According to Fred Apple's R&D budget is about 500 million dollars, about 9% of revenue. This is a rather high level. I suspect that they are currently bugdeting to make just a small profit and spend as much as possible on R&D. As others have stated, it seems as if this will be the year we start seeing major results of that investment.
The iBook sells for about $1,000. About six years ago Apple sold a PowerBook (was it the 540c?) for about $6,000. The prices may still be a little higher than we'd like to see bu the trend is certainly correct.
On a different track, try outfiting a box that would be compelling at $500, yet _not_ a loss-leader.
For this low end box, I wouldn't necessarily shoot for the full 28% margin. Let's try at _least_ 15%.
So the actual hardware has to cost less than $434.
MUSTS:
We're aiming for a bare bones machine to get people interested, so we need to crop all the frills we can think of for this box. I pared it to ONE. Unfortunately, that one leads to others.
MUST run Mac OS X acceptably. If it can't run Mac OS X, it isn't worth making at this point.
But that one MUST requires at LEAST 256 MB RAM, 500 MHz G3, and an accelerated graphics card. A 20GB HD will do for the bottom machine. A CD Drive is a must, it should be at least a DVD/CDR drive...
Drek. That's the CRT iMac! Well, without the CRT. The CRT iMac sells for $799 -> hardware costs roughly 615. Take $100 out because we don't want to ship with a monitor to save price... That's over the current estimate of what we can spend manufacturing it - in fact it's over the targeted sales price!
<strong>On a different track, try outfiting a box that would be compelling at $500, yet _not_ a loss-leader.
For this low end box, I wouldn't necessarily shoot for the full 28% margin. Let's try at _least_ 15%.</strong><hr></blockquote>
Apple doesn't make 27%-28% on every model. It's their average. The top-of-the-line models have significantly higher profit margins. When the LCD iMac first appeared, its margin was under 10%, and Fred Anderson said that they hoped it would stabilize to about 10%. It's probably higher now, because of falling component costs, but that might not last the next revision.
I'd be surprised if the profit margin on the baseline iBook is 15% now.
Also, Apple has to price for more than their own gross margin: Retailers and distributors have to make a profit too, which either pushes the cost of the machine down, or the price up.
<strong> That's over the current estimate of what we can spend manufacturing it - in fact it's over the targeted sales price!</strong><hr></blockquote>
No way is Apple just sitting on the concept of a low price machine being extremely competitive. They can't make the numbers work in their favor - yet. I'll bet we see better prices when they can.
<strong>Apple doesn't make 27%-28% on every model. </strong><hr></blockquote>
They do _try_ to make each _line_ come in there somewhere though. I agree, there's no way they're making 27% on the bottom-of-the-line iBook. They sold 185,000 iBooks, with a gross iBook revennue of 244 million -> Average Sales Price $1161. Not selling a zillion of the $1700 iBooks
But the bottom two models have a $300 price difference for a heck of a lot less change than $300 in parts. And the average iBook price is closer to the second-from-bottom model than the bottom model. Meaning the iBook's product line has a respectable margin - and it had better! That's over a third of the units shipped!
And if you made an hiMac (headless iMac) with the margin set to _zero_, it would still be priced too high (relative to performance) to attrack flocks of people. -> pointless.
I wonder if Apple would consider creating a 'cheapo' sub-brand that offers cheapo consumer-level macs. No pro gear from the cheapo brand. An analogy could be VW and Audi. There would be less prestige associated with the cheapo mac brand, a more basic beige box look and perhaps less bundled with it (ie no free upgrades for the iApps with the cheapo boxes). Apple would still retain the control they value so much, and would avoid eating in to the profits from high margin pro gear.
I practically laughed out loud when I saw the sign at the apple store stating something like "5% down, 95% to go". OK, so you want to win over the other 95%. Then why aren't you making something compelling for the other 95%? The way they are approaching marketshare now, it would seem more appropriate to say "5% down, 2% to go".
If they really want to expand their market share they HAVE to do something about the price/performance of their consumer products. I think what you get for the money isn't horrible, but the entry level offering (ie CRT iMac) isn't even close to competetive with PC offerings.
Comments
The iBook sells for about $1,000. About six years ago Apple sold a PowerBook (was it the 540c?) for about $6,000. The prices may still be a little higher than we'd like to see bu the trend is certainly correct.
For this low end box, I wouldn't necessarily shoot for the full 28% margin. Let's try at _least_ 15%.
So the actual hardware has to cost less than $434.
MUSTS:
We're aiming for a bare bones machine to get people interested, so we need to crop all the frills we can think of for this box. I pared it to ONE. Unfortunately, that one leads to others.
MUST run Mac OS X acceptably. If it can't run Mac OS X, it isn't worth making at this point.
But that one MUST requires at LEAST 256 MB RAM, 500 MHz G3, and an accelerated graphics card. A 20GB HD will do for the bottom machine. A CD Drive is a must, it should be at least a DVD/CDR drive...
Drek. That's the CRT iMac! Well, without the CRT. The CRT iMac sells for $799 -> hardware costs roughly 615. Take $100 out because we don't want to ship with a monitor to save price... That's over the current estimate of what we can spend manufacturing it - in fact it's over the targeted sales price!
<strong>On a different track, try outfiting a box that would be compelling at $500, yet _not_ a loss-leader.
For this low end box, I wouldn't necessarily shoot for the full 28% margin. Let's try at _least_ 15%.</strong><hr></blockquote>
Apple doesn't make 27%-28% on every model. It's their average. The top-of-the-line models have significantly higher profit margins. When the LCD iMac first appeared, its margin was under 10%, and Fred Anderson said that they hoped it would stabilize to about 10%. It's probably higher now, because of falling component costs, but that might not last the next revision.
I'd be surprised if the profit margin on the baseline iBook is 15% now.
Also, Apple has to price for more than their own gross margin: Retailers and distributors have to make a profit too, which either pushes the cost of the machine down, or the price up.
[ 01-18-2003: Message edited by: Amorph ]</p>
<strong> That's over the current estimate of what we can spend manufacturing it - in fact it's over the targeted sales price!</strong><hr></blockquote>
No way is Apple just sitting on the concept of a low price machine being extremely competitive. They can't make the numbers work in their favor - yet. I'll bet we see better prices when they can.
<strong>Apple doesn't make 27%-28% on every model. </strong><hr></blockquote>
They do _try_ to make each _line_ come in there somewhere though. I agree, there's no way they're making 27% on the bottom-of-the-line iBook. They sold 185,000 iBooks, with a gross iBook revennue of 244 million -> Average Sales Price $1161. Not selling a zillion of the $1700 iBooks
But the bottom two models have a $300 price difference for a heck of a lot less change than $300 in parts. And the average iBook price is closer to the second-from-bottom model than the bottom model. Meaning the iBook's product line has a respectable margin - and it had better! That's over a third of the units shipped!
And if you made an hiMac (headless iMac) with the margin set to _zero_, it would still be priced too high (relative to performance) to attrack flocks of people. -> pointless.
I practically laughed out loud when I saw the sign at the apple store stating something like "5% down, 95% to go". OK, so you want to win over the other 95%. Then why aren't you making something compelling for the other 95%? The way they are approaching marketshare now, it would seem more appropriate to say "5% down, 2% to go".
If they really want to expand their market share they HAVE to do something about the price/performance of their consumer products. I think what you get for the money isn't horrible, but the entry level offering (ie CRT iMac) isn't even close to competetive with PC offerings.