Yesterday, during the conference call following Apple’s stellar results for the fourth quarter of 2009, Apple talked about its forecasts for the coming quarter, which included a drop in revenues and lower margins. The web has drawn conclusions that this means Apple will be lowering its prices – but I’m kind of missing where the conclusion comes from.
Richard Gardner of CitiGroup askedApple’s Chief Financial Officer Peter Oppenheimerabout the forecasts, in which Apple warned for lower revenues and margins in the coming holiday quarter. Oppenheimer said they expect margins to drop 34% over the next quarter due to four reasons. AppleInsider transcribed it like this:
“First,” Oppenheimer said, were “new products we have and will announce, delivering greater value, lower gross margin than predecessors.”“Second,” Oppenheimer said, “a seasonally higher mix of iPods” will push down margins and the company also expects “Snow Leopard box sales to be less.”
“Third,” Oppenheimer said, the company expects to pay “significantly more air freight, while fourth, Apple anticipates having to face “higher component costs than September quarter.”
Various websites around the world have now concluded that Apple is going to lower some of its prices between now and the holidays. These news sites are most likely influenced by the barrage of rumours over the past few weeks and months concerning price drops on Apple’s laptops, the Mac mini, and the iMac.
However, that is not what I’m reading out of Oppenheimer’s comments. In fact, what I read from it is that Apple will continue to do what it has always done: offer newer, improved models for the same prices as the old models. It has been doing this for a very long time, and it fits in perfectly with the “greater value, lower gross margins” Oppenheimer is talking about.
That’s because margins can decrease even without price drops – in fact, in theory, margins could even decrease with a price increase. If your production or component costs go up, then your margins will automatically suffer. Oppenheimer even points to this very thing happening. For instance, the new iMacs might switch to the more expensive Core ix architecture from Intel, which would drive component costs up, and, consequently, push margins down. It could even be that Apple’s laptops will transition to Intel’s brand-new Arrandale chips, which are expected for late 2009, or early 2010.
In any case, nowhere does Apple state it is going to lower its prices. Maybe even the Mac community succumbs to the wishful thinking of lower prices for Macs – and in fact, they might arrive anyway – but Apple didn’t confirm anything during the conference call.
…if it could mean a new product which is priced with much lower margins than normal?
Suppose they released a tablet for instance which sells for a much closer to cost price due to competition in the netbook areana?
Just a thought…
I do agree that traditionally Apple does tend to set updated models at the same price as those that came before it, which could incur a penalty from time to time (tech price tends to drop, but not always, especially if adding new components such as BluRay (it could happen) or a new “touch” mighty mouse etc)…
…as I write this (almost 2am South Australian time – lol) both the US and Aus Apple Stores are down… Something coming perhaps?
It’s time for a seasonal refresh of the basic desktops (iMacs) and the mini (which are rumored to have a household server configuration option now), and rumor is the Mighty Mouse is to be replaced (they were sued for trademark infringement on the name, and the design is dated).
There’s rumors on other stuff too, but the iMac update is pretty much certain as they are quite regular with those.
It attests to their business acumen. The competition in the low-end is very very high. So high that the margins there are razor thin. Those vendors compensate in bulk, but the overhead for the bulk model is increasing, as is the sensitivity to volatility in supply and part costs. So, Apple’s chosen to compete in a different market segment (the higher end) and from a different position (function and form vs. cost-cutting vs. high-end gaming).
It works. Like any good species, it’s found it’s niche, and one where it has been largely free to operate with minimal competition.
Of course, it’s only a matter of time before jealous competitors seriously eye that same niche. There’s really not much room left in the low-end of the market, after all — and Apple’s clearly having a party. When that happens, Apple’s steam-rolling days will be over and growth will scale back.
I’m impressed with their financials though. 34B in cash reserve, no debt, and their 180B market cap makes them bigger than Google. They’re bigger than GE even, and have 75% the revenue of Microsoft despite not having all those enterprise agreements. For a company that was all but dead a 15 years ago, it’s come a very long way.
The pipeline just arrived and some products are markedly improved yet markedly cheaper at the same time. Nothing really stellar though, price wise. Except for maybe the uber high-end MBP which saw a $ 1.000,- price drop for the same configuration.
Mind those poor buggers that just bought one a few weeks ago (because I won’t)
I have not checked “The Pipeline” yet. At every new en-masse updating of its product line, it seems that Apple has one of the following:
– a new hardware or software design (e.g. MacBook Air)
– more hardware power at nearly same price as the previous generation (e.g. MacBook Pro, iMac)
– an entry level system (e.g. Mac Mini)
One product which appears to not to fit the more power at similar price trend is the Mac Mini.
It might be that the switch to the Intel platform was not conducive to maintaining similar prices to the previous PowerPC G4 generation. Or, that most of the value squeeze over the last few years has been in the area of the display (which the Mini does not have).
Whatever Apple does, it certainly gets noticed.
When are the Pros going to get competitive graphics?
It’s sad that, while Apple is focused on the high-end, they seem to have no interest in approaching the top-end.
Nevermind, ignore.
Edited 2009-10-20 23:59 UTC
oops. posted this on the wrong article
They already have competitive prices. Look at the Nehelem Xeon equipped HP, Dell, and Lenovo workstations.
Edited 2009-10-22 02:51 UTC
Back in the 1980’s we all accused Apple of price fixing and today we are having the same discussion.
The IBM Pc revolution was born partly because Apple wanted so much for their technology.
I enjoy asking people who made the portable MP3 player… they all say Apple!
~sent from ASUS 1005HA netbook http://bit.ly/44CHFm
As I was reading this, I wondered what changes they would be making. Earlier, I read something about a US$699 MacBook. I couldn’t imagine where anyone had got that idea. Apple tend to use higher density LCD panels (MacBook 13.3″ panels have been like other companies’ 15.4″ panels) so that they can’t go lower without jeopardising their cost structure.
It was different with the MacBook Pro where they excised the fancy graphics hardware, etc. to create a cheaper model. The low end MacBook really had nothing spare to remove.
It reminds me of those rumours of the dual G4 PowerBooks. If one runs hot, surely they can put two in there and it’ll be just fine.
It has you still can go down with ram, apple has upgraded the ram, you can make the display even smaller and you can leave out the nividia graphics chip.
Also you can move towards atom processors.
Now how much fun it is to work with such a machine is questionable, but there is a load of room for cutting down costs even on the macbook.