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

[Mopetar]

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.

Investors believe that they will be the only company left standing, at which point they can earn a lot of profit due to lack of competition. Also, once they have a dominant position its fairly easy to keep anyone else out of the market as they can always drop their margins again and the cost of entry at Amazon's scale limits the potential players who could even try.

They've even had quarters where they lose money because they're still grabbing business from other retailers and working towards their end game. All that aside, I'm not really sure if their stock is worth it at the current price. Their P/E is through the roof, so it's only worth buying to sell later or holding onto for the long haul when they reach that end state.

Amazon has lots of competitors...Wal-Mart, BestBuy, Staples, Newegg, eBay, NetFlix, Apple, Google, and Microsoft.

Wal-Mart is their only real competitor, but even Wal-Mart doesn't have the same selection as Amazon or anywhere near the online presence. They're far more concerned with their physical retail stores.

Otherwise Amazon sells almost everything, while companies such as Newegg, Apple, Microsoft, etc. only sell a small subset of those products or services. Amazon can certainly take business away from those companies, but not their core business. Apple doesn't make much profit from their music sales compared to the rest of the company so they wouldn't miss it. Same goes with Microsoft and their cloud offerings. They will probably destroy Best Buy before long and could eventually put Newegg out of business if given enough time as well.

 

[Germanic]

Cheaper products does not necessarily mean lower profit margins.

The iPad Mini has a higher profit margin than the iPad 3 despite being less premium.

The iPhone 5 "cheap" version will probably sacrifice build quality (it really looks like a toy to be honest) and maybe a few spec downgrades here and there.

 

[Germanic]

Well it looks like Samsung reports a net profit of $USD 7 billion in Q2 2013 whereas Apple posted a net profit of $USD 6.9 billion in Q2 2013.

Really not much difference to it.

I think Apple's cheap iPhone version is the biggest roulette it's making. A sacrifice in Apple's image as being a premium company in order to maximize volume. Not really sure if this will translate to better profits.

 

[Dari]

Well it looks like Samsung reports a net profit of $USD 7 billion in Q2 2013 whereas Apple posted a net profit of $USD 6.9 billion in Q2 2013.

Really not much difference to it.

I think Apple's cheap iPhone version is the biggest roulette it's making. A sacrifice in Apple's image as being a premium company in order to maximize volume. Not really sure if this will translate to better profits.

Interesting how their smartphone division reported lower profit. According to this their IT & Mobile Communications (IM) division experienced 3% decline in net profit. Naturally, I'm skeptical of these numbers since they've been making a lot of noise about increasing spending in R&D by tens of billions of dollars but we only see a 6% increase in this quarter. Also, we have LG, the world's largest panel maker, barely making money in their television division but Samsung reports an 83% increase in profit (which is not reflected in the comments on page 4, mind you)? Also, it's really convenient how their semiconductor division (Device Solution) is doing so well when their major customer is Samsung itself. So, what we have here is semiconductor churning out more products for products that are either 1) seeing decreasing profit (which counts for 66% of total profit) or lower growth or 2) suddenly experience massive growth when their competitors are showing flat growth. Since Samsung does not give numbers for shipped items this analysis shows that smartphone increased less than semiconductors. Since the phones are getting bigger that could mean more plastics being produced. Ah, the benefit of being a conglomerate is that you can move money around and hide losses while showing a happy face to the world...

It all stinks. Not sure what they're cooking in Korea but it smells like books.

 

[grkM3]

Interesting how their smartphone division reported lower profit. According to this their IT & Mobile Communications (IM) division experienced 3% decline in net profit. Naturally, I'm skeptical of these numbers since they've been making a lot of noise about increasing spending in R&D by tens of billions of dollars but we only see a 6% increase in this quarter. Also, we have LG, the world's largest panel maker, barely making money in their television division but Samsung reports an 83% increase in profit (which is not reflected in the comments on page 4, mind you)? Also, it's really convenient how their semiconductor division (Device Solution) is doing so well when their major customer is Samsung itself. So, what we have here is semiconductor churning out more products for products that are either 1) seeing decreasing profit (which counts for 66% of total profit) or lower growth or 2) suddenly experience massive growth when their competitors are showing flat growth. Since Samsung does not give numbers for shipped items this analysis shows that smartphone increased less than semiconductors. Since the phones are getting bigger that could mean more plastics being produced. Ah, the benefit of being a conglomerate is that you can move money around and hide losses while showing a happy face to the world...

It all stinks. Not sure what they're cooking in Korea but it smells like books.

You are delusional!

PS how much u think Samsung is charging apple for there super fast ssd in the new Mac products? Apple wants 2k for a 512gb drive upgrade

 

[TheStu]

You are delusional!

PS how much u think Samsung is charging apple for there super fast ssd in the new Mac products? Apple wants 2k for a 512gb drive upgrade

Please cite your sources. Apple charges $700 to go from 256GB to 768GB in the 13" rMBP. Source

 

[Dari]

You are delusional!

PS how much u think Samsung is charging apple for there super fast ssd in the new Mac products? Apple wants 2k for a 512gb drive upgrade

Samsung numbers are Chinese numbers. If I was a betting man, I'd wager that they thought Apple was going to produce numbers similar to the ones they invented and assigned the numbers accordingly.

50% increase in profit while experiencing a 3% decline in profit in a division that represents nearly 70% of their profit. No one sees anything funny with those numbers?

 

[deathBOB]

You are delusional!

PS how much u think Samsung is charging apple for there super fast ssd in the new Mac products? Apple wants 2k for a 512gb drive upgrade

Well reasoned analysis.

Apple and Samsung are two very different companies that happen to both compete in the mobile space. Comparing their earnings directly seems like an exercise in futility. Better to see what they mean for the mobile market as a whole. My take-away is that smartphone and tablet sales aren't going to keep increasing like they have over the past few years. Maybe this slowdown is what's driving Apple's rumored decision to sell a cheaper iPhone (for emerging markets I assume).

 

[dawheat]

Interesting how their smartphone division reported lower profit. According to this their IT & Mobile Communications (IM) division experienced 3% decline in net profit. Naturally, I'm skeptical of these numbers since they've been making a lot of noise about increasing spending in R&D by tens of billions of dollars but we only see a 6% increase in this quarter. Also, we have LG, the world's largest panel maker, barely making money in their television division but Samsung reports an 83% increase in profit (which is not reflected in the comments on page 4, mind you)? Also, it's really convenient how their semiconductor division (Device Solution) is doing so well when their major customer is Samsung itself. So, what we have here is semiconductor churning out more products for products that are either 1) seeing decreasing profit (which counts for 66% of total profit) or lower growth or 2) suddenly experience massive growth when their competitors are showing flat growth. Since Samsung does not give numbers for shipped items this analysis shows that smartphone increased less than semiconductors. Since the phones are getting bigger that could mean more plastics being produced. Ah, the benefit of being a conglomerate is that you can move money around and hide losses while showing a happy face to the world...

It all stinks. Not sure what they're cooking in Korea but it smells like books.

You're basically accusing a flagship publicly traded company of dishonesty based on highly suspect conclusions of which there's no evidence.

The doc you've linked to seems to be pretty clear that nearly all the growth in semi is due to memory products. The decrease in profitability of IM, even with greater sales, are more likely due to factors impacting retail margins.

I'm not familiar with the sector, but LG may have gained market share at the expense of margins.

Unless you have much better evidence than trying to tie together random information (a la conspiracy theorists), I have to call bunk.

 

[Dari]

You're basically accusing a flagship publicly traded company of dishonesty based on highly suspect conclusions of which there's no evidence.

The doc you've linked to seems to be pretty clear that nearly all the growth in semi is due to memory products. The decrease in profitability of IM, even with greater sales, are more likely due to factors impacting retail margins.

I'm not familiar with the sector, but LG may have gained market share at the expense of margins.

Unless you have much better evidence than trying to tie together random information (a la conspiracy theorists), I have to call bunk.

Who cares if it's flagship or not. The company has been accused of much worse in the past 5 years by its own employees so my simple analysis here is a drop in the ocean. And my information is not random. It's straight from their report.

 

[dawheat]

Who cares if it's flagship or not. The company has been accused of much worse in the past 5 years by its own employees so my simple analysis here is a drop in the ocean. And my information is not random. It's straight from their report.

You were trying to link IDC estimates into some trumped up charge about disingenuous numbers from Samsung. The fact that the vast bulk of semi revenue comes from memory makes it impossible to draw any fair conclusions as margins in that line will have far more impact than processors. Frankly, it appears Samsung called it out separately for that express reason.

Frankly I put a lot more faith in the investors and analysts who comb over Samsung's results than someone who doesn't have a shred of evidence, only unsupported conjecture and a clear axe to grind.

 

[Dari]

You were trying to link IDC estimates into some trumped up charge about disingenuous numbers from Samsung. The fact that the vast bulk of semi revenue comes from memory makes it impossible to draw any fair conclusions as margins in that line will have far more impact than processors. Frankly, it appears Samsung called it out separately for that express reason.

Frankly I put a lot more faith in the investors and analysts who comb over Samsung's results than someone who doesn't have a shred of evidence, only unsupported conjecture and a clear axe to grind.

What results? The ones from Korea from a company whose founding family plays shell games with who owns what to maintain a firm grip? And you're banking on analysts who rely on market research firms to see what samsung is shipping? Believe you me, this company has a heavy interest in lying to the world about what's what. They, and S. Korea, of which Samsung represents 20% of the entire economy.

Anyway, we'll see what's going on in a year when Apple is no longer a semiconductor customer...

 

[lothar]

Investors believe that they will be the only company left standing, at which point they can earn a lot of profit due to lack of competition. Also, once they have a dominant position its fairly easy to keep anyone else out of the market as they can always drop their margins again and the cost of entry at Amazon's scale limits the potential players who could even try.

They've even had quarters where they lose money because they're still grabbing business from other retailers and working towards their end game. All that aside, I'm not really sure if their stock is worth it at the current price. Their P/E is through the roof, so it's only worth buying to sell later or holding onto for the long haul when they reach that end state.



Wal-Mart is their only real competitor, but even Wal-Mart doesn't have the same selection as Amazon or anywhere near the online presence. They're far more concerned with their physical retail stores.

Otherwise Amazon sells almost everything, while companies such as Newegg, Apple, Microsoft, etc. only sell a small subset of those products or services. Amazon can certainly take business away from those companies, but not their core business. Apple doesn't make much profit from their music sales compared to the rest of the company so they wouldn't miss it. Same goes with Microsoft and their cloud offerings. They will probably destroy Best Buy before long and could eventually put Newegg out of business if given enough time as well.

Amazon just reported a loss and their stock went up.
If this happened to Apple, Google, or Microsoft; investors would have screamed bloody murder on their stock and send them crashing down -10% or more.

Amazon is growing revenue at 20+%, while operating at razor thin 0.5% margins.
The moment the company stops growing revenue by double digits(which will eventually happen), the stock could come crashing down to earth unless it increases it's operating margin.

 

[Commodus]

I don't think Samsung is being truly dodgy with its financials right now, but there's no question that the company makes a lot of people nervous. There's a certain irony to some of those in the Anything But Apple camp running so eagerly toward a company that occasionally makes Apple look humble and selfless.

Samsung is a chaebol; that is, a too-big-to-fail South Korean conglomerate. In addition to forming a large and almost inescapable part of the Korean economy, it's regularly accused of being "untouchable" -- Chairman Lee Kun-Hee was found guilty of charges relating to slush funds and tax evasion, yet he was given first an extremely light sentence and then a pardon. Nepotism runs wild in the company, as was mentioned before. And the conflict of interest is huge: for some reason, Samsung Securities is allowed to offer stock advice for Apple and other competitors. Bloomberg notoriously ran an "Apple is doooomed" article that cited a Samsung Securities analyst as an expert.

As for the core subject of the thread, it's hard to compare Apple's spring 2013 quarter with that of a year ago. There was a new iPad buoying results last year, while Apple's 2013 is very backloaded; that is, few big products will ship until the late summer or early fall. There's no guarantee that the firm will completely make up for that lopsided product schedule, but predicting calamity here is like arguing that the oceans are evaporating because the tide is out.

 

[Dari]

Amazon just reported a loss and their stock went up.
If this happened to Apple, Google, or Microsoft; investors would have screamed bloody murder on their stock and send them crashing down -10% or more.

Amazon is growing revenue at 20+%, while operating at razor thin 0.5% margins.
The moment the company stops growing revenue by double digits(which will eventually happen), the stock could come crashing down to earth unless it increases it's operating margin.

True true. Me thinks the stock is seriously overvalued. Investors pouring money in believe Amazon will gain EoS which will increase margins but I don't see that happening (their competitors in each sector are too big and established). If I was Jeff Bezos I'd be a nervous wreck.

I don't think Samsung is being truly dodgy with its financials right now, but there's no question that the company makes a lot of people nervous. There's a certain irony to some of those in the Anything But Apple camp running so eagerly toward a company that occasionally makes Apple look humble and selfless.

Samsung is a chaebol; that is, a too-big-to-fail South Korean conglomerate. In addition to forming a large and almost inescapable part of the Korean economy, it's regularly accused of being "untouchable" -- Chairman Lee Kun-Hee was found guilty of charges relating to slush funds and tax evasion, yet he was given first an extremely light sentence and then a pardon. Nepotism runs wild in the company, as was mentioned before. And the conflict of interest is huge: for some reason, Samsung Securities is allowed to offer stock advice for Apple and other competitors. Bloomberg notoriously ran an "Apple is doooomed" article that cited a Samsung Securities analyst as an expert.

As for the core subject of the thread, it's hard to compare Apple's spring 2013 quarter with that of a year ago. There was a new iPad buoying results last year, while Apple's 2013 is very backloaded; that is, few big products will ship until the late summer or early fall. There's no guarantee that the firm will completely make up for that lopsided product schedule, but predicting calamity here is like arguing that the oceans are evaporating because the tide is out.

This is what happens when a company that has everything going for it [screws] with the program just because they can. They did not have to change their delivery schedule to load all the major product announcements into the fall. But they did and that means they are not in the news cycle as much as before.

Dari, we're getting rather tired of telling you not to use profanity in the tech forums
-ViRGE

 

[Germanic]

Interesting how their smartphone division reported lower profit. According to this their IT & Mobile Communications (IM) division experienced 3% decline in net profit. Naturally, I'm skeptical of these numbers since they've been making a lot of noise about increasing spending in R&D by tens of billions of dollars but we only see a 6% increase in this quarter. Also, we have LG, the world's largest panel maker, barely making money in their television division but Samsung reports an 83% increase in profit (which is not reflected in the comments on page 4, mind you)? Also, it's really convenient how their semiconductor division (Device Solution) is doing so well when their major customer is Samsung itself. So, what we have here is semiconductor churning out more products for products that are either 1) seeing decreasing profit (which counts for 66% of total profit) or lower growth or 2) suddenly experience massive growth when their competitors are showing flat growth. Since Samsung does not give numbers for shipped items this analysis shows that smartphone increased less than semiconductors. Since the phones are getting bigger that could mean more plastics being produced. Ah, the benefit of being a conglomerate is that you can move money around and hide losses while showing a happy face to the world...

It all stinks. Not sure what they're cooking in Korea but it smells like books.

Wow... this is such a delusional conclusion. I don't even know what to say. I have a feeling you're not being serious and just trolling, but just in case you're serious...

So now you're saying that the biggest electronics company in the world is lying to its shareholders?

Just like what Olympus (a Japanese company) did?

You do know there are huge consequences to hiding losses right? Just like how Olympus is pretty much dead now.

Samsung's semiconductor business is doing so well because of rising DRAM prices. It has very little to do with making more smartphones. Even a slight increase in DRAM prices will be reflected by a huge increase in profits.

 

[dawheat]

What results? The ones from Korea from a company whose founding family plays shell games with who owns what to maintain a firm grip? And you're banking on analysts who rely on market research firms to see what samsung is shipping? Believe you me, this company has a heavy interest in lying to the world about what's what. They, and S. Korea, of which Samsung represents 20% of the entire economy.

Anyway, we'll see what's going on in a year when Apple is no longer a semiconductor customer...

So no evidence but questionable activity in the past? I'm ok with that, I just want to understand where you're drawing your conclusions from.

And frankly, if you're hiding systemic losses in some lines of business, this is as good a time as any to have them show up and take a charge. You've just made record profit, over 2X what you did a couple years ago. If as you say they're liars, it would be easy to blow up the R&D budget by billions and use it to take some charges.

 

[88keys]

I think apple might struggle to stay ahead in smartphones now that the market is literally flooded with them. One thing to consider is that their OS really hasn't changed that much since the first iPhone while Android has gone through alot of major changes and seems to have matured alot.

Looking at what newer phones like the GS4 and the HTC1 have to offer, I think Apple might be very hard pressed to compete with that in the future seeing as their old strategy of artificially extending the life of their products will no longer work.

The biggest thing they have going for them now is integration, but even that may soon change.

 

[Commodus]

This is what happens when a company that has everything going for it [screws] with the program just because they can. They did not have to change their delivery schedule to load all the major product announcements into the fall. But they did and that means they are not in the news cycle as much as before.

I don't think it's "just because they can." The fourth-gen iPad had the hallmarks of a stopgap: we won't have a truly new design ready by the spring, so let's put out a fall update that keeps people happy until the intended big revision launches in the fall. I wouldn't be entirely surprised if Apple puts out a quick spring iPad refresh to reset the cycle, unless it expects that a new device will occupy the spring slot.

 

[bearxor]

I don't think it's "just because they can." The fourth-gen iPad had the hallmarks of a stopgap: we won't have a truly new design ready by the spring, so let's put out a fall update that keeps people happy until the intended big revision launches in the fall. I wouldn't be entirely surprised if Apple puts out a quick spring iPad refresh to reset the cycle, unless it expects that a new device will occupy the spring slot.

The 5th-gen iPad is far more likely the stop gap product. I doubt it will bring much new other than a new shell.

The 3rd gen iPad was a stop-gap. That was the 'Let's shoehorn this retina display in here' release. The 4th-gen iPad brought a slew of improvements from the 2nd and 3rd gen iPads.

EDIT: Well, this is weird.