Apple Q3: iPhone sales up, profit down as margins drop

[jpeyton]

The numbers:

31.2 million iPhones sold (up 5.2 million)
$6.9 billion profit (down $1.9 billion)
36.9% margin (down 5.9%)

http://www.nytimes.com/2013/07/24/t...expectations-on-strong-iphone-sales.html?_r=0

Something interesting to note is that R&D spending is up 33% on the year for Apple, as they search to find the "next big thing".

Smartphones are commoditized and it looks like Apple has joined other manufacturers in the race to the bottom. How long before their margins drop below 30%?

 

[T_Yamamoto]

Well they are releasing next gen mobile devices soon. Also the speculation of the iWatch is floating around.

 

[Mopetar]

I doubt they'll go below 30% any time soon. I think that the numbers only seem bad because for a time Apple's gross margin was unusually high.

They've never been in a hurry to join the race to the bottom, and if even if they do eventually release a lower-cost version of the iPhone (which has been rumored for how many years now?) I expect that it will only be sold in emerging markets and will still carry a price premium over other similar devices in that market segment.

The entire industry is littered with the corpses of companies that were only too happy to slash profitability to drive revenue. I imagine that Apple will tread carefully.

 

[poofyhairguy]

Apples sales will boom again once a 5 inch iPhone model hits the market IMHO.

Heck the cheap iPhone may be enough.

 

[Dari]

Apples sales will boom again once a 5 inch iPhone model hits the market IMHO.

Heck the cheap iPhone may be enough.

Doubt it. Competition is too fierce for them to experience the stupid growth of yesteryears. People have too many options now and people have less reasons to upgrade.

 

[lothar]

I doubt they'll go below 30% any time soon. I think that the numbers only seem bad because for a time Apple's gross margin was unusually high.

They've never been in a hurry to join the race to the bottom, and if even if they do eventually release a lower-cost version of the iPhone (which has been rumored for how many years now?) I expect that it will only be sold in emerging markets and will still carry a price premium over other similar devices in that market segment.

The entire industry is littered with the corpses of companies that were only too happy to slash profitability to drive revenue. I imagine that Apple will tread carefully.

Amazon begs to differ.

 

[Mopetar]

Amazon begs to differ.

Amazon's core business area is not computing hardware. Outside of the Kindle line they barely exist in that space at all. Also, in their core business area they have no real competitor. The closest would be Wal-Mart, but they're far more invested in their physical retail presence.

 

[lothar]

Amazon's core business area is not computing hardware. Outside of the Kindle line they barely exist in that space at all. Also, in their core business area they have no real competitor. The closest would be Wal-Mart, but they're far more invested in their physical retail presence.

Even Amazon's core business area doesn't earn much of a tidy profit, but yet for some reason the company's stock seems to keep chugging along.
Amazon has lots of competitors...Wal-Mart, BestBuy, Staples, Newegg, eBay, NetFlix, Apple, Google, and Microsoft.

 

[Ns1]

Even Amazon's core business area doesn't earn much of a tidy profit, but yet for some reason the company's stock seems to keep chugging along.
Amazon has lots of competitors...Wal-Mart, BestBuy, Staples, Newegg, eBay, NetFlix, Apple, Google, and Microsoft.

how much money does AMZ make in web services, ie aws.amazon.com?

 

[Germanic]

Impressive numbers of the iPhone 5 were sold this quarter, yes. However Apple makes much less profit per iPhone 5 sold compared to what it made with the iPhone 4S.

If this trend continues, no matter the sales volume, it wont drastically affect profits.

This quarter, Samsung made more net profit than Apple. About $1 billion USD more. That is a huge blow to Apple who consistently beat Samsung in terms of net profits.

Even though Samsung hasn't yet released the net profit numbers for this quarter, it made an even bigger profit than last quarter which was nearly exactly what Apple made this quarter. Logically, Samsung made more profit this quarter than Apple did.

We'll see what happens with the budget iPhone and how the profit margins for that would work out for Apple. I'm not entirely sure of the idea of a budget iPhone because that can potentially be a double edged sword. Does Apple really want to lose its image as a premium-only company to a both premium/cheap company?

I'm not sure which direction Apple is really going...

 

[silverpig]

Even Amazon's core business area doesn't earn much of a tidy profit, but yet for some reason the company's stock seems to keep chugging along.
Amazon has lots of competitors...Wal-Mart, BestBuy, Staples, Newegg, eBay, NetFlix, Apple, Google, and Microsoft.

eBay sure. The others are either B&M stores or don't sell the same things as amazon.

And amazon is the exception to the rule. Remember, the dotcom bubble? Yeah, all those companies are the corpses the other poster was talking about.

 

[dawheat]

Color me surprised on the iPhone numbers, especially in the US. Annecdotally I had expected the continuing strengh of Android phones to stunt this growth as you can make a reasonable case for multiple Android phones to be the equal or better than the IP5 - a claim that couldn't be made until the last 12 months.

Was very surprised by the iPad performance since IMO Apple still had a substantial lead in tablet quality (compared to phones), but I wonder if it points to tablets being closer to laptops, where once they're good enough, you really don't need to upgrade every year or two.

 

[Red Storm]

The increased sales to decreased profit ratio is very interesting.

 

[OILFIELDTRASH]

My wife picked up a ip5 for $130. Pretty cheap for a flagship phone. Also I'm not eligible for a phone upgrade on my plan but AT&T says I'm eligible for a discounted iPhone.
Seems like they have plenty of stock and are unloading them at a discount.

 

[Dari]

The increased sales to decreased profit ratio is very interesting.

Revenues barely increased. But spending increased by a lot. Not sure if the dividends counts but that was substantial too.

 

[Phokus]

Apples sales will boom again once a 5 inch iPhone model hits the market IMHO.

Heck the cheap iPhone may be enough.

The cheap iphone will lower their profit margins.

 

[PowerYoga]

Even Amazon's core business area doesn't earn much of a tidy profit, but yet for some reason the company's stock seems to keep chugging along.
Amazon has lots of competitors...Wal-Mart, BestBuy, Staples, Newegg, eBay, NetFlix, Apple, Google, and Microsoft.

Pretty sure amazon's "core service" is renting out e-retailing space, physical distribution of goods (warehouse service) and providing cloud services to businesses that would otherwise have no online presence. Most of the stuff you buy off amazon is NOT sold by amazon. Ebooks is like the only thing amazon sell themselves along with a few small things.

 

[MrX8503]

Impressive numbers of the iPhone 5 were sold this quarter, yes. However Apple makes much less profit per iPhone 5 sold compared to what it made with the iPhone 4S.

Construction wise, the 5 is much more advance than the 4S. Also the 4S is a rehash of the iPhone 4's body.

 

[lothar]

how much money does AMZ make in web services, ie aws.amazon.com?

Amazon does not specify that in their earnings report.

 

[lothar]

eBay sure. The others are either B&M stores or don't sell the same things as amazon.

And amazon is the exception to the rule. Remember, the dotcom bubble? Yeah, all those companies are the corpses the other poster was talking about.

Directly from their proxy statement on the Securities and Exchange Commission.
http://www.sec.gov/Archives/edgar/data/1018724/000119312513151558/d445440ddef14a.htm

In setting these amounts, the Leadership Development and Compensation Committee considered the vesting schedule of existing equity awards as well as aggregated information from third party surveys, including compensation data for retail, internet, and technology companies including AOL, Apple, Best Buy, Cisco, Dell, eBay, Facebook, Google, IBM, Intel, Intuit, Microsoft, Oracle, Starbucks, Target, Verizon, and Yahoo. The Leadership Development and Compensation Committee exercises discretion in determining executive officers’ compensation and does not require that compensation be set at a specific level relative to what is reflected in the survey data.

Amazon bases it's executive compensation from those companies specifically, therefore most of those companies listed there should be considered their direct competitors, no?

I don't understand why that's the case though. Amazon reports massive revenues, but razor thin profit margins.
It seems to me that their investors don't care much about profit...Or in the case of what I was originally responding to: Amazon is indeed slashing profitability to drive revenue. Only difference is that Amazon has been doing so for decades without any repercussions.

The entire industry is littered with the corpses of companies that were only too happy to slash profitability to drive revenue. I imagine that Apple will tread carefully.

 

[dagamer34]

The increased sales to decreased profit ratio is very interesting.

Not really. I'm pretty sure the iPad mini is outselling the iPad at this point.

 

[lothar]

The cheap iphone will lower their profit margins.

If the iPad Mini is any indication...Not really.
Research firm IHS found that the Wi-Fi 16GB base model costs roughly $188 for Apple to for components and $10 to manufacture, which it sells for $329 – that equates to a gross margin of roughly 40%. By comparison, IHS’s tear down analysis on the iPad 3 hinted at a gross margin near 37% for the 16GB Wi-Fi model.

http://www.isuppli.com/Teardowns/News/Pages/New-iPad-32-GB-4G-Carries-364-35-Bill-of-Materials.aspx
http://www.tgdaily.com/mobility-features/67313-teardown-base-wifi-ipad-mini-costs-apple-198

 

[khha4113]

Not really. I'm pretty sure the iPad mini is outselling the iPad at this point.

In the 1st quarter of this year, 60% of Idevices sold was Ipad Mini.
http://www.techspot.com/news/53007-...nt-of-ios-sales-during-the-first-quarter.html

 

[MrX8503]

I would think plastic iPhones would increase their margins because the materials are cheap.

 

[Deeko]

I'm surprised the stock did so well today. I realize $6.9 billion in net income is still incredible, and more iPhones than ever before is good, but ASP is down, iPads and Macs are down, and profit is $2 billion lower YoY. Again, not a bad quarter, but with the way wall street tends to react to these things, I'm surprised they actually went up.