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."

Comments

Re:That was actually surprisingly good article

[pedalman]

Isn't that type of information available here?

Particularly under the "Financial History" tab? I'm not a stock broker, but I would think the annual reports required by the SEC would cover this.

Re:That was actually surprisingly good article

[TubeSteak]

Apple is a public company and has a duty to disclose to its' owners what the profit margins are on various products.

Not quite correct. The disclosure rules apply to portions of the business that generate more than 10% of a company's revenue.

From the marketwatch article

"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 is complaining for one of two reasons:

1. He's an analyst & they cry when companies don't give them all the info they want.
2. Renck doesn't think that all Apple products "have essentially the same future prospects"

It's not really Renck's place to make that conclusion on Apple's behalf.

The determination is between Apple's CFO, Apple's auditing firm, and the SEC.

Re:That was actually surprisingly good article

[JulesLt]

Apparently not. It is just something that many companies choose to do, in the spirit of best practice. The only people who could force Apple to disclose those figures would be a large group of unhappy investors, or if they felt they had to to gain further investors. At the moment, neither of those things are likely, although inevitably at some point hubris will enter the picture.

I think it's right for analysts to draw attention to this, as a warning to investors that they are taking a gamble on opaque accounting; on the other hand, there is an implication to the analysis that the iPod is carrying an ailing computer business which I think is misleading - he is particular wrong in one major respect :

'Apple clearly has its feet in two separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry'

Besides lumping two things together that most companies keep separate (computer manufacturing and software creation), it also utterly fails to comprehend that it has been Apple's ability to develop it's own software than has resulted in it's success in the consumer electronics business. Most CE firms don't have that level of software engineering in-house (many don't have hardware engineering either, but that has traditionally been where companies like Toshiba or Sony have invested their R&D)

As an example - I've just bought a new Fuji camera (on grounds of it being able to do reasonable ISO 3200 shots). Nice bit of hardware - you can even go to manual mode and set your own exposure or aperture settings, which isn't bad for a consumer level camera. The interface on the camera is good - a really nice touch I noticed was that in just doesn't display any of the advanced options if you have the camera set in 'Auto' mode, set my a manual dial on top. Nice solution to balancing functionality and simplicity.
Guess what happened when I tried to install the supplied software - not only did it fail to install, the installer completely crashed the system (XP), resulting in a hard-reset (causing a boot-up disk scan).I can't even comment on the quality of the software because I couldn't install it. That is my 'out of the box' experience.

Re:That would be Regulation FD

[siriuskase]

That would be Regulation FD (stands for Fair Disclosure)

Here's some links:

SEC's Fact Sheet:http://www.sec.gov/news/extra/seldsfct.htm

On December 20, 1999, the Commission proposed new Regulation FD - for "fair disclosure" - to combat selective disclosure. Selective disclosure occurs when issuers release material nonpublic information about a company to selected persons, such as securities analysts or institutional investors, before disclosing the information to the general public. This practice undermines the integrity of the securities markets and reduces investor confidence in the fairness of those markets. Selective disclosure also may create conflicts of interests for securities analysts, who may have an incentive to avoid making negative statements about an issuer for fear of losing their access to selectively disclosed information.

How one corporation explains it on its website:http://www.investor.jnj.com/guidelines.cfm

How Wikipedia describes it:http://en.wikipedia.org/wiki/Regulation_FD