R&D as a percentage of sales is how you measure it.
No...it isn't. Think, if Apple suddenly started selling 10x as many machines, would their R&D have to increase at all? No.
So saying that Apple can't lower prices because of high R&D costs is BS. Its a completely circular argument. The *reason* for the R&D costs that you call "high" is that Apple sells very few machines.
Dell is able to amortize their cost over many more machines, because they sell high-quality, fast systems with great support and at fair and at times more than fair prices.
Dell is growing, Apple is shrinking. That is a fact. If you still want to say Apple has the better business model, go ahead.
<strong>No...it isn't. Think, if Apple suddenly started selling 10x as many machines, would their R&D have to increase at all? No.</strong><hr></blockquote>
Agreed...good point.
[quote]<strong>Dell is growing, Apple is shrinking. That is a fact. If you still want to say Apple has the better business model, go ahead.</strong><hr></blockquote>
I agree with your above point, but not necessarily this one. Dell and Apple are in similar markets, but with dissimilar customers. While Dell's business model works for their environment, Apple need not take up that business model and falter the way Gateway, for example, is.
They need to stay in their market, target their customer base, and gain as many switchers as they can. I think they are doing just fine. With a PPC970 move, I think they will be doing much better.
<strong>R&D as a percentage of sales is how you measure it.
No...it isn't. Think, if Apple suddenly started selling 10x as many machines, would their R&D have to increase at all? No.
So saying that Apple can't lower prices because of high R&D costs is BS. Its a completely circular argument. The *reason* for the R&D costs that you call "high" is that Apple sells very few machines.
Dell is able to amortize their cost over many more machines, because they sell high-quality, fast systems with great support and at fair and at times more than fair prices.
Dell is growing, Apple is shrinking. That is a fact. If you still want to say Apple has the better business model, go ahead.</strong><hr></blockquote>
Circular arguments are great, aren't they. If Apple was selling 10 times more machines would their prices be lower?
<strong>No...it isn't. Think, if Apple suddenly started selling 10x as many machines, would their R&D have to increase at all? No.</strong><hr></blockquote>
If Apple sold 10x as many machines their R&D cost would be very reasonable, if they could keep it the same.
You have to look at how much a company earns by investing a certain amount in R&D, and it seems that Apple needs to spend a lot on R&D to even make a decent income.
Could Apple lower their R&D? Yes.
Could Apple lower their prices because of that? Yes.
Would they earn more money? Probably not.
Dell can spend $1 on developing something and sell it for $75 - Apple can't.
Measured in dollars, Dell spend about the same as Apple, but on how many different models?
All else being equal: Apple spend much more on developing every model they sell.
[quote]Originally posted by crayz:
<strong>So saying that Apple can't lower prices because of high R&D costs is BS.</strong><hr></blockquote>
No it's not. Lower prices does not automatically mean more sales to cover (among other things) R&D.
You have to find the sweet spot where you earn the most - not sell the most.
[quote]Originally posted by crayz:
<strong>Dell is able to amortize their cost over many more machines, because they sell high-quality, fast systems with great support and at fair and at times more than fair prices.</strong><hr></blockquote>
The fun thing is that they are having a hard time earning money.
If Dell hadn't changed the way they do their quarterly reports last quarter, it would have shown a negative result of $1.6 billion.
<strong>No it's not. Lower prices does not automatically mean more sales to cover (among other things) R&D.</strong><hr></blockquote>
I know we have been over this I don't know how many times, but the message clearly isn't penetrating your RDF so I will try again,
8 out of 10 serious customers who are interested in buying Macs leave empty handed from my store, we are the only store in the region and we sell at the MSRP.
8 out of 8 who don't buy a mac say price was the reason they didn't do so. As one woman said before Christmas "I don't hate Windows that much...."
I have not heard a person raise a compatability issue as their reason for not buying a mac in two years.
Price is the only real issue I hear raised by those who didn't buy a Mac,
Customers don't even seem all that worried about the lower levels of performance until they see the price.
I run just one store, in one medium sized city, but mac dealers I know across the country and around the world raise the same issue over and over again.
I am very confidant that those 8/10 who don't buy a mac because they can't justify the expense would have otherwise.
Am I to believe sales to those 80% who walk away because of price wouldn't offset decreased margins,
before you continue to vent your splean and quote tired old Apple apologist lines, why don't you have a little talk with your local apple dealer and ask them what might improve sales.
I know we have been over this I don't know how many times, but the message clearly isn't penetrating your RDF so I will try again,
8 out of 10 serious customers who are interested in buying Macs leave empty handed from my store, we are the only store in the region and we sell at the MSRP.
8 out of 8 who don't buy a mac say price was the reason they didn't do so. As one woman said before Christmas "I don't hate Windows that much...."
I have not heard a person raise a compatability issue as their reason for not buying a mac in two years.
Price is the only real issue I hear raised by those who didn't buy a Mac,
Customers don't even seem all that worried about the lower levels of performance until they see the price.
I run just one store, in one medium sized city, but mac dealers I know across the country and around the world raise the same issue over and over again.
I am very confidant that those 8/10 who don't buy a mac because they can't justify the expense would have otherwise.
Am I to believe sales to those 80% who walk away because of price wouldn't offset decreased margins,
before you continue to vent your splean and quote tired old Apple apologist lines, why don't you have a little talk with your local apple dealer and ask them what might improve sales.</strong><hr></blockquote>
And the people at Apple responsible for pricing, finances and so on are doing nothing but running around with their hands to their ears
You can bet your ass that Apple are doing research on how many machines they can sell at a given price point and how much they will earn at that price point - it's basic economics.
But of course, the many 'couch economists' here are much wiser - I guess that you could get a football team into the Superbowl too.
OK, let's say that Apple would sell 80% more machines by lowering their prices $300 on average:
Last quarter Apple sold 734,000 Macs and that comprised $1.094 billion of its $1.443 billion in revenue.
That's an average price of $1,490.46, and the gross margin was $393.48 per machine earning Apple $288,814,300 in gross income.
Apple posted a net loss of $45 million.
New prices and 80% more machines:
1,321,200 x $1,190.46 = $1,572,836,000 in revenue
1,321,200 x $93.48 = $123,505,800 in gross income
New net loss: $210 million.
See my point?
Edit: Regarding component prices, Dell sold 3,523,000 PCs in the US alone last quarter, and you think that Apple pays the same as Dell when they buy components?
It's hard to believe there is so much confusion over R&D and product development costs. R&D by the way also includes early stage engineering, maybe just proving a concept for a product. Much of that never sees the light of day, but it is necessary in a creative company. Product development cost is engineering and other expenses to develop a new, salable product, and accounting keeps track of it by project. So in the end, management knows the development cost for each product. A portion of a product's gross profit is considered payback for its development. When a product pays back all its development cost, it is sometimes called a cash cow.
No one outside the company gets involved with the nitty gritty of absolute costs for R&D. The meaningful figure to use for overall analysis of a company is R&D as a percentage of sales. Dell may spend more dollars for R&D, but they likely have more product types and they certainly sell more. I would also suspect that much of their R&D is spent trying to squeeze every last penny out of the manufacturing cost of their products. Market share and low manufacturing cost is why Dell is now difficult to compete with. The only way Apple can compete is to play a little different game, one that Dell is not interested in or cannot play.
I do not mean Apple is faultless. I just believe that some here are over simplifying the problem that Apple faces, and what the solution is. Apple may be in a holding pattern for a good reason. We have no way to know. Lots of good ideas also need good timing to work best.
<strong>And the people at Apple responsible for pricing, finances and so on are doing nothing but running around with their hands to their ears
You can bet your ass that Apple are doing research on how many machines they can sell at a given price point and how much they will earn at that price point - it's basic economics.
But of course, the many 'couch economists' here are much wiser - I guess that you could get a football team into the Superbowl too.
</strong><hr></blockquote>
I know alot of people at Apple who are just as frustrated as I am, pricing is set by Steve Jobs and his inner circle personally, and as they demonstrate over and over again, they are further removed from reality than most highly medicated mental patients are.
Lets not forget that these are the same people who projected Apple could sell 600,000 G4 Cubes a quarter.
<strong>OK, let's say that Apple would sell 80% more machines by lowering their prices $300 on average:
Last quarter Apple sold 734,000 Macs and that comprised $1.094 billion of its $1.443 billion in revenue.
That's an average price of $1,490.46, and the gross margin was $393.48 per machine earning Apple $288,814,300 in gross income.
Apple posted a net loss of $45 million.
New prices and 80% more machines:
1,321,200 x $1,190.46 = $1,572,836,000 in revenue
1,321,200 x $93.48 = $123,505,800 in gross income
New net loss: $210 million.
See my point?
Edit: Regarding component prices, Dell sold 3,523,000 PCs in the US alone last quarter, and you think that Apple pays the same as Dell when they buy components?
</strong><hr></blockquote>
Read a Microeconomics textbook at come back when you know what you are talking about, you are calculating a locked in expense ratio, expenses don't rise in lock step with growth.
Read a Microeconomics textbook at come back when you know what you are talking about, you are calculating a locked in expense ratio, expenses don't rise in lock step with growth.</strong><hr></blockquote>
No, but 600,000 more Macs produced won't cut the costs that much (12.5% just to break even with the result of last quarter), plus most of you are asking for much more than $300 price cut.
You're talking about Apple almost doubling their market share because of price alone - get back to where you say you come from.
The problem with your calculations is that the margins are averaged, Apples margins appear artificially low because they can't sell their high end extreme high margin systems at the moment because no one wants them.
You couldn't apply your caluclations to any company that sells more than one product, and even then they are worthless because they don't account for the economics of scale.
Read a Microeconomics textbook at come back when you know what you are talking about, you are calculating a locked in expense ratio, expenses don't rise in lock step with growth.</strong><hr></blockquote>
Now we're talking about something I know something about!
Stag and JLL, you both have great points. Without a doubt, lowering the price of a Mac will sell more Mac's. Without a doubt, some expenses are more fixed than others, so raising units sold will not raise those (fixed) expenses. Without a doubt, every business prices their products to maximize current and future profits.
Two points I would raise are elasticity and costs -
1) Elasticity of price
Lowering a Mac price will sell more units, but how many? Stag - how much lower would the price have to go to sell more Mac's such that the total gross margin will be greater than the current total gross margin? I would expect that the more Mac's sold will drive down some component costs, but let's not grossly over-estimate this.
Total Gross - (price - component costs) * units sold
Stag - what would be your educated guess at solving the NTG equation? Is there a solution where NTG > CTG? According to JLL's attempt previously, there is no solution for NTG > CTG.
2) Production costs.
Don't forget that Production costs can actually rise as more units are produced. This can happen when having to use less efficient manufacturers to produce needed components. For instance, more iMacs may require another source for flat panels, which might require new development engineering costs.
Let me add a couple of things -
1) Apple's costs are high due to various reasons. I'm sure some of the costs could be lowered through smart management. For instance, sell all Silicon Valley capital assets and move to Austin! But I'm also sure that Apple as a premium product producer has higher - justifiably so - costs than Dell and Gateway. So the debate would be about where is the fluff? Matsu - As the commercial goes, I bought Apple - about a 100 shares, so I'm with you about increasing profits and cutting costs. Hopefully, performance will be addressed sooner than later (PPC 970 - Please come SOON!!!)
2) Stag - I am really interested in your thoughts on price versus units sold. Also - what premium would people pay for a Mac such that sales would double/triple?
It doesn't take an MBA to know that macs are well overpriced. Business skills are still irrelevant. When I say percentage doesn't matter, I should say it doesn't matter to me as a buyer, I see the price and relative merits of the system in question, I don't care how much you spent per machine to get it that way.
You have to spend that money anyway, if you sell more, a priveledge of your own success is that you can distribute that cost over a greater number of sales. Dell does pay for Windows because they add it to my bill and I wiegh that when I look at the final price. If there's any trick, like not including shipping in the advertised price (another Dell ploy to keep the advertised price as low as possible) it doesn't last long in my eyes. I go by the check-out price, on the few cases where I've taken to quoting Dell prices I always make sure to include both the cost of shipping and of software licenses. However, I don't see where Dell ships machines without an OS, they have to pay for that license in the cost of the machine. Sure, it's passed on to us, but it impacts their ability to lower MSRP, just like R&D expenditures do. They pay for it, then you pay for it.
Is only Apple to be excused for their expenses?
And all those big geniuses at Apple are still rapidly losing market-share in education, slowly bleeding worldwide marketshare, and increasingly falling behind in price performance, despite recent attempts to get cheaper models on the market. No one is invested in Matsu.Inc, but people are invested in APPL, I should think it more important to question their business acumen rather than mine. Think about it, despite an extremely loyal fan base and outrageous prices, and a very healthy bank balance, earnings per share are miniscule and the stock price is not quite in the shitter, but waiting outside the stall -- really backed only by their cash reserves. No confidence there. This is not a company that's doing everything right, as some here would like to pretend, rather it faces significant problems.
You know that Apple gets very good component prices on everything except cases. We know that they often use lower spec (and cheaper) parts. We know that they milk their integrated Mobo's for many generations of PC hardware, and almost surely pay less in the long run for the life of the iMac's Mobo than a box builder assembling parts of newer vintage. Look at the costs. Apple does NOT have higher costs except where they stubbornly choose to -- 1) the debut of custom integrated mobos (all models except PM which neccessitate longer periods between updates in order to reduce overall cost and 2) custom enclosure which also tend to limit the updateability of consumer machines.
Some of you would like to blame industry forces for Apple prices, but that is unfair to everyone else doing an honest business in the industry. Costs affect everyone. Apple is not a little fish and they are in a better position to gt good prices than most companies out there. Their high prices are their own fault, not mine.
Some of you ought to learn to read before you question my business sense. I'm not the one doing my best to destroy what should be a tech winner, to basically fail in spite of myself.
<strong>It doesn't take an MBA to know that macs are well overpriced. Business skills are still irrelevant. When I say percentage doesn't matter, I should say it doesn't matter to me as a buyer, I see the price and relative merits of the system in question, I don't care how much you spent per machine to get it that way. </strong><hr></blockquote>
No, it doesn't matter to you, but I don't think that Apple can sell a machine to you at the price you want and still earn money.
The amount of Macs that Apple should sell if they lower the price to a level of your desire is unrealistic.
[quote]Originally posted by Matsu:
<strong> However, I don't see where Dell ships machines without an OS, they have to pay for that license in the cost of the machine.</strong><hr></blockquote>
You can buy a Dell with the choice of Windows, Red Hat or no OS.
[quote]Originally posted by Matsu:
<strong>Think about it, despite an extremely loyal fan base and outrageous prices, and a very healthy bank balance, earnings per share are miniscule and the stock price is not quite in the shitter, but waiting outside the stall -- really backed only by their cash reserves.</strong><hr></blockquote>
Exactly, but lowering the price won't help.
Apple is in a position where they can't get processors that can compete with 'the other side', and they can lower the price that much if they still want to earn money.
The price isn't the problem - the performance is.
I'm waiting for Apple to be able to make high performing Macs at a proper price, not lowering the prices on the lower performing Macs they make today, since it IMHO isn't possible for Apple to sell that much more of the current Macs that it can cover the cost of producing them.
[quote]Originally posted by Matsu:
<strong>You know that Apple gets very good component prices on everything except cases.</strong><hr></blockquote>
But it's nowhere near the prices Dell pay - they buy six times as much.
Also you must remember that apple gives a lot away with a new Mac. You get iPhoto, iMovie, iDVD, iCal, and iTunes, plus the OS and all the other applications that are included with it. These things don't fall of trees. Then you have to remember that apple designs all their computers to look unique. They must pay for custom boxes; which include expensive plastics and medals. Like the Stainless steal the iMacs arm is made of etc. Come on guys you all know that we get more when we buy an apple. Apple doesn't need to lower prices they need to up performance. They need the 970.
<strong>Yeesh. It wasn't that long ago Apple had towers in the UK for £1,100 ish...before that audacious price hike.</strong><hr></blockquote>
Given the price reductions on the other models, I don't think that a £200 price reduction on the next Power Macs are impossible - the current exchange raise will give you a £100 price reduction alone even if the price stays the same in the US.
Comments
No...it isn't. Think, if Apple suddenly started selling 10x as many machines, would their R&D have to increase at all? No.
So saying that Apple can't lower prices because of high R&D costs is BS. Its a completely circular argument. The *reason* for the R&D costs that you call "high" is that Apple sells very few machines.
Dell is able to amortize their cost over many more machines, because they sell high-quality, fast systems with great support and at fair and at times more than fair prices.
Dell is growing, Apple is shrinking. That is a fact. If you still want to say Apple has the better business model, go ahead.
<strong>No...it isn't. Think, if Apple suddenly started selling 10x as many machines, would their R&D have to increase at all? No.</strong><hr></blockquote>
Agreed...good point.
[quote]<strong>Dell is growing, Apple is shrinking. That is a fact. If you still want to say Apple has the better business model, go ahead.</strong><hr></blockquote>
I agree with your above point, but not necessarily this one. Dell and Apple are in similar markets, but with dissimilar customers. While Dell's business model works for their environment, Apple need not take up that business model and falter the way Gateway, for example, is.
They need to stay in their market, target their customer base, and gain as many switchers as they can. I think they are doing just fine. With a PPC970 move, I think they will be doing much better.
<strong>R&D as a percentage of sales is how you measure it.
No...it isn't. Think, if Apple suddenly started selling 10x as many machines, would their R&D have to increase at all? No.
So saying that Apple can't lower prices because of high R&D costs is BS. Its a completely circular argument. The *reason* for the R&D costs that you call "high" is that Apple sells very few machines.
Dell is able to amortize their cost over many more machines, because they sell high-quality, fast systems with great support and at fair and at times more than fair prices.
Dell is growing, Apple is shrinking. That is a fact. If you still want to say Apple has the better business model, go ahead.</strong><hr></blockquote>
Circular arguments are great, aren't they. If Apple was selling 10 times more machines would their prices be lower?
<strong>No...it isn't. Think, if Apple suddenly started selling 10x as many machines, would their R&D have to increase at all? No.</strong><hr></blockquote>
If Apple sold 10x as many machines their R&D cost would be very reasonable, if they could keep it the same.
You have to look at how much a company earns by investing a certain amount in R&D, and it seems that Apple needs to spend a lot on R&D to even make a decent income.
Could Apple lower their R&D? Yes.
Could Apple lower their prices because of that? Yes.
Would they earn more money? Probably not.
Dell can spend $1 on developing something and sell it for $75 - Apple can't.
Measured in dollars, Dell spend about the same as Apple, but on how many different models?
All else being equal: Apple spend much more on developing every model they sell.
[quote]Originally posted by crayz:
<strong>So saying that Apple can't lower prices because of high R&D costs is BS.</strong><hr></blockquote>
No it's not. Lower prices does not automatically mean more sales to cover (among other things) R&D.
You have to find the sweet spot where you earn the most - not sell the most.
[quote]Originally posted by crayz:
<strong>Dell is able to amortize their cost over many more machines, because they sell high-quality, fast systems with great support and at fair and at times more than fair prices.</strong><hr></blockquote>
The fun thing is that they are having a hard time earning money.
If Dell hadn't changed the way they do their quarterly reports last quarter, it would have shown a negative result of $1.6 billion.
[ 12-30-2002: Message edited by: JLL ]</p>
<strong>No it's not. Lower prices does not automatically mean more sales to cover (among other things) R&D.</strong><hr></blockquote>
I know we have been over this I don't know how many times, but the message clearly isn't penetrating your RDF so I will try again,
8 out of 10 serious customers who are interested in buying Macs leave empty handed from my store, we are the only store in the region and we sell at the MSRP.
8 out of 8 who don't buy a mac say price was the reason they didn't do so. As one woman said before Christmas "I don't hate Windows that much...."
I have not heard a person raise a compatability issue as their reason for not buying a mac in two years.
Price is the only real issue I hear raised by those who didn't buy a Mac,
Customers don't even seem all that worried about the lower levels of performance until they see the price.
I run just one store, in one medium sized city, but mac dealers I know across the country and around the world raise the same issue over and over again.
I am very confidant that those 8/10 who don't buy a mac because they can't justify the expense would have otherwise.
Am I to believe sales to those 80% who walk away because of price wouldn't offset decreased margins,
before you continue to vent your splean and quote tired old Apple apologist lines, why don't you have a little talk with your local apple dealer and ask them what might improve sales.
<strong>
I know we have been over this I don't know how many times, but the message clearly isn't penetrating your RDF so I will try again,
8 out of 10 serious customers who are interested in buying Macs leave empty handed from my store, we are the only store in the region and we sell at the MSRP.
8 out of 8 who don't buy a mac say price was the reason they didn't do so. As one woman said before Christmas "I don't hate Windows that much...."
I have not heard a person raise a compatability issue as their reason for not buying a mac in two years.
Price is the only real issue I hear raised by those who didn't buy a Mac,
Customers don't even seem all that worried about the lower levels of performance until they see the price.
I run just one store, in one medium sized city, but mac dealers I know across the country and around the world raise the same issue over and over again.
I am very confidant that those 8/10 who don't buy a mac because they can't justify the expense would have otherwise.
Am I to believe sales to those 80% who walk away because of price wouldn't offset decreased margins,
before you continue to vent your splean and quote tired old Apple apologist lines, why don't you have a little talk with your local apple dealer and ask them what might improve sales.</strong><hr></blockquote>
And the people at Apple responsible for pricing, finances and so on are doing nothing but running around with their hands to their ears
You can bet your ass that Apple are doing research on how many machines they can sell at a given price point and how much they will earn at that price point - it's basic economics.
But of course, the many 'couch economists' here are much wiser - I guess that you could get a football team into the Superbowl too.
Last quarter Apple sold 734,000 Macs and that comprised $1.094 billion of its $1.443 billion in revenue.
That's an average price of $1,490.46, and the gross margin was $393.48 per machine earning Apple $288,814,300 in gross income.
Apple posted a net loss of $45 million.
New prices and 80% more machines:
1,321,200 x $1,190.46 = $1,572,836,000 in revenue
1,321,200 x $93.48 = $123,505,800 in gross income
New net loss: $210 million.
See my point?
Edit: Regarding component prices, Dell sold 3,523,000 PCs in the US alone last quarter, and you think that Apple pays the same as Dell when they buy components?
[ 12-30-2002: Message edited by: JLL ]</p>
No one outside the company gets involved with the nitty gritty of absolute costs for R&D. The meaningful figure to use for overall analysis of a company is R&D as a percentage of sales. Dell may spend more dollars for R&D, but they likely have more product types and they certainly sell more. I would also suspect that much of their R&D is spent trying to squeeze every last penny out of the manufacturing cost of their products. Market share and low manufacturing cost is why Dell is now difficult to compete with. The only way Apple can compete is to play a little different game, one that Dell is not interested in or cannot play.
I do not mean Apple is faultless. I just believe that some here are over simplifying the problem that Apple faces, and what the solution is. Apple may be in a holding pattern for a good reason. We have no way to know. Lots of good ideas also need good timing to work best.
<strong>And the people at Apple responsible for pricing, finances and so on are doing nothing but running around with their hands to their ears
You can bet your ass that Apple are doing research on how many machines they can sell at a given price point and how much they will earn at that price point - it's basic economics.
But of course, the many 'couch economists' here are much wiser - I guess that you could get a football team into the Superbowl too.
</strong><hr></blockquote>
I know alot of people at Apple who are just as frustrated as I am, pricing is set by Steve Jobs and his inner circle personally, and as they demonstrate over and over again, they are further removed from reality than most highly medicated mental patients are.
Lets not forget that these are the same people who projected Apple could sell 600,000 G4 Cubes a quarter.
<strong>OK, let's say that Apple would sell 80% more machines by lowering their prices $300 on average:
Last quarter Apple sold 734,000 Macs and that comprised $1.094 billion of its $1.443 billion in revenue.
That's an average price of $1,490.46, and the gross margin was $393.48 per machine earning Apple $288,814,300 in gross income.
Apple posted a net loss of $45 million.
New prices and 80% more machines:
1,321,200 x $1,190.46 = $1,572,836,000 in revenue
1,321,200 x $93.48 = $123,505,800 in gross income
New net loss: $210 million.
See my point?
Edit: Regarding component prices, Dell sold 3,523,000 PCs in the US alone last quarter, and you think that Apple pays the same as Dell when they buy components?
</strong><hr></blockquote>
Read a Microeconomics textbook at come back when you know what you are talking about, you are calculating a locked in expense ratio, expenses don't rise in lock step with growth.
<strong>
Read a Microeconomics textbook at come back when you know what you are talking about, you are calculating a locked in expense ratio, expenses don't rise in lock step with growth.</strong><hr></blockquote>
No, but 600,000 more Macs produced won't cut the costs that much (12.5% just to break even with the result of last quarter), plus most of you are asking for much more than $300 price cut.
You're talking about Apple almost doubling their market share because of price alone - get back to where you say you come from.
<strong>I guess that you could get a football team into the Superbowl too.</strong><hr></blockquote>
Ouch, around here, that's sore topic this morning...
<strong>
Ouch, around here, that's sore topic this morning...</strong><hr></blockquote>
Sorry
You couldn't apply your caluclations to any company that sells more than one product, and even then they are worthless because they don't account for the economics of scale.
<strong>
Read a Microeconomics textbook at come back when you know what you are talking about, you are calculating a locked in expense ratio, expenses don't rise in lock step with growth.</strong><hr></blockquote>
Now we're talking about something I know something about!
Stag and JLL, you both have great points. Without a doubt, lowering the price of a Mac will sell more Mac's. Without a doubt, some expenses are more fixed than others, so raising units sold will not raise those (fixed) expenses. Without a doubt, every business prices their products to maximize current and future profits.
Two points I would raise are elasticity and costs -
1) Elasticity of price
Lowering a Mac price will sell more units, but how many? Stag - how much lower would the price have to go to sell more Mac's such that the total gross margin will be greater than the current total gross margin? I would expect that the more Mac's sold will drive down some component costs, but let's not grossly over-estimate this.
CTG = (C#MacSold * Price) - (C#MacSold * cost)
NTG = (N#MacSold * LowerPrice) - (N#MacSold * (cost - smallSavings)
CTG - Current Total Gross
NTG - New Total Gross
Total Gross - (price - component costs) * units sold
Stag - what would be your educated guess at solving the NTG equation? Is there a solution where NTG > CTG? According to JLL's attempt previously, there is no solution for NTG > CTG.
2) Production costs.
Don't forget that Production costs can actually rise as more units are produced. This can happen when having to use less efficient manufacturers to produce needed components. For instance, more iMacs may require another source for flat panels, which might require new development engineering costs.
Let me add a couple of things -
1) Apple's costs are high due to various reasons. I'm sure some of the costs could be lowered through smart management. For instance, sell all Silicon Valley capital assets and move to Austin! But I'm also sure that Apple as a premium product producer has higher - justifiably so - costs than Dell and Gateway. So the debate would be about where is the fluff? Matsu - As the commercial goes, I bought Apple
2) Stag - I am really interested in your thoughts on price versus units sold. Also - what premium would people pay for a Mac such that sales would double/triple?
[ 12-30-2002: Message edited by: jwdawso ]</p>
You have to spend that money anyway, if you sell more, a priveledge of your own success is that you can distribute that cost over a greater number of sales. Dell does pay for Windows because they add it to my bill and I wiegh that when I look at the final price. If there's any trick, like not including shipping in the advertised price (another Dell ploy to keep the advertised price as low as possible) it doesn't last long in my eyes. I go by the check-out price, on the few cases where I've taken to quoting Dell prices I always make sure to include both the cost of shipping and of software licenses. However, I don't see where Dell ships machines without an OS, they have to pay for that license in the cost of the machine. Sure, it's passed on to us, but it impacts their ability to lower MSRP, just like R&D expenditures do. They pay for it, then you pay for it.
Is only Apple to be excused for their expenses?
And all those big geniuses at Apple are still rapidly losing market-share in education, slowly bleeding worldwide marketshare, and increasingly falling behind in price performance, despite recent attempts to get cheaper models on the market. No one is invested in Matsu.Inc, but people are invested in APPL, I should think it more important to question their business acumen rather than mine. Think about it, despite an extremely loyal fan base and outrageous prices, and a very healthy bank balance, earnings per share are miniscule and the stock price is not quite in the shitter, but waiting outside the stall -- really backed only by their cash reserves. No confidence there. This is not a company that's doing everything right, as some here would like to pretend, rather it faces significant problems.
You know that Apple gets very good component prices on everything except cases. We know that they often use lower spec (and cheaper) parts. We know that they milk their integrated Mobo's for many generations of PC hardware, and almost surely pay less in the long run for the life of the iMac's Mobo than a box builder assembling parts of newer vintage. Look at the costs. Apple does NOT have higher costs except where they stubbornly choose to -- 1) the debut of custom integrated mobos (all models except PM which neccessitate longer periods between updates in order to reduce overall cost and 2) custom enclosure which also tend to limit the updateability of consumer machines.
Some of you would like to blame industry forces for Apple prices, but that is unfair to everyone else doing an honest business in the industry. Costs affect everyone. Apple is not a little fish and they are in a better position to gt good prices than most companies out there. Their high prices are their own fault, not mine.
Some of you ought to learn to read before you question my business sense. I'm not the one doing my best to destroy what should be a tech winner, to basically fail in spite of myself.
<strong>It doesn't take an MBA to know that macs are well overpriced. Business skills are still irrelevant. When I say percentage doesn't matter, I should say it doesn't matter to me as a buyer, I see the price and relative merits of the system in question, I don't care how much you spent per machine to get it that way. </strong><hr></blockquote>
No, it doesn't matter to you, but I don't think that Apple can sell a machine to you at the price you want and still earn money.
The amount of Macs that Apple should sell if they lower the price to a level of your desire is unrealistic.
[quote]Originally posted by Matsu:
<strong> However, I don't see where Dell ships machines without an OS, they have to pay for that license in the cost of the machine.</strong><hr></blockquote>
You can buy a Dell with the choice of Windows, Red Hat or no OS.
[quote]Originally posted by Matsu:
<strong>Think about it, despite an extremely loyal fan base and outrageous prices, and a very healthy bank balance, earnings per share are miniscule and the stock price is not quite in the shitter, but waiting outside the stall -- really backed only by their cash reserves.</strong><hr></blockquote>
Exactly, but lowering the price won't help.
Apple is in a position where they can't get processors that can compete with 'the other side', and they can lower the price that much if they still want to earn money.
The price isn't the problem - the performance is.
I'm waiting for Apple to be able to make high performing Macs at a proper price, not lowering the prices on the lower performing Macs they make today, since it IMHO isn't possible for Apple to sell that much more of the current Macs that it can cover the cost of producing them.
[quote]Originally posted by Matsu:
<strong>You know that Apple gets very good component prices on everything except cases.</strong><hr></blockquote>
But it's nowhere near the prices Dell pay - they buy six times as much.
[ 12-30-2002: Message edited by: JLL ]</p>
"Lets not forget that these are the same people who projected Apple could sell 600,000 G4 Cubes a quarter."
Ouch.
They need the 970 AND to reduce prices. Maybe NOT to Dell levels, but Jeez, a tower for £1,000-1,000 inc VAt (no monitor remember!) wouldn't go amiss!
Yeesh. It wasn't that long ago Apple had towers in the UK for £1,100 ish...before that audacious price hike.
Lemon Bon Bon
<strong>Yeesh. It wasn't that long ago Apple had towers in the UK for £1,100 ish...before that audacious price hike.</strong><hr></blockquote>
Given the price reductions on the other models, I don't think that a £200 price reduction on the next Power Macs are impossible - the current exchange raise will give you a £100 price reduction alone even if the price stays the same in the US.