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by clarky07
4612 days ago
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There are several things at play here. First, the iPad mini didn't exist last year, and it is a lower margin product by design. Second, is this is really key, is that they started deferring more revenue because they are starting to give software away for free. They guided for 36.5-37.5% margin in the next quarter and the stock tanked $30 after hours because the street wanted 37-38%. They then explained that they are going to defer an extra 900Mil of revenue on Mac and iOS because of moving the software to free. Without that, the revenue range would have been higher and the margin guide would have been closer to 38.5%. So they beat expectations for revenue, margin, and profit both this quarter and in guidance for next quarter, yet the stock tanked on release. Once they mentioned this in the conference call, the stock regained all the losses and actually was up after hours for a bit. Now it's back down, but only slightly. I suspect just because more people are looking at the headlines and not reading or listening to the whole call. Now, overall the margins are still lower this quarter than they were last quarter, but I don't see that as a huge problem. They changed the product mix. They had higher total revenue, large growth in total iPhone sales, and guided to revenue and profit growth for next quarter. They are still in pretty good shape. Oh and they have 150 bil in cash. |
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Overall gross margin is a blend of all your products, that gross margin is where you get the money for everything you do, pay salaries, buy capital equipment, etc. So it really doesn't matter if your margin is lower because you are shipping more inexpensive product (the mix), all that matters is that its lower. That changes the amount of revenue you must have to run the business and increases downside risk if you are close to the edge (as Dan Warmenhoven is famous for saying, you have much more control over margin than you do over revenue).
In the case of the iPad Mini it says that additional growth in the Tablet market is in the lower margin segment. That is accretive if you're holding on to your existing market share at the high end, and dilutive if you're losing high end share to the mid-range or bargain products. Same with phones, lets say the 5C turns out to be "good enough" and sales of the 5S plummet because it's extra cost (and margin) isn't "valuable" enough to the consumer to pay the extra money. Now you have to sell a lot more units to get the same profit, but that requires more "business" (and by that I mean more assemblers, more sales people, more trucks driving around, more logistics, etc.) You lower the price (which increases sales rate, but that also reduces margin, so you have to sell more to make the same amount.
Now I don't think Apple is anywhere near any of that, they are a very strong company with a solid brand. My observation is that the reduction in overall gross margin will come out of the business, whether it fewer product managers for more products, or lower salaries for retail staff, or what, the numbers have to balance.