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A historical explanation of Apple's recent margin erosion
Apple's share prices have been dipping in recent months as analysts have predicted the company's pace of remarkable growth is starting to slow. At their all time high Apple margins were at 50%, but in the most recent quarter they had shrunk to 37.5%. So why exactly is Apple's margin shrinking? Asymco analyst Horace Dediu has posted an interesting examination of Apple's margins since 2005 to find the reason for their recent reduction. When his prediction that the company's margins would improve in quarter four of 2012 proved false, Dediu looked at the data to see what went wrong. His analysis takes into account the three major factors effecting margin changes for Apple: price changes, cost of components, and a mix of high and low margin products. Dediu discovered it largely comes down to the iPhone, Apple's top selling product. While sales and the asking retail price of the iPhone have remained consistent over the years, the cost of components increased by 29% in 2012 over the previous year. This had the effect of cutting the iPhone's gross margin from 58% to 48%. The iPhone 5 is more expensive to make, and therefore currently has a lower margin. iPad margins also decreased, though it Dediu notes that the asking retail price of the product also decreased in the time period. Ultimately he reasons that the increased cost of components is the main cause for the margin reductions. As the mobile markets expand in developing nations like India and China Apple will face more pressure to keep their products affordable. The popularity of recent trade in programs in India for the iPhone 4 shows there is market desire for the products. Perhaps the reduction in margin due to the cost of making the iPhone 5 will help make the much speculated about "budget iPhone" a reality. Head over to Asymco for Dediu's complete analysis, including comparisons with Apple's competition at Microsoft and Google.
New Acer will be more like Apple, less like HP
The details behind the rift that saw Acer's CEO Gianfranco Lanci (pictured) suddenly resign yesterday are now starting to emerge. Simply put, Acer's board wants the Taiwanese company to be more like Apple and HTC, according to Bloomberg, raking in big profits on fat margins. Lanci's approach, however, was to aggressively increase volumes and use its scale to negotiate cheaper prices from suppliers in a race to steal market share from Dell and HP. According to data compiled by Bloomberg, Acer's profit margin in the last fiscal year was just 2.3 percent compared to Apple's 21.5 percent. Daunting, to say the least. With Lanci gone, JT Wang, Acer's chairman and temporary CEO, plans to put more effort into expanding its smartphone and tablet business while broadening efforts around enterprise sales. For Wang, Lanci's departure marks a break with the past, saying, "Recently the iPad [tablet computer] and other new form factors have had a very big impact on the PC market. We have to change our business strategy." While PCs will still be core to the business, Wang said "we won't be in a hurry to change to become the world number one." Unfortunately for Acer, its brand is more closely associated with low-cost laptops than with the premium devices required to significantly expand its profit margins. We'd wish 'em luck but we think Acer will be better served by an innovative CEO and focused R&D.
Nokia tells investors that 2011 and 2012 will be 'transition years'
Wondering how long it will take for Nokia to fully execute on its new strategy? Here's a clue in a press release targeting investors and financial analysts: "Nokia expects 2011 and 2012 to be transition years, as the company invests to build the planned winning ecosystem with Microsoft. After the transition, Nokia targets longer-term: (1) Devices & Services net sales to grow faster than the market. (2) Devices & Services non-IFRS operating margin to be 10% or more." There are many ways to interpret this, naturally. But the one we can't get our minds around is that the Symbian and MeeGo houses were such a mess that they couldn't be repaired by 2012, even after years of effort and huge investments directed towards that goal. And here we thought that MeeGo "inspired both confidence and excitement" while Symbian's only issue was UI related. Update: Stephen Elop says that he expects Nokia to ramp up the transition this year and be ready to ship Windows Phone 7 devices in significant volume in 2012.
Circuit City to expand used game sales program
Following an apparently successful ten-store test program started nearly a year ago, Circuit City has decided to broaden its used game sales, according to SmartMoney. No word on how many new stores will be adding a used games section or how quickly the expansion will roll out, but Circuit City Vice President Irynne MacKay said the company wants to be "competitive on pricing." That's a relief. We were worried they wanted to gouge us.High margin used game sales could help the struggling electronics retailer, whose sales fell 11 percent last year in the face of competition from Best Buy (which, incidentally, was also testing out used game sales at one point). The company is also toying with gaming tournaments, a 10% off "Gamer Savings Club" (with a $20 annual fee) and a new store layout that prominently features gaming kiosks. That all sounds well and good, but we'd recommend caution with the placement of those Wii kiosks. There's nothing worse than an overzealous Wii Sports player knocking over an innocent customer looking at big screen TVs.
50-percent of your iPhone purchase to pad Apple's wallet?
Sure, LG's KE850 Prada handset will set users back a cool $778, and the Google Switch just might pop in to make things a bit more interesting, but a recent research report has unveiled that Apple's sure-to-be-sold-out iPhone is a lean, mean, profit-generating machine nonetheless. While Apple's well-known for selling its iPods (and to a lesser extent, its Macs) for much, much more than it cost to manufacture, even we're a bit taken aback at how hard those corporate buyers must be workin' those suppliers on this one. According to iSuppli (no affiliation with Apple, of course), the 4GB iPhone will yield a "49.3 percent profit margin on each unit sold at the $499 retail price," while the 8GB rendition will kick back a 46.9-percent margin. You heard right, they're supposing the $499 mobile only costs Apple $245.83 to produce, while the 8GB flavor demands just $264.85. Of course, this isn't the first time a hot-selling product has been broken down by the numbers to prove just how ripped off we're all getting (if these numbers are to be trusted, that is) -- but hey, unless you've got the means to buy capacitors and LCD touchscreens by the boatload, you're probably stuck paying exactly what they ask. Plus if all this sudden competition gets a bit too heated, don't think Apple doesn't have any room to introduce a (highly desired) price drop.
