The Cost of the iPod

That was actually surprisingly good article by ceoyoyo · 2006-07-01 07:15 · Score: 5, Insightful

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.

Re:That was actually surprisingly good article by 0racle · 2006-07-01 07:19 · Score: 4, Insightful

This assumes its the job of an analyst to think. Despite what the word analyze means, it's not.

--
"I use a Mac because I'm just better than you are."
Re:That was actually surprisingly good article by Oswald · 2006-07-01 07:55 · Score: 2, Insightful

Well that's pretty much the point of the whole damn discussion, isn't it? Of course they file their 10-K's and -Q's. The question is, are they doing an adequate job of presenting the required information. The answer is: that depends on your point of view. Every scrap of information they release is potentially of use to competitors, so they withhold what they can. OTOH, stockholders are entitled to a good look at the books a few times a year, and knowing how the ipod slice of the pie compares to the rest in terms of profitability would be nice.
Re:That was actually surprisingly good article by BewireNomali · 2006-07-01 09:43 · Score: 4, Insightful

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

But it is his place to have all the info possible at his disposal in order to advise his clients though, right?

At the end of the day, whether or not Apple is meeting the requirements for a publicly traded firm is not for Renck or his firm to determine. However, Renck can assert whatever he wants to his clients, as his revenue depends to some degree on the accuracy of his analysis. What it seems like he's saying his ability to assess is hampered by the admitted lack of disclosure, and this is enough to make him skittish about the stock.

His assertion does not seem unreasonable by any measure.

--
un burrito me trampeó.
Re:That was actually surprisingly good article by jcr · 2006-07-01 09:57 · Score: 2, Insightful

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

You're right up to this point...

on various products. ...and this is where you go off into the weeds.

Apple's fiduciary duty is to increase shareholder value, and tipping their hand to the competition by disclosing every trade secret that some twat on Wall Street thinks they should would be a bloody stupid thing to do.

-jcr

--
The only title of honor that a tyrant can grant is "Enemy of the State."
Re:That was actually surprisingly good article by smallpaul · 2006-07-01 10:14 · Score: 3, Insightful

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.

You are incorrect on two counts. First, Renck has the right to try to influence the decision of those people by publishing his opinion. It makes no sense to say that the only people who should speak of a decision are those directly involved. According to that logic, online commentators should not discuss Hamden because it is essentially between the Bush administration, the Supreme Court and a bunch of foreigners.

Second, the aggrieved party here is the shareholders, not the SEC, the auditing firm or the CFO. Renck is telling shareholders that they are taking on extra risk investing in a company that does not use transparent accounting. Not only is that his right, it is his job. He never claimed that they were doing something illegal. You're conflating the argument of an analyst (that Apple is a risky investment) and that of a Slashdot poster (that Apple may be breaking the law). Someone on Slashdot postulated that PERHAPS it was illegal. He also has a right to express his opinion.

So do I: it is totally ridiculous to say that Apple's 5% marketshare in PCs, it's much larger market share in music playing devices and its still larger market share in online music have "essentially the same future prospects." For example, the online music business is very vulnerable to changes in copyright law. The handheld business is potentially vulnerable to growth in MP3-playing cell phones (as someone else noted). And the computer business is vulnerable primarily to marginalization or dropping profit margins due to competition from Dell and other commodity PC vendors. I don't know enough about disclosure law to claim that Apple is breaking it, but I do know enough about Apple's business to say that one can easily imagine one of Apple's businesses going kaput while another soars and vice versa.
Re:That was actually surprisingly good article by tftp · 2006-07-01 11:21 · Score: 2, Insightful

But it is his place to have all the info possible at his disposal in order to advise his clients though, right?
Yes, he is welcome to try to get all the info, so that he can advise better. However it's nobody's responsibility to give him any information, except what SEC mandates. Apple does that, and it does not owe any analyst anything else.
Can't get the info to analyze? Tough. Nobody held a gun to his head to become an analyst. He is free to get another job if this particular kitchen is too hot for him. Maybe he even will be doing some useful work then.
Re:That was actually surprisingly good article by tftp · 2006-07-01 16:43 · Score: 2, Insightful

And how exactly should he figure it out?
By typing http://www.isuppli.com into his Web Browser, as many posters indicated already. Some say that iSuppli does not know about specific deals on specific parts, and that's true, but you can't expect Apple to open the kimono on such sensitive, private deals. In many cases parties are not even allowed to talk about specific prices that they agreed upon (typical for MS OEM deals, as an example.) Anyway, he would be within a few percent off at most, since even a most lucrative deal can't go that far below a volume price, and that is usually well known. It's very cold, hard data. For example, see here.
He's simply saying that there isn't enough real data from apple to judge the prospects of the company.
"Since January, Mr. Renck has been advising clients against owning Apple shares." (TFA)

I don't read it as "not enough data", I read it as "sell all you have, as fast as you can." How can anyone read it differently?
Furthermore, what is unwise about it? It may be conservative, but not investing in a company is not unwise.
It may be wise and conservative only if the investor does not know who and what Apple is, and considers it a shady, fly-by-night company. But a Wall St. analyst ought to know better, and he is specifically paid to know better. But in this case he behaved like a scared cat, as if Apple directors are about to grab the cash and run to Argentina. There is no reason for alarm, aside from being alarmed of the "conservatism" (if we call it this way) of certain analysts.
But Apple's secrecy about it's roadmap does give me pause. Nobody has a clue what it up Steve's black turtleneck sleeves.
Ok, imagine two armies about to meet in a decisive battle. One is led by a general who can't stop talking, and every grunt in his army knows all the general's plans a week in advance. Another army is led by a tight-lipped general, who keeps all the strategy in his head, and in heads of his closest assistants who aren't talking either. All other things being equal, who is more likely to have an advantage?
Re:That was actually surprisingly good article by Mateito · 2006-07-02 15:36 · Score: 2, Insightful

There's a difference between accounting reports for internal management, and accounting reports for public consumption.
Apple stock holders need to know the overall costs and profits of the Apple iPod business so that they can see how much its running. Why do they need to know the production cost of an individual iPod? So they can point out ways to reduce costs? Stockholders are NOT managers.
If you have doubts that a company the size of Apple is incapable of optimizing the production costs of its products and should be doing it as cheap as possible, sell the shares and invest in Wal*Mart.

--
Norman Cook's Ode to Sl

Or maybe not. by Anonymous Coward · 2006-07-01 07:18 · Score: 4, Insightful

'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.

...or maybe that old stock analyst hasn't yet realized that those aren't the two seperate and distinct markets they used to be?

Two Business Models: One for the rich and one ... by Distinguished+Hero · 2006-07-01 07:18 · Score: 4, Insightful

'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.

Kinda Obvious. by Fusione · 2006-07-01 07:41 · Score: 5, Insightful

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.)

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. :P

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. :P

/2 cents

Re:Kinda Obvious. by smallpaul · 2006-07-01 08:48 · Score: 2, Insightful

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.)

I don't think that this is "kinda obvious" at all. How much do Nike running shoes or Gap jeans cost to make? Do consumers care except when they are in an anti-sweatshop mood?

The reason that Apple hides this information has nothing to do with consumers. It is about giving them control over the information they provide to stock analysts so that they can have more control over stock price growth. For example, they could lose money on every new iPod a while without freaking out the investors (e.g. if they added phone capabilities to try and conquer a new market). On the other hand, Microsoft is pretty open about the fact that their XBox unit is losing money which probably has a negative impact on their stock price.

Pills that treat every major disease costs $0.25 by Anonymous Coward · 2006-07-01 08:10 · Score: 5, Insightful

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.

We love Apple by timmy+the+large · 2006-07-01 08:10 · Score: 4, Insightful

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 there competitors find out their margin. Apple competitors know that a consumer doesn't really care if you can beat someones 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.

Atleast they are built better than Dell, I'll give you that.

Re:Two Business Models: One for the rich and one . by IamTheRealMike · 2006-07-01 08:12 · Score: 4, Insightful

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.

Dev++ by Anonymous Coward · 2006-07-01 08:22 · Score: 1, Insightful

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.

Re:Dev++ by Achromatic1978 · 2006-07-01 15:34 · Score: 3, Insightful

innovation isn't cheap

I know this is a slight oversimplification, and bound to get me modded down, but just how innovative are iPods, really?
BW screen? I know, we'll make the screen colour.
10GB hard drive? I know, we'll make the hard drive 20, 30, 40, 60GB.
The iPod is too big? We'll make a smaller one with a 1.8" HDD, not a 2.5".
The iPod mini is too big? We could use these CF card and flash memory chips that the digital camera industry have turned into commodities and make one based on that.
Music is boring! We'll add video support.
These aren't "innovations" in any sense of the word. It's systematic small tweaks and mods - don't read me as saying they've not been getting better, they have - but it's not the "OMG!!! APPLE HAVE REVOLUTIONISED THE INDUSTRY BY GOING FROM A 40 TO A 60 GIG DRIVE!" that some people like to believe.

Hearsay and models by fermion · 2006-07-01 08:57 · Score: 3, Insightful

First, believing what a firm discloses without doing independent analysis is what routinely leads to catastrophic stock devaluation. Some might say that there is x billion in sales and x million in profit, and that is distributed along such lines as so, but who is say that those figures represent reality, or at the reality of the investor. Even if the number follow all SEC rules and standard accounting practices. At the very least, income and expenses can be creatively classified to maximize profit, not to mention other issue such as stock dilution and options backdating with can signficantly increase management compensation without the knowledge of the shareholders.

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

Re:Pills that treat every major disease costs $0.2 by Anonymous Coward · 2006-07-01 09:31 · Score: 2, Insightful

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.

Re:Pills that treat every major disease costs $0.2 by heinousjay · 2006-07-01 13:11 · Score: 2, Insightful

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.

Re:What secret? by Kadin2048 · 2006-07-01 13:18 · Score: 2, Insightful

Bingo.

When you release too much information, everybody on the Street decides they can play Monday-morning quarterback, and tear you apart with second-guessing.

What Apple is basically saying, by only releasing the minimum amount of information is, "we're going to run this business as best we know how, and you can trust us or not, based on our past performance." Some people -- a lot of people, apparently -- are willing to trust them and buy the stock. Some people aren't; which is fine. This guy apparently falls into the second camp. (I don't think I have to point out though that if he says 'sell' when he should have said 'buy,' he's going to be out of a job.)

However I think Apple's recent past performance is enough to justify to a lot of people that they're a 'buy,' without trying to micromanage or out-guess the management team.

Plus, there is always the issue of competition. If I was a major Apple shareholder, I'm not sure I'd want them to disclose to me a lot of information just to satisfy my curiosity, if it would also mean disclosing that information to the competition, and affecting the long-term profitability of the company. Maybe if I was just in it for the short term, and didn't give a shit if the company went under in a year, I'd still want to know, but those aren't the sort of investors that Apple wants to attract anyway.

--
"Ladies and gentlemen, my killbot features Lotus Notes and a machine gun. It is the finest available."

Market != Business Model by Distinguished+Hero · 2006-07-01 14:12 · Score: 2, Insightful

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.

Re:Apple shifting focus by be-fan · 2006-07-01 14:51 · Score: 2, Insightful

Please tell me why anybody would want an Apple DVD player, I mean, honestly, how much sexier do you need to make a DVD player?

Every DVD player I've used to date still has a shitty interface. If Apple came up with a DVD player with an interface as good as the iPod's, I'd buy it in a heartbeat. Throw in some computer capabilities, like automatic detection and playback from streaming sources courtesty of Rendezvous, I'd even buy my friends some.

which I think has been their greatest failure to date.

If by failure, you mean something that has made them a buttload of money. So they can't be number one, so what? The mac market is growing in size every day, and is more vital today than it has been in a long time. It's made a lot of users happy, and supports a decent sized third party software industry. It's not a monopoly with 99% of the market, sure, but that doesn't make it a failure.

Now they gone and made a Macintel, a Mac that most people want desperately so they can run Windows on it.

That's true, but it doesn't mean what you think it means. Do people want Intel Macs because they prefer Windows? Of course not. If they did, they'd just by any of a number of machines that run Windows. The reason they want Intel Macs is because they prefer OS X. Now that Windows can be virtualized on Macs, people who want to use OS X as their primary platform can now do so without compromising their ability to use Windows-only applications. Many of these people would not be able to use a Mac otherwise, no matter how dissatisfied they were with Windows. And of course they were dissatisfied with Windows, because if they were happy with it, they wouldn't give Intel Macs a second thought!

The iPod is basically subsidizing their Mac line up.

Macs still make up 50% of Apple's revenues, and they still have very healthy profit-margins on those machines. The iPod doesn't subsidize Mac development any more than Mas subsidize iPod development. What it does do is insulate Apple's bottom line from the vagracies of the computer market, and allow them to persue a more aggressive strategy with the Mac. You're on to something about the Mac Mini, but you misinterpret what it represents. It doesn't represent a "don't care" attempt, but rather a high-risk attempt at expanding the Mac market in key areas. Before the iPod gave Apple a safety net, they couldn't have taken the risk of making a low margin machine. The Intel switch, too, represents Apple's continued focus on the Mac. Apple's doing it because it allows them to make more competitive Macs. The success of the iPod doesn't make the success of the Mac any less important, what it does is give Apple the flexibility to really push the Mac platform without worrying so much about the risk.

--
A deep unwavering belief is a sure sign you're missing something...

tripe! by Stu+Charlton · 2006-07-02 01:48 · Score: 2, Insightful

...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

25 of 217 comments (clear)