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apple is basically a services company pretending to be a hardware company. Its services business runs at roughly 75% gross margin, while hardware sits around 36 to 37%. That tells you where the real money is. in many ways, all the Apple devices exist to feed the services engine. The hardware pulls people into the ecosystem, and the services generate the profits. the Neo is probably a bit of a loss leader. Once you factor in manufacturing tooling capex, distribution, shipping, marketing, and all the other costs, Apple is likely not making much on the device itself. But every new Neo buyer who enters the Apple ecosystem will probably spend at least $50 or more on Apple services (icloud, music, movies, apps, etc) over time. (i have several friends who are buying neo as their personal content consumption device, abandoning their current ipads) my estimate (which is why i'm still holding aapl): Services hits roughly $275-300B by FY2035, representing about 35-40% of Apple's total revenue (up from 26% today), with gross margins staying in the 74-76% range. At that point, Services alone would generate more gross profit than the entire company does today. that is where the real payoff comes from. |