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The Cost of the iPod
An anonymous reader writes "The New York Times is running an article today entitled Apple's Got a Secret. They discuss the cost behind making the ever-popular iPod ... a secret the company is keeping close to its chest. As a result of the company's signature secrecy and antiquated way of tracking profits, analysts are beginning to question the 'trust me' nature of buying Apple stock." From the article: "Geographic disclosure was adequate when pretty much all Apple sold were computers, Mr. Renck said. But the iPod has changed everything. Sales of Macintosh computers now trail those of iPod, which last year made up 46 percent of revenue. 'Apple clearly has its feet in two separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry,' Mr. Renck said."
SMOOTHIES FOR THE ROAD Why would anyone want a blender powered by a bicycle? "Because human beings love human power," according to the Web site for the Byerley Bicycle Blender, or B3.
Cool!
Instead of just telling us about how this "analyst" is irritated that Apple won't tell him what he wants to know they include a little bit of balance, in the form of a quote from a poster on his blog:
"How about actually doing their job and analyze the company they are covering? What a thought -- actually doing some independent research without the companies giving them all the information on a platter."
He's got a point. It shouldn't be too hard to figure out what an iPod costs to make, within a margin of error, of course.
'Apple clearly has its feet in two separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry,' Mr. Renck said.
'Apple clearly has its feet in two separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry.'
'Apple clearly has its feet in three separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry... and the music download industy.'
'Apple clearly has its feet in four separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry, and the music download industry... '
'Apple clearly has its feet in two separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry,' Mr. Renck said."
Yeah, it's not like iPods ("consumer electronics") would ever interact with computer hardware or software in any way. It's also not like iPods themselves are computer hardware that run computer software...
Uttering logically derived and empirically supported truths to the disciples of the orthodox establishment.
So what's the secret exactly? Everyone knows that iPods don't cost nearly as much to make as they're sold for - big deal. Sounds like editors at the New York Times own shares of Creative Technology :(.
Haiku for you!
wonder who is shorting Apple stock. Stories like these, are great for the shorts.
If Robert Renck actually attempted some investigation into the matter, he'd know that there are things like iSuppli.
They rip apart hardware and analyse every part (and where you can buy them at what price).
Add to that the fact that Apple does tell how much of the different types of hardware it sells and you can guestimate away!
Apple themselves run the two businesses as separate divisions in the company.
In other terms, you're a jerk-off.
If people know how much money you're making on a sale, then they feel bad about paying for it. They see the value of the item as what it actually costs to produce, not what it is being sold for. .e.g If my friend gets a great deal on a bucket of apples (say 5$), and offers to sell them to me at 10$ a bucket.. I won't feel too happy about that, knowing full well he is taking advantage of and making profit off my skin. If I don't know how much he paid, then I assume he is keeping my best interest in mind, and don't feel harshly towards him for selling me the apples (which at 10$ a bucket is still a great deal.)
:P
:P
/2 cents
I had this problem myself when I was selling speedstream DSL modems. I had purchased a gros (144) for 9$ each. I made the mistake of telling people what I had paid for them, and everyone wanted them for ~10$. They were selling for 120$ retail at the time, or 10$/mth with the ISP. No one wanted to pay 50$, even though it was a great deal, because they knew what I had paid for them, and how much profit I was making. I ended up only breaking even, because word got around what my profit was on each sale, and everyone wanted to bargain me down to what I had paid.
The fact that apple doesn't want to tell what they cost to produce makes me think that their margins are pretty obscene, and they know it would make people angry to know just how much they're pocketing.
Computers (and peripherals) are Consumer Electronics. You see inside that tiny Consumer Electronic Ipod thingy your kids have there is a tiny computer running tiny software. Ipods are specifically a peripheral to a computer, be it Mac or PC. Same business model, Apple makes attractive easy to use consumer electronics. (Covers up Newton>) BTW, why not just link to the artcle three links and two blogs deeep. http://www.marketwatch.com/News/Story/Story.aspx?g uid=%7BEE4732BB-BCFC-49FE-9CA3-6E11FC25122D%7D&sit eid=mktw&dist=
FTA:
Accounting standards, he adds, require that segments generating more than 10% of a company's revenue be broken out by several metrics, including sales, profit and assets. The iPod first passed that threshold in early 2004. Commenting on the issue, in a statement on current accounting and disclosure issues, the SEC staff has said it believes segment information should be broken out unless "separate reporting of segment information will not add significantly to an investor's understanding of an enterprise [because] its operating segments have characteristics so similar that they can be expected to have essentially the same future prospects." Renck goes so far as to say he believes Apple should do a separate breakout for computers, iPods, music-related products, peripherals and software and service. "Their business has changed and they should be doing it differently," he says. "Transparency is what everyone wants, and they don't want to be transparent."
Dude, I want a transparent Ipod too.
OSGGFG - Open Source Gamers Guide to Free Games
Obviously the iPod is a huge success in the world, and other companies are trying to copy them as best as they can to try and share some of the success. This is basically equivalent of Microsoft opening up the code for Windows so it could be analyzed. They dominate the market simply because they have excellent business strategies, though that could be questionable depending on who you talk to.
We have all heard about Apple's outraged reaction to the so-called "iTunes law" (which really isn't an iTunes law except in Apple's propaganda, see http://en.wikipedia.org/wiki/DADVSI for more information).
Apple has an economic model that enables the company to make a lot of money from the sales of their device.
It seems that it also would prefer that law strengthens that economic model, for instance by criminalizing those who would dare make compatible players.
As a result, they have begun bullying governments around the world, with the help of the US government. (I'm surprised that a Republican administration should help Apple, but Apple probably funds both parties anyway.)
If 64% of their profit came from iPod Sales, this should be bloody easy to figure out. Get the numbers for net profit, gross profit, and gross sales. Also, the number iPod Units sold and then start doing the math to figure out what the actual profit was per unit. This is basic math people.
Pills that treat every major disease costs $0.25 to make. But the first pill cost $1,350,000,000.
R&D costs money. So does good design.
It drives me up a wall how this company always gets a free pass on this and other sites. Apple is not the greatest computer company ever. They are certianly not Open Source or even close to it. They make pretty boxes for a lot of cash, and now there boxes are just another PC brand.
Atleast they are built better than Dell, I'll give you that.
The fact that they're technically similar doesn't mean they are similar businesses in similar markets. Clearly the Mac is in a very different kind of market to the iPod, as evidenced by one having like 3% market share and one having 50%+ ... and that's what matters to the shareholders.
Shareholders should really have this information; the iPod is going to start facing tough competition from the mobile phone manufacturers soon, and knowing how much they could slash prices by to maintain market share is important. I myself use my phone rather than a dedicated mp3 player these days .... the iPod is probably a better music playing device but it's not that much better, and it's not worth it to me to carry about two devices when one + a pair of headphones is nearly as good. And the phones will only improve.
Let's not forget the cost of development. iPods aren't exactly the most stagnant of products and innovation isn't cheap.
When one factors into account the variety of hardware spanning the iPod lineage and the effort Apple must put forth to not only update existing firmware but create new versions with new features, it's no surprise the cost of an iPod is slightly higher than that of its fat cousin at Creative.
Apple already is chiefly a consumer electronics company. It's weird the article separates computer hardware and consumer electronics, when the Macintosh (and PC's for that matter) fall into the definition of it quite nicely, and have for quite some time.
Although it's true that Apple was a diffferent company several years ago (I'm assuming they're referring to the mid-90's with no Steve Jobs at the helm), they also were a much suckier company back then too. They fell to the verge of bankruptcy as their products lost their sex-appeal. Apple is thriving again because of sex appeal. Sex Appeal sells, sells, sells. I worked for an electronics retailer and I can't count how many women picked PC's based solely on how they looked.
If I were head of Apple, I would focus even more on consumer electronics. How sexy would an Apple DVD player look? Or a PDA (like a new Newton)? A video game console? Sound System? They're not taking over the Home PC market, not for a very long time outside of a freak natural disaster in Redmond.
Then again, general-purpose home computers are more and more taking over these roles. We now have Media Center and FrontRow. Why buy a component system, dvd player, dvr recorder and music player? This one machine can do it all. Besides, Apple has always marketed their PCs more as appliances than PCs, a computer the "rest of us" can use. Anyways, I'm way sidetracked here, so rant over.
Please tell me otherwise if this site isn't credible, but I happened upon this.
T he-iPods-Incredible-Journey.xhtml
http://www.macnewsworld.com/story/6C07rmGkmpn1Oe/
It details some of the ethical concerns in Apple's manufacturing, or outsourcing to manufacturers that do this. And then again maybe I'm some bleeding-heart, I dunno.
Still waiting on Serviscope_minor to wake up to fucking reality and realize that Jessica Price isn't going to fuck him.
I'm too lazy to use mod points on this story, especially when I've made two comments already... er.. one comment - just twice.
Still waiting on Serviscope_minor to wake up to fucking reality and realize that Jessica Price isn't going to fuck him.
Except for the detail about Apple's separation by geography, isn't secrecy about details like profit margin true for most companies? Look at Google. They won't even tell you how many computers they have running. Microsoft surely won't tell you about profit per copy of Windows.
Well, there's spam egg sausage and spam, that's not got much spam in it.
Doesn't really break it down further than that...
Is anyone really spending $1399 for a Bicycle Blender?!?!? Wildly popular in Malabu?
If you want news from today, you have to come back tomorrow.
Therefore it seems to me a major part of the analyst job is at least to smell check the numbers released a firm, and in reality to generate independent data on major products services. Instead of complaining that Apple is not releasing profit margins, any analyst should be celebrating that Apple is now using mostly off the shelf compenants with widely known acquisition and integration costs. Furthermore, manufacturing costs should not be impossible as these seem to be also widely known in the competative market.
As far as the markets, Apple has for a long time produced solutions. They produced a solution for graphic artists, a solution for home users, etc. This is why the fact that the mac was closed was not a big issue. When one bought a mac, it was a solution. Now apple has found some success with music and video solutions. It is not new becuae it is applying integrated technology, both hardware and software, to solve a problem. Some analyst get confused about solutions becuase they have been raised with MS philosophy of suppling components that others will turn into solutions. Compenents work for some people, but most of us buy a completed car, a completed refrigerator, a completed TV, and don't expect the manufacturer to deny responsibility because a component is made elsewhere.
The only thing that has changed is that computing technology has become consumer technology, not the Apple has all of the sudden become a consumer technology company.
"She's a scientist and a lesbian. She's not going to let it slide." Orphan Black
Investors will make decisions to buy or sell Apple stock based on a number of factors, the least of which revolve around gross margin disclosures to investors or just how much information Apple executives are willing to share outside the company. Analysts can and will examine, regurgitate and then pontificate about the most minute information available on a company, but the only meaningful question investors should have about buying or selling Apple stock is, "Will I make money if I buy this stock?" or, "Will I make more money if I sell this stock?" It really is that simple, and it doesn't take an analyst to figure it out.
What analysts may know or not know about Apple's business is secondary and, in most cases, immaterial to calculating the profitability of owning Apple stock. If you trust that Apple's management team knows what they're doing, than buy the stock, even if the executives won't tell analysts how much money Apple makes every time an iPod is sold. If you think Apple is hiding crucial information that affects your own profitability as a stockholder, than your best move is to unload any Apple shares you currently have and not to buy any more. Stock tips from the New York Times are worth about as much as you've paid for them, and it shouldn't take a rocket scientist with reams of mathematical proofs to demonstrate such an obvious fact.
But how is development costs affecting price once you have sold 1,000,000,000 at $25 a pop? The development cost have been repaid over 20X. Oh we have to pay for the costs of the ten drugs that didn't make it to market? Not entirely true. An ugly fact is most of the development money goes to finding new drugs to replace drugs that patents have run out for so they can go back to charging $25 a pop until that patent runs out. It's not about helping people it's about charging as much as possible at all times.
Why the fixation with Apple and the iPod cost? I mean do we ask always how much that wonderfull dinner really cost to the restaurant? Or the shirt/pant/jacket/shoes/etc?
The obviously have a profit, I don't get the obsession with this...
Last week it was the trumped up claim that the iPod factory in Shenzhen is a hell-hole, which it isn't -- this week it is foggy data giving stockholders the creeps, and we all know that in the end, stockholders listen to their gut. Anyone suspect a trend? What/who is in the background trying to weaken Apple's public reputation?
Don't forget most of the R&D is funded by tax payer money to begin with.
"Geographic disclosure was adequate when pretty much all Apple sold were computers, Mr. Renck said. But the iPod has changed everything."
since when is a ipod not a computer? it has all the same features if not more of older computer (laking a keyboard but then again so does a most palm pilots)
(yes i know i suck at spelling fell free to correct my grammar and/or spellin i dont care, im still not going to change
It's laughable that the stuffed-shirt, Wall Street types are saying that Apple needs to provide more infomation, but the "Information wants to be free" crowd here at Slashdot thinks that Apple should hide the information from everyone lest their competitors find out their margin. Apple competitors know that a consumer doesn't really care if you can beat someone's margins. They care if you can beat their pricing. This is just Apple hiding information because they can.
It drives me up a wall how this company always gets a free pass on this and other sites. Apple is not the greatest computer company ever. They are certianly not Open Source or even close to it. They make pretty boxes for a lot of cash, and now there boxes are just another PC brand.
At least they are built better than Dell's, I'll give you that.
This article is obvious crap, someone with nothing better to write, do you walk into the supermarket and demand to know how much the supermarket purchased the bannana's for and what their markup is no, it's apples right no to disclose how much the ipod costs to make, get a life, does microsoft disclose how much it's margins are no, unless it costs more than what they are selling it for, who wouldn't then.... what this guy is saying applies to every single company world wide, again what a load of crap to be pointing out apple for this
People, get real! The cost of actually building the products is not the cost of production. Apple is a company with a large engineering staff. Engineers, who are very well paid. Apple also carries a very large HR, Finance and marketing teams, all whom are very well paid. So, where does the money come to pay these folks? The folks who think up the ipod and itunes and all the other secret stuff that apple thinks up? I'll tell you who pays, you do. When you buy and apple product. All those costs are put into the end price. In real life, the cost of actually making the thing is lower then all the overhead.
What's ironic to me is that "PC" is now an umbrella term for what was IBM's brand created from the generic term that Apple popularized -- personal computer -- to combat the stuffed-shirtness of "microcomputer" (in the enterprise they were still calling them "micros" at the time). For years Apple described their products as PCs, personal computers! And yet, due to the Wintel hegemony PC kind of evolved to only mean IBM's brand and those machines compatible with it, e.g. the years and years of "PC-compatible" computers, before they just became PCs (the new meaning).
The fact that they're technically similar doesn't mean they are similar businesses in similar markets. Clearly the Mac is in a very different kind of market to the iPod, as evidenced by one having like 3% market share and one having 50%+ ... and that's what matters to the shareholders.
But you are discounting the fact that they whole point of Apple is to straddle these markets, and have products that leverage both sides of that equation. iTunes would not be nearly no nice without an iPod to use it with. Where does one really begin and the other end?
I would in fact argue that Apple has always strove to ONLY be in the consumer electronics market, making computers as close to consumer electronic devices as they possibly could be using current technology. It just takes a while to get computer technology to where it needs to be for a truly consumer friendly device.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
The iPod sucks. The case appears to be made of hard cheese (probably parmesian, thank god its not runny limburger), the unit is LESS versatile then 10 other hard-drive based units of its type that I personally test-drove, and I don't care if the Chinese workers sleep on purple ermine, China is still vast slave camp. I for one refuse to be taken in by an advertising campaign no matter how slick. Just grab one other comprable unit from another manufacturer. ANY ONE. I defy you to tell me why its not as good as an iPod. Not interested in Apple stock? You better believe it.
Dude, You would lose it.....
Decaffeinated coffee is kinda like kissing your sister.
The classic Apple hardware has moved on to intel-based components upon which anyone can run their OS of choice.
Apple's software is based on an open-source kernel, meaning anyone can rebuild that and add whatever software they see fit.
Forgive me for bashing a staple here, but I'm unable to see a reason why the mac exists anymore. Without meaning to troll at all, what is the competitive advantage to be gained by using a mac, other than the "small reward" trojan avoidance?
I suspect Apple would have made a far better Sony if they had invented the minidisc, and I believe consumer electronics is the direction they should pursue.
Geez, with a title like that I was expecting at least a rough estimate by some tech know it all on the breakdown of each widget that goes into the ipod. Thank you, please come again!
You mentioned at the end of your post that phones will only improve as multi-faceted devices. Agreed. However, the Ipod has such a large market share because it was (is?) able to provide a product that is more intuitive to use than anyone else.
In the same way, Apple is not going to sit around thinking "gee, were doing great, why worry about improving the Ipod?". Dedicated music playing devices have some advantages (being able to work out with them and the form factor) while 2 in 1 devices do also (no need to hold 2 seprate things, etc).
The real question is will cell-phone manufacturers be able to outpace Apple in terms of features that the public actually wants?
Nah, but I would spend that much for a Blender Powered Bicycle.
Anything to back that one up? I can't and won't say it's wrong, but that's one hell of a sweeping statement to throw out there without even hinting as to its origin.
Slashdot - where whining about luck is the new way to make the world you want.
We were referring to business models, not markets. It is possible to use the same business model to service different markets. For example, the markets for computer programming books, popular psychology books, fashion magazines, and soft-core pornography is quite different, yet all these can be delivered to the consumer using the same business model (from the perspective of a book store), and in fact, you will find book stores stocking all these items. Similarly, in the US, Wal-Mart sells all sorts of different products that appeal to different markets using the same business model. Furthermore, I understand that whereas in the US, Wal-Mart primarily sells non-perishable products manufactured in China, in China, Wal-Mart sells primarily perishable products; however, their business model is more or less the same in both countries. To further illustrate my point, the market for desktop computers may be different from the market for laptops, yet Dell et al. sell both using the same business model. Returning to Apple, all the products they sell (PC software, desktop PCs, portable PCs, ultra-portable PCs (iPods)) are either computer hardware (marketed as consumer electronics) running computer software, or stand-alone computer software for those product. From a business model standpoint, there is little difference between producing an iMac or an iPod. In fact, if Apple's business model is to be decomposed and bisected, we would find that the greatest difference in business models employed probably lies between their hardware production division and their software production division, and not in fact their Mac division and their iPod division. Furthermore, as portable music player users are a perfect subset of computer users, it behooves Apple to attempt to synthesize the two markets. This is in the same vein of Apple providing both PC hardware and PC software as PC software users are a perfect subset of PC hardware users (though in this case perhaps not a strict subset). Similarly, Microsoft employs a similar business model in both their PC operating system division and their office suite division (the office suite market being a perfect subset of the PC operating system market), and this has allowed them to dominate both of those markets and maintain that dominance through a feedback mechanism.
Uttering logically derived and empirically supported truths to the disciples of the orthodox establishment.
Comment removed based on user account deletion
Right now they are on a high, but with the introduction of the Intel chip they are sliding down (eg computers cost more, quality problems highlighted in ZDNet, and delays in the latest iPods).
Apple machines are closer now to parity with wintel in dollars/performance terms than they ever have been before, and ZDnet is the New York Post of tech news sites (all negativity and sensationalism, all the time!). There are issues with Macbook Pro hardware, but I don't think it's fair to characterize the whole company as being on a downward slide.
0 1 - just my two bits
It's possible. They might make it on Itunes.
There are FOUR lights!>.!..!!
And will they be able to do so with a half decent interface and execution? I've said it before and I'll say it again, I'd rather have several devices that each do one thing really well than one device that does lots of things not so well. The iPod fits that bill for music playback.
Sunwalker Dezco for Warchief in 2016
Woz the inventor of the Apple Computer says that Apple should be split into 2 companies - an Ipod Company and A Mac Computer/Software Company. From my point of view - that way if one compnay fails it won't kill the other. If both fail - then it won't matter. One needs to remember that Apple didn't invent the portable music player. What Apple did do was/is the result of Jobs wealth and position in the interntainment business. If Napter had the bucks and insiders position - they could have had the music download business sewed up.
It was just last year that the music labels not only wanted to raise the price of downloadng music but they were talking about demanding a percentage of iPod sales. It would not be paranoid to suspect that the labels would use any iPod profit disclosures against them - and with some prejudice.
If Apple showed a 50% percent profit on iPod sales, labels could demand a percentage of that 50% without regard to how iPod sales cover losses in other areas. This article already shows a penchant for dividing iPod from Apple computer sales. In the event of label demands and/or legal actions Apple could end up getting hung with its own rope.
Of course Apple could always use a shell game to manipulate profits. How many Hollywood films ended-up not showing a profit after some "broader" accounting. Not providing info while also not shape shifting any books is probably a prudent to way to go even is it looks bad in a narrower context.
Why is it that no one cares what Dell or other companies mark up their computers? But the iPod, oh we must know the profit margin. What the hell?
Here's interesting results...
I searched for pharmaceutical company financials on moneycentral.msn.com . Lots of random samples+ the big companies that google whose websites google give.
The truth is that companies less than billion dollar on sales seems to loose money, and rarely even break even, not a single company nearly 7% profit on sales.
Few billion dollar companies make upto 7% proft.
Tens of billions dollars seem to give profit margins about 18-22% on sales.
Intel makes that.
Microsoft makes 32% profit on sales.
Basaicly, pharmaceutical companies have business as usual. They spend the money to stay in business for long, they make the percentage of profit per sales that is normal for business with high research, atleast big companies.
Their profits are not astronomical, since MSFT beats them and its right where intel is currently.
I agree that large portion of money goes for replacement research. But the truth is that the new pill should be atleast as effective or someway better than previous one or large fraction of people go for the old one. [Atleast in country where seeing doctor doesn't go directly to patients pocket more than the pills.]
The most profitable product lines are treating symptoms, the cures are less profitable, but those things need to be researched also if not for any other reason its for keeping goverment off the back of big pharmaceuticals.
Cure for common disease is profitable, but cure for rare on isn't. Its simple, what was profitable for pharmaceuticals 15 years ago is profitable for them now. And there are new profitable research goals but majority of that was profitable long time ago.
Here's interesting point, they don't really know all the effects of the molecyles they are researching until they have tested it throughout. And when they research, a molecyle that should affect one thing, it can han other effects that are beneficial as a drug application. Some are even sold for the other purpose than the original research target, and some are prescribed by doctors for other purpose than the drugs are sold for etc...
As for replacement drugs...
After reading the side effects of certain common drugs, and seen the side effects and felt the side effects, I'm quite happy that the drug companies are competing for new pills that could have less side effects.
I know a person whose doctor refuses to give her effective pills since those have side effects. Actually they replaced the effective pills with ineffective ones. And the problem is common enough to be in the list of those that are considered as replacement drugs. So we really need better replacements on many common drugs.
I personally want to see better delivery for antibiotics. Now I don't say more effective antibiotics but home antibiotics delivery that doesn't mess up my digestive track. There is lots of pills that I *DONT* use even if there would be need for it because of their side effects. And for antibiotics I'm never ever going to take any antibiotic pills if I have ANY choice on that.
©God
Consumers always want to pay less. Companies always want to make more money. It's not like there's some vast conspiracy.
Who cares how much it costs them to MAKE the iPod, if the actual value of the device for the consumer is not equal to the price point then people won't buy it. The iPod seams to have crushed all the other music players, so obviously it's at a good price point for most people.
Personally I think the iPods are over priced, so I won't get one. Pretty simple.
Let me play the world's tiniest violin for Big Pharm.
My father recently was prescribed a new drug -- he's got bone cancer. It's not common in the least, though over the past 5 years there have been a ton of advances in treatment (kinda amazing really). That means there's not a ton of research specifically for it (it's not breast cancer or anything right?), and the drugs aren't near as mass-produced (which drops the cost).
This new drug -- at the moment I can't honestly remember if it was chemo, or a steroid, or what -- costs $15,000 for a 1-month supply.
That's USD, too. Not pesos. Work that out. 500 bucks a day. Thank god for insurance, right?
Frankly, I'm not sure about you, but in my mind.. that's kinda retarded. I know there's reasons, but 15 grand? Shit man, 500 bucks of COKE in a day'll kill you.
... still waiting for this free-as-in-beer free beer I keep hearing about.
Its a two product line company - whether they are in the same business is immaterial. The task for an investor is to figure out whether the current price which he has to pay for both product lines bundled is good value. And, since the price will fluctuate, he has to figure out at what level its good value. There are really two variables you have to consider in this, the earnings and how much you should pay for those earnings.
he computer product line is basically no growth, so probably it should have a price/earnings ratio of around 10-15. This means that iPod product line has to carry the burden of the current price earnings ratio of around 30. Back of the envelope: assume iPod sales are deliverying half of the current earnings, then we would have to be paying around double (using the 15 x estimate) or about 60 x earnings.
At this point you see why an analyst starts to get nervous. He does not know and has no way of finding out what the earnings from the iPod product line are. So he does not know if he is really talking a p/e ratio of 60, 30 or maybe 100.
The thing he does know is that the iPod product line is much riskier than the computer product line. The stability of the computer product line in recent years is striking. The iPod has come from nowwhere and could, he thinks, go back there.
He says what you would say. The range of uncertainty is too great, I cannot value this company, stay away. Or buy on momentum, and realise you are not an investor. After all, there are lots of companies to buy, there is nothing special about this one.
Personal view: the Apple enthusiasts are too cheerful. One should only buy Apple when they are in the depths of despair. Sell when they are euphoric. The best and most reliable indicator in world markets.
" the iPod is going to start facing tough competition from the mobile phone manufacturers soon"
That is something that was said a few years ago as well, and still the phones haven't caught up. Probably because combining a mp3 player of ipod quality with a phone of sonyericsson quality would grow the size of the phone beyond "stick it in your pocket"-size, if you're not willing to compromize on the functionality of either.
B.
Every experiment which ends in a big bang is a good experiment.
The price for rare diseases is high. I know it certain, I personally know people who's insurance covers millions of dollars worth of medicine [europe], in some years. And thats because they have a rare disease.
Its all about the economics, the amount of testing and paper work for getting a new drug accepted is overwhelming costs for some drugs, and then the manufacturing and research, adn then there is distributors share of the price.
ALL the COSTS for THE medicin
---------divided by------------------ =profit*per_day_costs
number_of_people * lenth_of_treatment.
Now for the 15000$/month treatment of your father.
You can assume quite easily that atleast 5000$ doesn't go to pharmaceutical company for any drug they sold, its left in the distribution chain. So they have 10 000$ and atleast 4000$ goes for making others realize that the drug exists and that it works. Then you have overhead costs for atleast 1000$ Then they probably want the 1000$ profit its less than what most companies make, but they don't want to look making huge profits on cures and its subsidized by other lines. So there is 4000$ left and probably 2000$ goes getting it accepted by goverments. So in the end, if we only consider the manufacturing and research thats probably under 2000$ of the price for the drug your father got, rest of the money goes to other costs. And still company makes relatively small percentage of profit out of the sales. This was just a speculation based on how costs are spread in many other industries, but its typical, the costs of manufacturing and research are only small portion of the costs for most products. Its sales and marketing that costs, in this petucilar industry there is extra costs for clinical trials. And potential lawsuit insurances.
©God
I don't think that's true. MP3 phones weren't really common a few years ago. I use a Sony Ericsson W800i, which can store about half a gig of music and has a reasonably competent music player implementation. An iPod would do it better, but why bother when a phone already cost me what an iPod would yet does so much more? If you look at the W800i it's definitely pocket sized, and in the UK SE seem to be gaining dominance (whereas internationally their market share is still quite low).
I should note that it's easy to upgrade capacity to something less poxy but I never bothered. Half a gig is enough for now.
...and then reality kicks in.
Analysts are there to guide investors on what is value, what is growth. Apple is clearly not "value". Analysts that said "sell" Apple stock in 2004 and kept saying it stubbornly in the face of such performance should be out of work.
-Stu
The New York Times is in the business of selling newspapers and adversiting. It is not elected by anyone. It consistently is late on reporting international news, and generally suffers from extremely poor writing. It is arrogant. In this case, a hack reporter has decided to suddenly become a great analyst and insinuate some type of financial cover up. The reporter is not qualified to cover this type of information. Reporting of financial information is between shareholders and the SEC. Apple is in compliance. The New York Times favorite strategy is to get people talking about it's article. "The Times published this, the Times published that" "They don't have a right..." "They do have a right"... blah blah blah. The point is to get people talking about it. The NYT "bad boy" who likes to come in and pee on the carpet and have everyone talk about what a mess he made! "What a scandal." "How could they possibly say that...!" The NYT is best ignored. It has sloppy coverage. THE REASON SLASHDOT EXISTS [and other sites like it] is in part because major media "outlets" are not capable of good coverage. The best thing to do the the New York Times is burn it.
Oh please there are dozens of other mp3 players out there that work just as well.
Its all this cult mentality about apple. Personally I've never been impressed with
there UI ability. The first macs supposedly some amazing revolution, where very
painful to look at, bright white flickering background on which you attempted to
read black text. More like a torture device (and not of the fun variety like vibrating
nipple clamps!) than computer. This as opposed to long persistance easy on the eyes
green and amber monitors that had been out for years.
Sadly the influence still shows in everything including this web site. Bright text on
a black background is alot easier to read than the other way around. Just because paper
is that way doesn't make it ideal. Lemmings just following along with a bad idea because
apple put it out.
Don't forget most of the R&D is funded by tax payer money to begin with.
No it is not, at least for corporations. R&D is an expense that offsets profits. I think you are grossly overestimating how much research, excluding weapon systems, is done by the government or taxpayer funded universities.
Here's some links:
SEC's Fact Sheet:http://www.sec.gov/news/extra/seldsfct.htm
How one corporation explains it on its website:http://www.investor.jnj.com/guidelines.cf
How Wikipedia describes it:http://en.wikipedia.org/wiki/Regulation_FD
If you must moderate, please moderate as irrelevent, not something bad, because I'm sure someone will find this interest
Pharmesutical companies have a profit margin of about 7%. Are you saying that your father's life isn't worth $1000 a month? That's what they're making. They put millions of dollars into research in the hope that they can find a cure, and you're bitching because they're making $1000/month on a disease that nobody's heard of. Pretty fucking greedy, aren't you.
How about a blender powered DeLorean? Your post reminds me of "Mr. Fusion".
"R&D costs money. So does good design."
Then why does an Icrap, sorry I mean ipod cost $400 AU, I mean other companies did their R&D and I woulnt say they had good design (I need the craptunes SW to access my music, I cant copy music on the fly, it uses the inferior AAC codec, need I go on).
with an ipod you pay for the brand, Apple just doesnt want to admit it.
Selling my crappod and buying a Zen (yes I bought an icrap, I will admit to my mistakes).
Calling someone a "hater" only means you can not rationally rebut their argument.
Quote: But that would require work and the analysts want everything spoon-fed to them.
Analysts try to use reliable sources in our analysis, one of which is the Company in question. Without good information, we are forced to use heuristics, like using consolidated gross margin, which produces poor forecasts and are harder to defend in fron tof clients. It is customary for companies to disclose revenue and cost breakdowns, although whether or not it is required, IANAL and IANAA (i am not an accountant).
FYI, i am an (emerging markets) analyst, thoguh i dont work in wall street.
"I need the craptunes SW to access my music"
I used my iPod with Banshee. It worked fine.
"it uses the inferior AAC codec"
All my music is encoded as mp3's, and the iPod plays them back just fine.
"with an ipod you pay for the brand"
I paid for the DESIGN. I went shopping for mp3-player. I tried different models, and they felt plastique, they felt cheap, they didn't feel comfortable in the hand, they had needless clutter on them ("The Creative Uber-zen videoplayer XMA500+", why does it have to constantly remind me which brand of mp3-player I bought?). Then I tried iPod Mini. It was made from aluminium, it felt like solid piece of metal. It felt smooth and uncluttered. The controls were dead-simple. It just felt RIGHT. Yes, it cost a bit more than the competitors, but not outrageously so It became obvious to me the moment I picked the Mini up, that that extra money does get you something extra.
I find this really surprising to be honest. Good design does take work, but it's not rocket-science. Why is it that after all these years, only Apple does it right, whereas Creative and the others do not?
Lesbian Nazi Hookers Abducted by UFOs and Forced Into Weight Loss Programs - -all next week on Town Talk.
This guy is looking for an excuse as to why he can't possible be expected to calculate AAPL earnings with accuracy because he has been given the number in a 1 + 1 = 10 fassion and doesn't know how to read binary.
Like 99% of consumers, I could care less about this debate. As an AAPL share holder, I like the protectionism Apple displays. That the CFO doesn't cow too the insistance of analysts to slice and dice his numbers is refreshing. Apple isn't in the business of providing stock informaiton. Yes, they need the capital investment from the public market but they are far from breaking any SEC regulations so it really is up to analysts liek this guy to decide if they want to buy for their portfolio, or in his case, rate the stock as a buy or sell.
I only came here to do two things; kick some ass, and drink some beer...looks like we're almost out of beer.
Apples advantage and strong point is its advertising, not its technology or design
Make no mistake, You pay for the brand name. Creative has it right. whist it may not be as small as the Ipod, it has not had a long string of problems (weak screens, memory problems) and is built on the proven superiority of Creative's Audigy sound HW (they have been used in PC's for years now).
It is vanity to be impressed by a case, it is inteligence to look inside.
Calling someone a "hater" only means you can not rationally rebut their argument.
"Apples advantage and strong point is its advertising, not its technology or design"
Have you actually looked at the players? Design of the iPod is miles ahead of Creative and the like. Believe me, I actually went looking for a player, and the design of the Mini was way ahead of Creative and others. Mini was not the first player I looked at, and it wasn't the last. But it WAS the best.
"and is built on the proven superiority of Creative's Audigy sound HW"
Um, what does the Audigy have to do with their mp3-players? And what makes you think that Audigy is "superior"? People in the know usually think that it's quite mediocre.
"It is vanity to be impressed by a case, it is intelligence to look inside."
I was impressed by how the player felt in my hand. Creative felt cheap, iPod did not. And I DID "look inside". The UI in the Mini was superior to the one found in the other players. Feel free to disagree, but I just don't share your opinion on this matter.
And I find quite funny that you talk of "intelligence" while calling the iPod "iCrap". Yeah, that show really intelligence and maturity.
Lesbian Nazi Hookers Abducted by UFOs and Forced Into Weight Loss Programs - -all next week on Town Talk.
You know, iPods will improve too. They have better addressbook, calendar, and contact functionality than my Nokia cell phone right now, and at some point I imagine they will gain some kind of VoIP functionality with the addition of a headset, perhaps wireless mesh iChat/AIM communication.
GPL Deconstructed
C'mon people, this is easy.
That doesn't include:
1. development (big-time cost)
2. Molds for housings (one-time cost)
3. Certifications (regulatory stuff for various parts of the world) (small one-time cost)
4. Licensing (ongoing software/IP costs are unknown)
I'd guess the nanos come in at much less than $10 with RAM being one of the most expensive components. The hard-drive versions I'd estimate come in at $20 ea. tops.
The marketing costs probably soak up much of the spread between OEM price/unit and retail because they advertise like no other player manufacturer.
The analyst can cry all he wants but the guy is an idiot for not contacting an OEM and figuring it out for himself. It's not secret by any stretch of the imagination.
OT: How do I get that gig? Does it pay well to be so uninformed and lazy?
http://www.maxineudall.com/2010/02/should-economists-be-sued-for-malpractice.html