Apple's 60% iPhone Margins Subsidize Mac Product Line
As I've mentioned before, there's been a steadily decreasing average net sale for Apple's Mac units over at least the last seven quarters. But an analysis by Turley Muller at the Financial Alchemist blog (via AppleInsider) might explain why: iPhones margins are so high that Apple can afford to drop prices elsewhere and still keep their overall results looking good.
Apple has been regularly sandbagging analysts, at least over the last 11 quarters, by forecasting overall gross margins that were about 3.5 percent lower than what the company actually achieved. Is Apple really that bad at analysis? Of course not, particularly when the variance is relatively steady. No, Apple just wants to distract competitors from what it is pulling off and most analysts apparently cooperate by ignoring the snow job.
The amazing thing is that even as Mac prices drop, and at a rate fast enough that finding that much additional efficiency in manufacturing would seem unlikely, Apple keeps the overall margins up. Why? As Muller has discovered, the answer is the iPhone:
According to my Apple model, (which is i consider accurate being that its EPS variance has been 4 cents, 2 cents, 1 cent, and ZERO for the past 4 quarters) iPhone contributes an equal amount to EPS as does the Mac segment, and will surpass Mac's EPS contribution in the quarters going forward.You'll have to read his piece for the details, but the short take is that the margin of the iPhone appears to be nearly 60 percent. That's right, in the world of consumer electronics, Apple is making such a large margin than competitors would likely break out in tears in realization of what they are missing. But instead of simply pocketing the money, it uses the financial advantage to lower Mac prices so it can be more competitive in a cost-sensitive environment. That raises the question of whether Apple plans a complete shift away from Macs. It needs them for now, but if it can bulk up enough on iPhones and the upcoming tablet, it may be that the Mac becomes an unnecessary endeavor.
Image via Flickr user julinemo, CC 2.0.