 of 155
    ...for me it is about usability, choice, flexibility and upgradability...

    Some may not want or need a touchbar, or may be happier investing in a more modest if (much) higher capacity SSD for the same price, vs the uber fast onboard Apple OEM options at many times the price, and linked and limited with a custom T2 controller...

    I've had sales reps at both an indy authorized dealer and an Apple Store recently sympathize and say the retail cost of macbook pros has become a problem and a sales disincentive, with used macbook pros actually increasing in price as demand for some options now orphaned has increased - for those that need or just want the best by all means, pay your (or Apple's) price, and they may be 'fair trade' and a good value for what they are, however needs do vary, and I keep thinking of the phrase 'a computer for the rest of us', for what it may be worth...

    ... on the T2 front if the custom storage is prohibitive enough to spawn lugging lesser external drives everywhere, how effective is a security argument?
  • Reply 13 of 155
    My father was the Marketing VP for Sealtest Foods (owned by Kraft) in the 1970's.

    Think, Breyer's premium ice cream, before Häagen-Dazs, and Light and Lively yogurt, before Yoplait (Yoplait is now the largest franchise brand of yogurt). Think 'sugar!' 

    But their main business was Milk. 

    He used to tell me the industry regarded the profit margin on milk as an 'eagle,' (Golf reference) I.E., The Profit Margin was three decimal places to the right, e.g., .001%.

    He'd say, "we're just wearing out the plant machinery and the delivery trucks."

    He's also say, "Son, have you ever had a cow sneeze on you?" I'd say, "No." And he'd continue, "But you can imagine it, right? Now, on that half-pound of phlegm, put a cherry on top and a sliced banana around it and you have 'Ice Cream!'"

    Thx Dad.


    radarthekatd_2pscooter63watto_cobra
  • Reply 14 of 155
    Apple is welcome to all the profits it can make, I just want ONE upgradeable laptop and ONE upgradeable desktop.
    williamlondonSanctum1972
  • Reply 15 of 155
    I don't think Cook is robbing me, but I strongly suspect he's been leaving four-wheeler ruts in my yard.
    retrogustoTomESanctum1972watto_cobra
  • Reply 16 of 155
    tzeshantzeshan Posts: 1,801member
    It seems from AAPL quarterly er reports, the profit margins stays essentially unchanged since the first iPhone. Apple is making insanely profits only because the iPhones sales volumes are incredible high compared to almost all products human being ever created. 
    christopher126pscooter63chia
  • Reply 17 of 155
    wood1208wood1208 Posts: 1,639member
    You don't become trillion dollar company by robbing people..So, stop entertaining such dumb idea.
    christopher126williamlondonwatto_cobra
  • Reply 18 of 155
    FolioFolio Posts: 396member
    A follow up piece on current gross and net profits of Apple compared to McDonalds, P&G, Disney, etc and (as suggested above by another forum member) Google, FB, Microsoft might surprise you. And taking in total lifetime cost and ever increasing functionality Apple just may be one of best reliable bargains... But yes hard to deny the upfront cost for Apple leading edge seems suddenly steeper, especially if can’t write off as biz
    radarthekatmikeybabeswatto_cobra
  • Reply 19 of 155
    I remember when Steve Jobs was on stage and he would unveil an updated product and he said "The price is....just $499, the same price as before" but change $499 to another price for a different product. Now, it is xx price before + $200 more usually.
    elijahgSanctum1972
  • Reply 20 of 155
    Maybe that shows how snobby people these days.  As a user I really think "How can I make better use of my purchases" should comes first, but most people calculates their gain & loss even more and that's total contrary.

    I'm not defending corporations and all of their acts, but there's a limit.
    edited November 12 Sanctum1972
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