Tim Cook: What's Good For the US Dollar Is Bad For Apple

theodp writes: For years," Charles Erwin Wilson famously said back in the day, "I thought what was good for our country was good for General Motors, and vice versa." That was then. This is now. The Washington Post reports that a strong U.S. dollar is the biggest threat to Apple's business around the world. "The dollar has shot up about 22 percent against a trade-weighted basket of other currencies since the middle of 2014," explains Matt O'Brien. "And in Apple's case, that's meant what would have been $100 of foreign sales in September 2014 was just $85 by the end of 2015. That's not good when you get two-thirds of your revenue overseas." Apple blamed the strength of the dollar compared to other currencies for costing it $5 billion in revenue, "For perspective, that difference is the size of an average Fortune 500 company," quipped CEO Tim Cook.

Comments

Apple complaining about financial engineering

[Anonymous Coward]

Oh wait, you're serious, let me laugh even harder.

Re:Apple complaining about financial engineering

[antdude]

Bender, we know that is you behind AC. :P

Re:Apple complaining about financial engineering

[Plumpaquatsch]

Oh wait, you're serious, let me laugh even harder.

I laugh because you think an explanation to stupid Wall Street analysts was a complaint - thus proving you are dumber than a Wall Street analyst.

Manufacturing costs also fall

[MightyYar]

A strong dollar also reduces manufacturing costs, since manufacturing is overseas. This improves margins. I'm not seeing the issue.

Re:Manufacturing costs also fall

[Anonymous Coward]

It doesn't improve margins. The existence of a margin at all means that the absolute effect on sale price is larger than the effect on build cost. The margin as a percentage remains identical, but the absolute value of that margin drops.

Re:Manufacturing costs also fall

[monkeyxpress]

Further Apple doesn't bring its foreign profits home anyway, so what does it care how much its earnings would be in USD? It has Irish bank accounts rammed full of iPhone money (that the nice Irish govt didn't charge them tax on either), while constantly moaning that it can't bring any of that into USD unless Uncle Sam gives a big tax discount.

To confuse the Apple Troll mods, I'll add that Google is just as bad, and recently got exposed for doing a 'deal' with the UK govt to contribute a little bit towards us plebs.

Re:Manufacturing costs also fall

[maexio]

Agreed. Apple should be net benefit from my calculations in real $$. A current IPhone is manufactured in China with components sourced semi-internationally (mostly china I -- assume--.). As the USD rises, the net USD revenues per phone drop, but the total cost to manufacture stays the same (unless they sign their agreements tagged to the USD with their factories). Only costs incurred in USD would rise relative to the overseas sales price, given that this is an iPhone, and its 'engineered' in the US, this is likely an insignificant portion of the individual phone costs. My guess is that patent licensing poses a bigger $ value per phone. However, since the USD is stronger, any ability to purchase phones for USD priced countries would result in an increase in revenues. Ultimately, as a net importer, a strong USD should be better than a weak USD. It does open them to more competition from non-USD involved smartphone makers, as their total costs would be lower in the US market as a result, but given their recent financial results, its pretty hard to believe that they aren't more than offsetting a decline in overall revenue with an increase in overall margin. And margin is what matters.

Re:Manufacturing costs also fall

[BronsCon]

It has Irish bank accounts rammed full of iPhone money

And that's why a strong US dollar hurts them; it's not just lost revenue on future sales, its lost value of past revenue.

while constantly moaning that it can't bring any of that into USD unless Uncle Sam gives a big tax discount.

And good ol' Uncle Sam's response was to bolster the local economy and boost the value of the US dollar, basically saying "it's better to pay taxes when the exchange rate is high than play stupid games until it tanks".

I don't say it often, but when I do, I mean it: The US Government made the right call. I'm sure Apple has lost more value in the money they've kept overseas by now than they'd have paid in taxes, hopefully that is a lesson learned.

Re:Manufacturing costs also fall

[JoeMerchant]

Almost any change includes good and bad aspects; ergo, almost any change is an excuse to cry 'poor me' about the pain - and conveniently forget to mention mitigating factors.

Re:Manufacturing costs also fall

[serviscope_minor]

just like people do.

No actually people don't. Many people aren't in fact sociopaths and are happy to simply earn a normal living and pay taxes in the normal way without attempting to jump through vast hoops with offshore accounts and etc to avoid contributing to society.

Many people actually understand that civilsation is built on taxes and can think beyond MINE MINE MINE MINE.

Re:Manufacturing costs also fall

[magarity]

You've assumed the production costs are in the foreign currency and the sales revenue are in domestic currency. The problem is sales revenue in the foreign currency when converted to income in the domestic currency.

Re:Manufacturing costs also fall

[rahvin112]

Those foreign profits are stored in Dollars so it has no effect on their stored cash either. Grand Cayman and all the other "hide money offshore" tax havens uses the dollar.

Re:Manufacturing costs also fall

[Rhipf]

just like people do.

No actually people don't. Many people aren't in fact sociopaths and are happy to simply earn a normal living and pay taxes in the normal way without attempting to jump through vast hoops with offshore accounts and etc to avoid contributing to society.

Many people actually understand that civilsation is built on taxes and can think beyond MINE MINE MINE MINE.

You're missing the point here. People are those that are rich enough to also hide their money overseas to avoid taxes. The rest of us are just consumers (i.e. not people). 8-)

Re:Manufacturing costs also fall

[BronsCon]

Well, that's good to hear, I guess.

Re:Manufacturing costs also fall

[MachineShedFred]

You're forgetting the part where Apple signs long-term sourcing agreements to buy parts for $X over Y years. If the dollar becomes more valuable through exchange rates, they're now paying more for the same part.

Re:Manufacturing costs also fall

[wyHunter]

Unfortunately, I cannot agree with you. My observation is that most people have no interest in contributing money to society - they do anything they can get to get on the dole, whether it is ordinary people cheating on their taxes, getting government benefits when they don't deserve them (fake disability, etc.) or being a huge corporation structuring to avoid paying millions in taxes. It's tragic.

Re:Manufacturing costs also fall

[ShanghaiBill]

Why would sale cost go down at all?

Because the value of the dollar is rising. So if the price in Euros, Yuan, or Yen stays the same, then the sales price is going down in dollar terms.

But talking about marginal costs is silly, because most of Apple's expenses are fixed, not marginal. Software development and engineering are not marginal expenses (they don't vary with the number of items sold). Apple's manufacturing is done in Asia (where costs have fallen in dollar terms) but Apple's development is mostly done in America. Apple has been more reluctant than other tech companies to move development and engineering to Asia, because they are a neurotically secretive company, and they are worried about information leakage.

Re:Manufacturing costs also fall

[bluefoxlucid]

Sort of.

People are largely xenophobic, which leads to things like a hatred of all foreign species (a few invasive species are not classified as such because they're seen as native due to traditions involving them, while a *lot* of benign species are labeled invasive for being foreign). One of the more subtle xenophobias is a hatred of a weak local currency in the global market: they want us to be *strong*, stronger than foreigners, and thus have a dollar that commands *many* foreign dollars.

This has a number of impacts.

First off, a strong US dollar pushes jobs overseas where they are roughly as cost-effective as local; while a weak US dollar retains jobs at home. If jobs overseas are *much* more cost-effective, a strong US dollar reduces costs, while a weak one raises costs without increasing jobs at home. In both cases, a weak dollar can supply a push for reduction: when the costs of these goods increases (by moving jobs to expensive domestic or by paying more for outsourcing), their prices also increase, which reduces consumer buying power, reducing the demand for goods, reducing the amount of production required, reducing the labor in total required, thus reducing the number of jobs required. (That whole chain does suggest outsourcing increases jobs; it can, in fact, increase or decrease domestic jobs.)

Second, a strong US dollar makes goods more expensive overseas. That reduces our trade advantage: while a weak dollar may do as above, it only does so for 330 million Americans; the billions in Europe, Canada, South America, and Asia are suddenly faced with cheap American import services and goods when our dollar is weaker. We're the world's largest exporter of food, so we have a strong position overall; however, we can easily *lose* that position if food becomes easy enough to produce in other countries. Likewise, the trade advantage gained by other countries in buying cheap American wheat leaves them more wealthy, capable of improving their economies, making more goods, finding cheaper ways to make goods, and *reducing* *the* *cost* *of* *living*, which eventually mediates in a reduction of fractional working wages (it has to for population to grow), which still leaves the worker with more--just only with collectively 6% more after 10% growth, or such.

The fluctuation of currencies interacts with a huge array of economic factors and carries many subtle nuances. A stronger dollar is good if you're already a primary importer and your economy doesn't rely on its exports at all; it's *bad* if you're a primary exporter or your economy *greatly* relies on its exports. Even that is an extreme simplification.

Re:Manufacturing costs also fall

[thegarbz]

Further Apple doesn't bring its foreign profits home anyway, so what does it care how much its earnings would be in USD?

Profits don't need to be "brought home" to be affected by the USD. Most international companies account everything in USD regardless of where the profits start or where they are ultimately accounted for in taxation terms.

Re:Manufacturing costs also fall

[MightyYar]

Apple's margins have been going strong at 40% for many, many quarters. Sure, US employees are now paid more, but Apple is also making more from the US market. The margin overseas remains constant as both the production cost and the selling price move down together. Again, I see no margin pressure and this is a non-issue unless you care more about absolute dollar revenue than gross margins. Which would be stupid.

Re:Manufacturing costs also fall

[tlhIngan]

And good ol' Uncle Sam's response was to bolster the local economy and boost the value of the US dollar, basically saying "it's better to pay taxes when the exchange rate is high than play stupid games until it tanks".

  I don't say it often, but when I do, I mean it: The US Government made the right call. I'm sure Apple has lost more value in the money they've kept overseas by now than they'd have paid in taxes, hopefully that is a lesson learned.

That assumes two things. First, the tax rate to reimport the money is around 40%, so the $200B Apple has would turn into $120B re-imported. The second this is Apple may be keeping things in US dollars "natively" - i.e., that $200B Apple has is still worth $200B - because Apple kept it in US dollars offshore. This is a really common thing - many companies use a foreign currency as their "primary currency" because that's the currency they deal with. If you're an international company, you'd probably use US dollars, or Euros for that reason - you do everything in the currency your customers are used to.

The real problem is that it makes Apple's goods more expensive. For example, Apple does things in US dollars. So if you write an app for $0.99, Apple converts that to other currencies for you. Right now, in order to pay the app developer their $0.70 owed when someone buys that app, Apple raised their prices elsewhere - that US$0.99 app is now CAD$1.39. That is not ideal, since it makes apps more expensive, hurting hardware sales, plus, it makes hardware sales more expensive - that iPad that cost $999 would now be $1399,or more.

So no, repatriating the money may not work at all because the currency exchange may not have hurt Apple if they've kept everything in US dollars the whole time (which they probably have). However, what does hurt is everything they sell - the rise of the US dollar means iPhones, iPads, Macs and everything else jumped in price, and anyone with even the simplest sense of supply and demand curves know that will hurt sales.

Apple and everyone else is really stuck - they could choose to keep prices in US dollars and hope it's a temporary problem, or they could eat some of the increase and make a little less margin. Some people already have - if your business relies heavily on foreigners (i.e., tourism), they've already cut rates - airfare, hotel, etc have plummeted because visitors from elsewhere simply are not coming, and tourism-dependent businesses are hurting.

Re:Manufacturing costs also fall

[cayenne8]

just like people do.

No actually people don't. Many people aren't in fact sociopaths and are happy to simply earn a normal living and pay taxes in the normal way without attempting to jump through vast hoops with offshore accounts and etc to avoid contributing to society.

Many people actually understand that civilsation is built on taxes and can think beyond MINE MINE MINE MINE.

While there are always outliers on any list of people or behaviors....I would posit to you that the number of people that are completely altruistic and would never take deductions or anything that could legally reduce their tax burden is very close to nil.

I would also give you, that most likely the majority of folks in the US (if not the rest of the first world) have no real problem paying what they consider to be a reasonable tax, for required governmental services, although the definition of what is truly required by the govt is debatable by those tax payers.....

Taking every legal deduction and every legal means offered to you as a tax payer, to decrease your tax burden is not the sign of a sociopath, but someone who is actually fiscally cognizant, It only make sense to take advantage of any laws available to you, to keep as much of your hard earned money for yourself...unless you 100% agree that the government knows better how to spend your money than you do, which again, I would posit is a very low demographic number.

I think the only way to make things fair...is to actually throw out the old code and make it simpler. It really should NOT take more than a post card, or at most 1-2 pages to fill ones annual tax statement out. It should be as simple for individuals as:

1. You made $x this year.
2. You own $y on that amount of $x.

For businesses it should be something like:

1. You brought in $x.
2. You subtract $y from $x for cost of business, materials, salaries, investments in new equipment, etc...
3. You own $z.

Now..if you did this and had no deductions, no loopholes, etc...then I think most would be happy with this to see exactly that everyone is paying a fair level share.

However, this would take a lot of power away from those in governmental power, take away their ability to manipulate the populace, etc. So, I doubt we'll see this type of thing in my lifetime...hence, most everyone will bitch and moan about taxes and how unfair and unequal it is...

Re:Manufacturing costs also fall

[MightyYar]

The dollar's rise has been gradual, and in fact it hasn't really moved much in the last year. And yet Apple's gross margin has been stable at around 40%. I just don't see the effect you describe.

Re:Manufacturing costs also fall

[BronsCon]

The real problem is that it makes Apple's goods more expensive. For example, Apple does things in US dollars.

If that were the case, they'd be claiming to have lost $5b in sales to localized price increases, rather than having lost $5b in revenue from the sales they made. But they're claiming to have lost $5b on the sales they made, not $5b in sales, which indicates that they were not pricing their hardware in that way but, rather, pricing based on what the market would bear. They still made the same number of sales in foreign markets and pulled in the same amount of each respective foreign currency, it's just that all of that converted to fewer US dollars. I suggest that we both go read the article now, to find out which of us is correct.

Re:Manufacturing costs also fall

[Aighearach]

You uncover a key flaw in Cook's reasoning; if they're not bringing those foreign dollars home, then they've no reason to convert them to dollars, and this isn't money they're losing at all. It is just the imaginary "if we brought it home" ticker in his office that is showing a reduced high score.

Re: Manufacturing costs also fall

[j-beda]

What did the government do? Devalue the Canadian dollar against the US dollar. Bastards, all.

While there may have been some policy factors that have directly influenced the Canadian dollar value, they have been very small in comparison to the impact that resource prices (I'm looking at you, Barrel of Oil) have had. The failure to diversify the economy away from such a heavy resource weighting has been a shortcoming of every government since confederation both provincially and federally.

Re:Manufacturing costs also fall

[rockout]

The problem is, in terms of individual income and wealth, a regressive tax imposes a greater burden (relative to resources) on the poor than on the rich. We're already currently concentrating wealth upwards; what you're describing would accelerate that process.

Re:Manufacturing costs also fall

[AvitarX]

Everybody I know checks itemized vs standard deduction, and goes with whichever gets them more money.

They also pay non-home loans first whatever the interest because of deductible interest.

Oh, home equity? lets use that to buy a car.

I'm not convinced that normal middle class people don't minimize the taxes they pay.

This is setting aside the fact that most contractors under-report income.

Re:Manufacturing costs also fall

[mvdwege]

There's a name for that: The cost of doing business.

If Apple doesn't want the risks, they can dissolve the company and pay out a megadividend to the stockholders. As long as you are active in international business, valuta risks are part of the game.

It's the typical whining of the modern Wall Street Wellfare Queen: they want all the profit, and society to bear the risk.

Re: Manufacturing costs also fall

[ceoyoyo]

All resource extraction was less than 10% of the Canadian economy in 2014, smaller than manufacturing and real estate.

Re:Manufacturing costs also fall

[ceoyoyo]

Yeah right. You don't tick every deduction box you can, right? Or maybe you do, and when the government sends you your refund you tell the postman "no thanks" and tear it up?

There are two differences between normal people paying taxes and rich people (and corporations) paying taxes. (1) The rich can afford (good) professional advice on how to pay less and (2) it's worth their while to bribe legislators to give them more loopholes. One area they don't differ is in paying the least they think they can get away with.

Re:Manufacturing costs also fall

[ceoyoyo]

He didn't suggest anything that necessarily means a regressive tax scheme. He said it should be simple: you make $X, you pay $Y. If Y/X is the same regardless of what X is then the scheme is neither regressive nor progressive. If Y/X is higher when X is higher, the scheme is progressive.

A simple way to have a tunable progressive scheme would be Y = aX + bX^2. Set a and b as you like.

Re: Manufacturing costs also fall

[j-beda]

All resource extraction was less than 10% of the Canadian economy in 2014, smaller than manufacturing and real estate.

I don't really have a great picture of what parts of the economy drive properity, but while I can see that healthy manufacturing can lead to everyone having more stuff, I do wonder how "real estate" enters into it. Real estate can change hands, and go up (or down) in value, but nobody is making any more of it, so having a healthy real estate "sector" would seem to be more of an indicator of prosperity rather than a creator of it.

In any case, if you have any links you can share explaining that resoure extraction isn't such a big deal to Canada I would be interested in learning.

It does seem like oil is Canada's biggest export (about 27% of the total). Vehicles are #2 at just under 13%. Combined with Precious metals (#4), Plastics (#6), Wood (#7), and Aluminum (#9) that makes up about 39% for "resources", while the Vehicles, Machines, Electronics and Aircrafts add up to about 25%, so it looks like "resources" are significantly larger than "manufacturing" on an export basis at least.

One can see that dropping the price of the biggest export by 70% is a pretty significant event. All other things staying the same one could imagine oil going from number 1 to number 3, droping the overall export total by 80 or 90 billion dollars, or around 20% of the total.

These look like 2014 figures:
http://www.worldstopexports.co...
1 Oil: US$128.6 billion (27.2% of total exports)
2 Vehicles: $59.7 billion (12.6%)
3 Machines, engines, pumps: $32.6 billion (6.9%)
4 Gems, precious metals, coins: $20.3 billion (4.3%)
5 Electronic equipment: $13.6 billion (2.9%)
6 Plastics: $13.2 billion (2.8%)
7 Wood: $12.7 billion (2.7%)
8 Aircraft, spacecraft: $12.4 billion (2.6%)
9 Aluminum: $8.9 billion (1.9%)
10 Cereals: $8.7 billion (1.8%)

Re: Manufacturing costs also fall

[j-beda]

I don't really have a great picture of what parts of the economy drive properity...

PROSPERITY

must learn to proofread

Re:Manufacturing costs also fall

[magarity]

But that's not imaginary. There is a real time component to the value of money when that money has to be held overseas waiting for a better exchange rate.

Re:Manufacturing costs also fall

[wendyo]

They aren't keeping it overseas waiting for a better exchange rate. They refuse to repatriate it in order to avoid US taxes.

Re: Manufacturing costs also fall

[ceoyoyo]

Sorry, I copied the link but didn't paste it: http://www.investorsfriend.com...

Ssh, it's a secret, but 70-80% of a modern economy is make up purely of selling each other stuff and trading favours: real estate, nail places, retail, financial services, etc. If you're ever curious why technology hasn't given us three hour work days, go down to a mall and look at all the people who's job it is to stand around all day in case a customer comes in and wants to buy something. But everyone has to feel they're gainfully employed, so we maintain the illusion.

It's not that oil isn't important to the Canadian economy (8% is still a big deal) but it's not like the Canadian economy isn't diverse. We do have a diversity problem, which is illustrated a bit lower on that page: 80% of our exports go to the US. So if the US takes a dislike to us, because we tried to legalize pot 15 years before they were ready, or we want to build a pipeline, it can hit Canada hard. Also if the US dollar goes down relative to the loonie.

Re:Manufacturing costs also fall

[gnasher719]

You uncover a key flaw in Cook's reasoning; if they're not bringing those foreign dollars home, then they've no reason to convert them to dollars, and this isn't money they're losing at all. It is just the imaginary "if we brought it home" ticker in his office that is showing a reduced high score.

The point is that Apple reports all revenue and profits in their quarterly statements, and the stock market reacts to them. If a company sold most of their stuff in the UK, and revenue went from 1 billion pound to 1.05 billion pound, that would be a nice result, but if the revenue translated to US$ goes down from 1.5bn US$ to 1.45bn US$ because of the exchange rate then it looks bad.

And that's what counts on the stock market. Not where the money is.

Re: Manufacturing costs also fall

[j-beda]

Thanks for the link ceoyoyo - it is nice to see all the data in one place.

Re:Manufacturing costs also fall

[KGIII]

I suspect that it's slightly more complicated than that. While it is, I believe, a trade secret, this likely indicates that the production costs are so low that the reduction in costs is less significant than the reduction in absolute value in dollars when the fees are paid in unadjusted foreign currencies.

So, all things being equal, you'd be correct - entirely. As it is, you're likely partially correct. The costs of production, as a percentage, is not significant when considered with the total amount the product is sold for. If, for example, they're paying 15% for the product's manufacturing (while development is done at US dollar rates - in the US) and the remaining 85% is profit (sans some overhead) then a reduction of 10% in USD value is a cost reduction, in manufacturing, of 1.5% while an 8.5% reduction is realized in profit.

So, they'd actually (using those numbers) end up with a 7% reduction in profits because the decreased associated production costs are not equal to the profit side of the equation.

All things are not equal. Make sense? It's not very easy to word and I'm not as articulate as I would like to be. Hopefully, I have described it well enough to understand. So, while you'd otherwise be true - it's not exactly correct given the disparity. This is also impacted by not all currencies being devalued equally. Those numbers may be even more disparate based on localized deflation of native currencies.

Note: I've no actual data concerning those numbers, I did not even look to see the increase or decrease in the currency value changes made in China. The numbers are for example purposes only and to demonstrate the potential (not assured but probable) error in your assumptions. That's not something you'd normally overlook. It makes me double check my logic and I'm pretty sure that I'm correct. I'll guess that you're distracted, ill, or otherwise given cause to just not think of the differences.

Re:Manufacturing costs also fall

[rockout]

A simple way to have a tunable progressive scheme would be Y = aX + bX^2. Set a and b as you like.

Your proposal is certainly better than what the flat-taxers are gibbering about, but it's still an oversimplification. One obvious example of why: a very large percentage of the income of homeowners goes towards real estate tax and interest on their mortgage, which is currently tax deductable. If you eliminate those deductions, you've now raised taxes (by a lot) on a huge chunk of the population, mostly middle-class. How do you think that's going to fly? Note, I'm not debating whether it's right/wrong, fair/unfair - I'm just saying that it's politically impossible, because a vast majority of the US's population would be against it.

Re:Manufacturing costs also fall

[KGIII]

If Apple had to realize those assets immediately, liquidate them quickly, in order to pay bills then this would have a meaningful impact. As they're able to retain the capital then the absolute value is, indeed, meaningless (like you say). However, if they needed this money immediately then purchasing power would be reduced as they move the assets from one market and into another. Significantly? Probably not but it is also coupled with some real-world lag and strict theory doesn't apply.

That said, you're 100% correct. It's not like Apple must realize these profits immediately. Thus any fluctuations are likely to be as trivial as a rounding error when realized long-term. It's not like Apple's scraping in the couch cushions to get cash to cover payroll. If anything, given the probable recovery of the values, Apple may realize greater increases (in value and not strict revenue numbers) considering they can hold long-term prior to realization, ride-out any fluctuations, and probably have personnel hired to actually help them capitalize on those fluctuations by taking timely action in the movement from currency to currency.

I know, for a fact, that I'd sure as hell have hired people to do just that if I were dealing with numbers these large. I've moved money, currency - to be more accurate, from one country to another and I've exchanged. It can be rather difficult. However, it's possible to speculate in the market and I know people who do well at operating in the foreign exchange markets. Just to transfer, and ensure least expenses and full legal compliance with applicable tax laws, I've hired professionals to move larger values for means of diversification and asset protection.

I have NOTHING near these numbers and I know very little about Foreign Exchange speculation/trading but I think it's reasonable to conclude that Apple has hired people who are *very* familiar and skilled in those areas and are working to ensure the realization of maximum value which, as you indicate, is not always the same in absolute numerical totals.

There's a lot that I do not know. It is so complicated that when we did work overseas, it was often easier to spend the profits from that work in those overseas markets. It also worked to reduce tax burden and was, of course, fully legal. More importantly, it reduced complexity. We often had on-site people as a requirement. So, you're realizing a profit here, paying an employee there, and realizing additional profit in their market. It was all very complicated and I make no pretense at full comprehension - it is also possible to abuse that. You can (intentionally) realize your profits elsewhere and play a whole host of games with it. We were never large enough, nor did enough business, to have anything longer than temporary offices overseas/internationally.

We also weren't in the business of fucking over the tax-payer so we paid our damned taxes. It was easier than trying to cheat 'em out of it. It was also the ethical thing to do. We weren't publicly traded. You're taxed on profits and only on profits. I paid myself a salary (sometimes making less than some of the people who worked for me) and the rest "belonged" to the business. It was used to pay bonuses, increase the business, maintain the business, realize some protection, and things of that nature. You can write off a whole bunch of shit. I'm already getting paid a salary. I made the same amount unless, for some reason, I needed to dip into the cookie jar for personal reasons. It's not like I got paid less because of those taxes. That money was usually plowed back into the business.

Why? It made more sense to pay myself a salary and pay the taxes on that and plow the rest back into the business. It's not like I wasn't paying myself enough money, if I had needed more than I'd have given myself a raise. The business then gets to write off my salary. It's not like (contrary to what some folks seem to think) I'm being taxed twice on it. I'm paying me and that's a write-off. The business doesn't pay taxes on that

Re:Manufacturing costs also fall

[GuB-42]

It seems to show that Apple's margins are so ridiculously high that a decrease in manufacturing costs doesn't do much.

Re:Manufacturing costs also fall

[Plumpaquatsch]

A strong dollar also reduces manufacturing costs, since manufacturing is overseas. This improves margins. I'm not seeing the issue.

You are assuming that Apple pays for manufacturing in local currency instead of Dollars. Since you basically also admit that you have no clue how Apple operates, it's safe to claim you are wrong.

Re:Manufacturing costs also fall

[ceoyoyo]

The whole thing is politically impossible, not because random homeowners would suffer (you could adjust things so they came out neutral) but because the heavy users of tax shelters and loopholes would. That's kind of the point of using a very simple tax scheme: there's nowhere to hide.

Your example brings up an important point: many of the deductions are really hidden subsidies. The ability to deduct things like interest on your mortgage is a subsidy to real estate owners (and mortgage issuers). We feel warm and fuzzy when it's a little nuclear family getting the benefit but the major beneficiaries are really the corporate holders, from the scuzzy slum lord up. Subsidizing real estate purchases might be a good idea, but a direct subsidy with a simple tax scheme would be both simpler and more transparent.

Re:Manufacturing costs also fall

[serviscope_minor]

You don't try to minimize the taxes you pay?

No, I don't. I've never indulged in offshoring and crap like that, and I don't know anyone who has. Thankfully the government has started to close those loopholes.

You are the first I have ever met than.

You should try hanging out with people who aren't sociopaths.

Re:Manufacturing costs also fall

[Coren22]

So, you take 0 deductions, and no tax credits? You don't deduct even the standard deduction? You pay the full amount of taxes on your earnings, and even offer more money towards taxes as you want to live in a better country?

I highly doubt you don't minimize the taxes you pay, everyone takes deductions.

Re:Manufacturing costs also fall

[MightyYar]

The problem with your argument is that Apple's profit margin has remained constant despite a 20% increase in the value of the dollar vs. the Euro. Apple is big and diverse and likely has contracts in many different currencies.

Re:Manufacturing costs also fall

[MightyYar]

Whether they are high or not, they have not moved over the last several quarters. Whatever "damage" is being done to Apple by the currency market, it is certainly not margins.

Re:Manufacturing costs also fall

[serviscope_minor]

So, you take 0 deductions, and no tax credits?

I see, so in your mind anything is equivalent to jumping through vast hoops. I like how you invent a vastly more extreme version of my argument and then attack that vigorously. That's a logical fallacy known as "being a complete dipshit".

Re:Manufacturing costs also fall

[Coren22]

Me

minimize taxes, just like people do.

You

No actually people don't.

Me

You don't try to minimize the taxes you pay?

You

No, I don't.

Me

So, you take 0 deductions, and no tax credits?

How am I misrepresenting you? Deductions are one of many ways of reducing your tax burden. If you feel so strongly that corporations should use PERFECTLY LEGAL ways to minimize their tax burdens, than why is it ok for you to take any of the numerous also legal tax deductions that the government offers? There is nothing being attacked here but your effort to demonize Apple when you do exactly the same things. Every taxpayer does what they can to minimize their tax burdens. Taking the child tax credit, or the mortgage interest deduction are ways that the average citizen minimizes their tax burden. Multinational corporations do it by moving their headquarters to the country with the best tax code for them. Considering how hostile the US is towards corporations, it is amazing that all companies aren't doing the same thing.

Re:Manufacturing costs also fall

[myowntrueself]

*citation needed*

Pro-tip: Almost entirely is far above 50%.

I call spending on a war machine mis-spent money. In the USA thats a lot more than 50%

Re:Manufacturing costs also fall

[serviscope_minor]

How am I misrepresenting you?

Because you are representing what I said, which is this:

No actually people don't. Many people aren't in fact sociopaths and are happy to simply earn a normal living and pay taxes in the normal way without attempting to jump through vast hoops with offshore accounts and etc to avoid contributing to society.

As me saying that people that people never take the normal deductions. Unless you think standard deductions fall under "jumping through vast hoops" and "offshoring". That's been there for you to read the whole time. At this point you're either an idiot who can't understand what he's read, or you're a dishonest person who is trying to misrepresent what I've said. Actually there's a third option in that you were too lazy to read beyond the first 4 words and penned an angry response as a result. So which are you:

1. Stupid
2. Dishonest
3. Lazy

If you feel so strongly that corporations should use PERFECTLY LEGAL

I'm going to go with 1. You seem to be intent on equating legality with morality and ethics.

There is nothing being attacked here but your effort to demonize Apple when you do exactly the same things.

Oh yes, there is nothing at all different about taking a standard deduction versus abusing the EU VAT rules so badly that they had to change the law to stop you. Nothing at all about that. Oh and as a bonus they fucked over every small company in the EU, because closing loopholes is hard and the VATMOSS system is a lot more administration than the old system.

So yeah damn right I'm demonizing Apple and Amazon. They found an unintended way to vastly lower their taxes, abused it and made life harder for everyone else.

Legal is not the same as ethical.

Considering how hostile the US is towards corporations,

Ah yes the magical la-la land where the country which is the birthplace of all these massive corporations is somehow massively hostile. It's so good for these companies to start because it has taxes and infrastucture and is basically first world which is why these companies can get started and off the ground. When they get rich they get incredibly whiny about wanting to contribute to the very system that caused them to exist in the first place.

That's not the US being hostile, that's a bunch of rich people being sociopaths. And for some reason you're cheering them on.

Re:Manufacturing costs also fall

[Plumpaquatsch]

The problem with your argument is that Apple's profit margin has remained constant despite a 20% increase in the value of the dollar vs. the Euro

Actually that's a problem with your argument . Funny you can't see that either.

Re:Manufacturing costs also fall

[MightyYar]

How do margins holding up run counter to my argument?

Re:Manufacturing costs also fall

[Coren22]

So, than you assert that you take no deductions at all as you don't try to minimize your taxes? You original statement is that you don't try to minimize your taxes, so that means you take no deductions and pay your full tax bill. Since you expect corporations to altruistically pay more taxes than they are legally required to pay, you must pay your full tax rate yourself since you are so altruistic and care so much about society.

Re:Manufacturing costs also fall

[Coren22]

Oh yeah APK, I'm the troll, and I was shredded, you are so funny.

Re:Manufacturing costs also fall

[serviscope_minor]

You original statement is that you don't try to minimize your taxes, so that means you take no deductions and pay your full tax bill.

Liar. You know I never said that. I specifically mentioned loopholes and offshoring. Deductions are not loopholes. Loopholes are *unintended*.

At this point I know you're being dishonest. You ignored whatI wrote, then ignored me when I clarified it. It means you have lost the debate. You are so desperate to be "right" that the only tactic left to you is lying about what I said.

That means you have run out of any other reasons.

you must pay your full tax rate yourself

I do. The government specifies a tax rate along with various discountable things. I make no attempts to minimize tax below what is considered "normal". No loopholes, no offshoring, none of that.

Which is what I said first time. You of course know that but you insist on lying about it.

Re:Manufacturing costs also fall

[Coren22]

http://slashdot.org/comments.p...

Now, who is the liar?

I do. The government specifies a tax rate along with various discountable things. I make no attempts to minimize tax below what is considered "normal". No loopholes, no offshoring, none of that.

That is exactly what many corporations do as well, they pay the "normal" amount of taxes on income earned in each country. After taxes are paid, the profits are offshored. Many of the companies are trying to avoid double paying taxes, as the US at least taxes offshore profits. These countries move their headquarters to another country to avoid paying that extra tax. They aren't failing to pay all taxes like you seem to think, they fail to pay taxes on income that should not be taxable.

Re:Manufacturing costs also fall

[serviscope_minor]

Now, who is the liar?

You because apparently you are denying what I said while quoting the exact place I said it. You continuing to claim what you are claiming is dishonest because you are quoting out of context. The context is right there for you to read.

You persist in ignoring it because you know your positions are logically indefensible so your only option is to delude yourself into believing I said something easier for you to attack. Sadly for you, it's a delusion,

That is exactly what many corporations do as well, they pay the "normal" amount of taxes on income earned in each country. After taxes are paid, the profits are offshored.

Yeah and the big, unethical ones offshore the money before any taxes are paid.

They aren't failing to pay all taxes like you seem to think, they fail to pay taxes on income that should not be taxable.

Yes that's exactly what they do. The entire reason the abomination of VATMOSS exists is precisely to stop these people cheating on VAT.

Re:Manufacturing costs also fall

[rockout]

Not true. You only get to deduct the interest on your mortgage for your primary residence. Rental properties and second homes do not get that benefit. It really is mostly the middle-class family that gets that benefit. And it's a huge benefit, relative to most people's incomes.

Calories

[Anonymous Coward]

Apples have few calories, and I hear calories are broken, so that's why.

Or its because they offshored all their profits, and now are getting fucked by the exchange rate.

Hardly a new concept

[RogueyWon]

Having a strong currency is not always entirely in the national good. Sure, it's generally better than a weak currency (which is often a sign of political instability and a lack of international confidence in a country's prospects), but it does cause its own kind of problems. In particular, it can hurt exporters, as it costs overseas customers more to buy their goods.

The strength of the Deutsche Mark was often problematic for German industry. That's one of the reasons why Germany has been so enthusiastic about adopting the Euro, which gives it a significantly "weaker" currency than it would have otherwise, and locks it into currency parity with most of the rest of its regional bloc.

Re:Hardly a new concept

[Fire_Wraith]

Yes - a strong currency is good for the consumers buying imported goods. It's bad for companies trying to export goods to overseas. Devaluing the currency is one of the measures that a country trying to kickstart its economy might take, to increase exports and tourism, and to boost domestic consumption by making imports more expensive. This is also why you see accusations of currency manipulation when the ratio is deliberately kept low for long periods of time, since market forces will tend to push towards a stable equilibrium of currency price.

Apple is in an interesting position here since it's both an importer and exporter, but it sounds like the balance of those accounts is still negative to Apple when the dollar is strong. It's probably a little more complex than that too, since you've got both the Yuan-Dollar and Dollar-Other currency (Euro, Pound, etc) ratios to consider.

Re:Hardly a new concept

[njhunter]

And the Greeks and Italians figured out the euro as well...

Re:Hardly a new concept

[BronsCon]

It's probably a little more complex than that too, since you've got both the Yuan-Dollar and Dollar-Other currency (Euro, Pound, etc) ratios to consider

as well as all of that money they've been refusing to bring into the US because they don't want to pay taxes on it. They're really taken it in the poo over that, with exchange rates taking such a dive. Guess they should have brought it home and paid those taxes, eh?

Re:Hardly a new concept

[LynnwoodRooster]

Most of those overseas dollars were held in HK and other locales with exchange rates pegged to the USD. It's not fallen at all. The HKD is still trading within about 0.5% of its price a year ago. Hold your overseas profit in dollar-denominated accounts, or in pegged currency accounts and there's zero impact. It's the first thing most smart financial folks do - and they'll move currency between currency accounts (usually for free, like HSBC and others allow) to maximize earnings. I know the 6.6% appreciation in the USD relative to the CNY has been a nice bump for me, over the last five months.

Re:Hardly a new concept

[bluefoxlucid]

Imagine you have 1,000,000 customers with over $250 to spend on your product and 10,000,000 customers with over $150 to spend on your product.

If your product has a manufacture cost of $220, you can sell it for $250 and get 1,000,000 customers. That's $250,000,000 of revenue and $30,000,000 of profit.

If your product's manufacturing cost falls to $140, you can sell it for $150 and get $10,000,000 customers. That's $1,500,000,000 of revenue and $100,000,000 of profit.

Weakening the dollar essentially does this, but in reverse: instead of 250 euros, the product costs 150 euros. More people can afford it. You might have a slimmer margin (or it might not matter at all) and yet still come out with massive exports and three times as much profit.

It's possible for it to go either way, really. It can *easily* be an advantage, or it can be a disadvantage.

Re:Hardly a new concept

[aklinux]

You're correct. Countries, the U.S. included, put a lot of effort into keeping their currency at just the right level. Too strong and too weak can both be problems, You have to find just the right balance.

Re:Hardly a new concept

[trout007]

A strong currency is always in a nations good if you the define the nation as all of the people. It is not good for people that want to steal wealth from the populace for themselves. To weaken the currency new currency needs to be created. This new money cannot be distributed in any fair way. So what happens it is given to those in power to help maintain their power.

A nation with a strong currency will reward savers. You won't have to work as much. A weakening currency will continuously steal wealth from you requiring you to spend it or lose it. It will also force you to keep working as you cannot maintain your standard of living without it.

Re:Hardly a new concept

[Kjella]

Having a strong currency is not always entirely in the national good. Sure, it's generally better than a weak currency (which is often a sign of political instability and a lack of international confidence in a country's prospects), but it does cause its own kind of problems. In particular, it can hurt exporters, as it costs overseas customers more to buy their goods.

Obviously a strong currency makes you a high cost country, but a strong currency also indicates you sell products and services that are attractive and can command a high price in the global market. The export industry might complain, but there's usually good reasons for them to stay and right now you don't need them. The danger is more that you drive away key businesses and start chain events which will eventually come to bite you. Like here in Norway we're have been on an oil high with prices of $100/barrel and now it's down to $30, now we want some of those other industries that were driven out by high cost back. Or you outsource development to India and manufacturing to China so there's no entry level jobs and eventually the senior positions disappear abroad too.

It's something of a luxury problem anyway, it's the right time to pull money out of the economy and use it on long term investments in infrastructure, basic research, public education and such that'll pay off in the next 40 years. It's actually quite easy to pour cold water on an overheating economy, the main reason it doesn't happen is political as a strong currency makes people feel richer and they're far more likely to vote for that rather than higher taxes for long term investment for the nation. That it actually leads to huge boom-bust cycles as the downturn comes is best forgotten, at least until the crisis is already here.

What a lot of bollocks

[Anonymous Coward]

They will just increase the price of their stuff, like everyone else is doing.
They are already increasing the price of apps in their appstore in Canada, the price of their devices was already overpriced in Canada long before the CAD went down the drain compared to the USD as well, so really, they ain't losing much.

Re:What a lot of bollocks

[Anonymous Coward]

And... what do yo think increasing the price does to the number of sales made ;)

Cautious

[Thanshin]

I'll be cautious and save my answer for the next time we discuss these same news in a couple of days.

Okay! Let me shed a tear for Apple!

[Chas]

Any second now I'll be able to dredge up some sympathy for them.

Any...

second...

now...

Ah crap.

*Pokes self in eye*

There! Is that close enough to tears?

Fuck Apple.

Foreign Currency Manipulation

[wispoftow]

Maybe businesses should keep an eye out for foreign governments that manipulate their currency so much that they get a false sense of reality.

Actually, Apple et al. have known about this all along. Now I'm trying to figure out what they are trying to extort by way of tax breaks to make up for their "losses".

No

[Rik Sweeney]

Tim, iPhone sales are down for two reasons

1. The smart phone market is over-saturated.
2. Every bugger that wants an iPhone, has an iPhone.

Stop trying to claim that things like sotck market fluctuations, El Nino, IS or Zika are to blame.

Re:No

[Pharmboy]

You forgot margin. They have incredible margin on their products. Their concern is total profit, not units sold. They could easily drop their prices in other markets to keep market share, but the net profit to them might be lower. It isn't like iPhones prices are anything relative to their cost. Their price is based on what people will pay.

Re:No

[avandesande]

Cooke projects sales will decline first quarter this year for the first time since 2007 (yestereday's call)

Re:No

[Drethon]

Not to mention those blazingly faster new phones don't mean much to many consumers. I bought a Galaxy S5 to replace my 2.5 year old Motorola Droid about two years ago. Yeah it was faster, it could run some games that were more pretty than the old phone, I didn't really care. My Galaxy S5 is almost out of its 2 year contract and I was going to go to prepay since I had no interest in upgrading. Now that Verizon isn't paying for new phones but hardly dropped the cost of subscription, I'm definitely taking my Galaxy S5 (that has a replaceable battery, so that doesn't automatically end its life) to a prepay plan and using it until it stops running.

Re:No

[bluefoxlucid]

They're in competition with Android and with tablets, phablets, and laptops. They're winning the competition against tablets and laptops. It's not just based on what people will pay, but on what people want to buy and how much they have. You have $100; do you by Crocs or an iPhone? iPhone drops their price to $100, but... Crocs are still a huge fad, and 70% of the population pays $100 for Crocs. What if everyone has $350 and the iPhone drops from $600 to $250? 70% of the population buys Crocs *and* an iPhone; 30% just buys the iPhone and some other product.

These nuances are so familiar to me because I've been digging at them for years. People keep saying businesses just take profit and making things cheaper never brings prices down (look at gas stations and oil), but then they immediately claim competition will lower prices in the next sentence. I had to figure out how it really works, since people simultaneously arguing opposite behaviors as absolutes are obviously wrong.

Re:No

[Voyager529]

People keep saying businesses just take profit and making things cheaper never brings prices down (look at gas stations and oil), but then they immediately claim competition will lower prices in the next sentence. I had to figure out how it really works, since people simultaneously arguing opposite behaviors as absolutes are obviously wrong.

Absolutes != generalizations. Saying "always" and "never" with respect to how businesses operate is silly, as you point out, because even the smallest of businesses still deal with hundreds of variables.

Here is how the two principles you're talking about harmonize:

Sprockets n' Things can sell a sprocket for $50, and sell them well, despite the markup of $10, as the total cost of making them ends up being $40. SnT has learned that selling them for $50 is a good price: customers are satisfied and quality is good. By shifting around their factory schedule around the time of day to minimize the amount of HVAC and peak electricity they're using, as well as making some larger quantity steel orders at a lower cost-per-ton, SnT was able to lower the production cost by $2. SnT could either sell the widget at $48 (passing the savings to the customer), $50 (increasing their profit with no impact on the product), or $49 (split the difference).

Widgets n' Stuff comes out the starting gate selling sprockets at $45, also making a $10 profit. Individual sprocket purchases could go either way (especially if SnT sprockets are deemed of higher quality or have some other value to justify the difference), but businesses who place orders of 10,000 units, a $5 difference turns into a $50,000 savings by purchasing from WnS.

Sprockets n Things would be more inclined to lower the price in order to keep the cost-sensitive customers that Widgets n' Stuff is gunning for, so long as WnS is around to provide a viable alternative to SnT. SnT is also much less likely to increase prices when they are competing with someone who can do it for less.

So yes, pocketing savings is, generally, the best option to take by businesses without meaningful competition. Passing along savings to a customer who has more market choice is generally a better business move.

And that is how those two general thoughts can live in harmony.

Re:No

[bluefoxlucid]

The people I'm usually arguing with are stating absolutes. They're using non-backed cherry-picking arguments, like "lower wages won't lower product prices because businesses will just take the profits" juxtaposed with "giving people more money won't cause prices to increase because competition pushes prices down." This is especially jarring when the topic is the *housing* market, where the same person will argue that reducing risk (and the cost of risk) will just lead to landlords taking more profit, but giving people more money with which to pay rent won't raise rent prices because the landlords are in competition and that keeps prices down--not because of the defunct logic, but because entering the housing rental market is a high-risk business proposition, and so there is a natural barrier to competition, which allows landlords to generally raise prices in areas with a lot of income (gentrification exemplifies this) but does still prevent one landlord from holding his prices well above the others in his area.

but businesses who place orders of 10,000 units, a $5 difference turns into a $50,000 savings by purchasing from WnS.

I usually make that example with steel, coal (coke), and iron ore to show that the ultimate cost of all production is the labor cost (price of labor). People usually dismiss this by claiming something about value coming from capital (e.g. coal mines); I usually argue that by pointing out that it takes *less* labor to fetch stock reserves (e.g. mine minerals) than to manufacture them (e.g. atmosphere-to-liquid fuel generation), and that those stock reserves will become worthless when we devise a cheaper way to produce energy--especially if we devise a way to produce *excessive* energy and liquefy atmospheric CO2 and water into gasoline and diesel reserves (unlikely--this would lead directly to the end of scarcity in society).

So yes, pocketing savings is, generally, the best option to take by businesses without meaningful competition. Passing along savings to a customer who has more market choice is generally a better business move.

They can; but people typically just dismiss one concept and amplify another to create an absolute. See the discussion about rent prices. People take opposing positions as absolutes in the same line of thought when it helps avoid thinking about facts which undermine their position.

My interest in economics is largely about mechanisms: classical economics focuses on trying to predict the stock market and establish the correct price of goods, while I chiefly concern myself with what factors increase or decrease the rate at which wealth grows, and how this influences a society's standard-of-living, its welfare systems, its population growth, its income distribution, its tax systems, its employment rates, and so forth. That's why I never use the term "value": it's not a valid economic term; it's a defect in modern economic theory, like phlogiston. This is also why I have conceptual definitions of things like inflation which describe the same effect, but explain it slightly differently than modern economics.

In that, classical economics (theories of value) had moved from land (feudalism) to labor (Smithism) to the objective theory of value. The objective theory of value tries to explain why low-demand things like diamonds carry a high price, while labor theories would suggest their price is low; it claims that value is just what people perceive. This ignores that labor time is required to produce a good or service, and the laborer must at *least* be fed, and so the cost of this minimal standard-of-living proportioned to the time of labor is the very *least* cost you might incur, and that the price must be above the cost or the product is not marketable.

I approached the problem by simply observing that low-demand goods are difficult and risky markets to get into, and that entering them is likely to achieve business failure, and so competition is weaker when

Apple, an American company?

[Anonymous Coward]

They produce all their products overseas, they sell most of their products overseas, and they hide all their money overseas.

What part of this company is American anyway?

Re:Apple, an American company?

[__aaclcg7560]

What part of this company is American anyway?

"Designed in Cupertino"

Re:Apple, an American company?

[Garybaldy]

LOL.

Re:Apple, an American company?

[ooloorie]

They produce all their products overseas, they sell most of their products overseas, and they hide all their money overseas.

So, on what basis do certain politicians demand that they pay more taxes in the US?

Re:Apple, an American company?

[Copid]

I'm fairly certain that Apple has a pretty substantial employee base of people and buildings in the US that do something. Assembling iPhones isn't the whole operation.

Seriously? Just move the $$ offshore

[almostadnsguy]

I think this is a calculated ploy by Apple to gander pity after all the bad press at the Billions of $$ that they have hiding from US tax collectors.

Re: Seriously? Just move the $$ offshore

[bill_mcgonigle]

more like a prelude to doing an inversion with Apple Ireland. Should've been the McIntosh. I hear that Apple, an Irish company, will keep a nice R&D facility in the Republic of California.

Re:Seriously? Just move the $$ offshore

[The-Ixian]

Pity? Really?

It's not even like Apple *lost* $5 billion.... they *could* have made $5 billion more than they did if X, Y and Z circumstances were different...

That is along the same lines as counting it as a loss when you don't make as much money as you did last year.... you didn't *lose* anything...

Re:Seriously? Just move the $$ offshore

[myowntrueself]

I think this is a calculated ploy by Apple to gander pity after all the bad press at the Billions of $$ that they have hiding from US tax collectors.

Maybe they just don't want to contribute so much to the massive amount of tax money the US government spend on the military? Hell, if I were a US citizen I'd see it as my moral duty to avoid paying taxes to feed the war machine.

Re:Seriously? Just move the $$ offshore

[ChunderDownunder]

Vote buying? Im sure this is illegal but...

Pledge $20 to candidate X if s/he gets elected president you win an iPhone 7 limit 1000000 customers

Re:Seriously? Just move the $$ offshore

[myowntrueself]

Vote buying? Im sure this is illegal but...

Pledge $20 to candidate X if s/he gets elected president you win an iPhone 7 limit 1000000 customers

This sort of thing is why, in Mongolia on voting day, alcohol sales are banned; anyone walking around with a bottle of vodka probably sold their vote for it...

Richest company in the world

[kilfarsnar]

Somehow I don't have sympathy when the richest company in the world complains that they're not making as much money as before.

Re:Richest company in the world

[jabuzz]

I would add especially when they hoard those profits overseas and don't pay taxes on them.

Re:Richest company in the world

[sootman]

He wasn't just *whining* randomly to a reporter one day. He was *explaining* why the numbers were what they were during the company's quarterly earnings call. The people on those calls kinda wanna know that shit.

"Companies headquartered in the United States with securities traded on a U.S. based stock market or other exchange are required to file audited annual reports with the Securities and Exchange Commission (SEC) on Form 10-K following the end of a fiscal year and unaudited reports on Form 10-Q following the end of a fiscal quarter. These companies announce earnings and generally hold an earnings call quarterly."

Good problem to have

[m0gely]

I suppose the symptom of this problem is the obvious loads of cash they're making. Interesting global economic discussion aside, these profits should help them weather this unfortunate storm.

Re:Good problem to have

[Austerity Empowers]

If only the stock market were concerned with the profitability of a company, rather than the belief that one should grow to be so large that it dominates the world.

Does he want some cheese with that whine?

[mark-t]

Sheesh.... talk about first world problems.

Re:Does he want some cheese with that whine?

[The-Ixian]

Ok, that is weird.... I *just* had a conversation with a co-worker where he used that exact same expression "[they] can go pound sand".

I hadn't heard that one before and now twice in 10 minutes.

Re:Does he want some cheese with that whine?

[Garybaldy]

WOW. Surprised you had not heard it before. While not used as often nowadays. Its been around for as long as i can remember. 44

Expensive Apple.....

[tonywestonuk]

When steve jobs was alive, I am *sure* that apple stuff was cheaper. No, it never competed with the low end stuff, and maybe you paid a premium for Apple gear / OSX, fair enough.... BUT, now its just a rip off. http://www.apple.com/shop/buy-... $1,199 for 2.5 ghz, 8gb ram, 750gb HDD.... http://www.amazon.com/Toshiba-... $459.99 for Intel Core i5, 8 GB, 1TB HDD Now, I accept the apple premium should be like 50% more..... BUT, we're talking over twice as much for a similar hardware. For info, I just bought an apple from EBAY. I like apple. I just think they're way overpriced today.

Re:Expensive Apple.....

[The-Ixian]

My question is: In this day-and-age, why is it reasonable for Apple products to have a 50% premium?

It's not like they are using high end hardware any longer... they are utilizing the same commodity hardware that everyone else is using.

In addition, many companies have some very stylish product lines that are arguably more distinguished than Apple products (which, more and more, these days look somewhat dated).

Also, the services that they provide like iCloud and the AppStore are falling further and further behind in features and functionality to their competitors...

So... where does the premium come from?

Re:Expensive Apple.....

[BronsCon]

fair enough

Indeed, because when Jobs was still in charge, there was some actual value in paying that premium. Now it's just name trade. How well has that worked out for Sony?

Re:Expensive Apple.....

[tonywestonuk]

The mac I linked to, was 4.5 pounds..... The toshiba was 4.8 pounds.... So, there's a few ounces between them..... still in the same ball park though.

Re:Expensive Apple.....

[tonywestonuk]

They use a similar hardware........But its just so much nicer to use... glass trackpad, OSX. really... I dont mind paying 50% premium....
But, not 100% premium.

Re:Expensive Apple.....

[Voyager529]

Indeed, because when Jobs was still in charge, there was some actual value in paying that premium. Now it's just name trade. How well has that worked out for Sony?

A Sony Walkman played the same cassette tapes as an Emerson or GE. a Discman played the same CDs as a Philips. A Sony TV connected with the same cable and showed the same channels as an RCA or Zenith. Sony's attempts at lock-in (Betamax*, Minidisc, ATRAC3, Memory Stick) never achieved critical mass, and were usually direct competitors to formats everyone else used by time they hit the market.

Apple played - and still plays - standard MP3s...but their vertical iTunes platform made it a lot more convenient to stick within the ecosystem for purchase and download, a system that provides disincentive to use a competitor. The use of standard MP3s requires much more manual work, thus requiring forethought, intent, and a willful forsaking of a lot of the streamlining that Apple makes possible. Good luck getting a video purchased from Apple running on anything other than an iDevice, or an App working on a non-iOS device, or text messages / picture messages to move from an iOS device to Android or Windows Phone.

So no, name trade didn't work out so hot for Sony, because they were competing in a time where getting a new portable cassette player was a near-disposable purchase, and every model was intercompatible with the content that was used on its predecessor. Apple competes with a certain amount of lock-in on its side - not a complete lock-in, but a hell of a lot more than what Sony had to work with.

*Yes, Betamax kept a niche in TV/video production for quite some time, as its frame-accurate seek system and better image quality served that niche better than VHS, and became a standard within it...but we're talking mass market adoption here.

Re:Expensive Apple.....

[BronsCon]

Apple doesn't have much in the way of lock-in in the desktop and laptop markets. There's iTunes, but iTunes still runs on Windows and combines quite nicely with DoubleTwist to manage non-iPod MP3 players and an existing iTunes music collection seamlessly; nothing says you have to keep buying iTunes music once you've made the switch. As for video, you can remove Apple's DRM and play those videos wherever; and, much like music, nothing says you have to keep buying from iTunes once you've made the switch. That leaves mobile where, honestly, there is still a raging OS holy war. Many iOS users won't touch Android with a 10 foot pole, and vise-versa. That basically negates the app lock-in, to a large degree; by the time Cook lets iOS get fucked up enough for people to consider switching, they won't care about having to re-purchase their apps.

Personally, I love my iPad and hope Apple doesn't fuck it up, but I'm all about my Android phone, as well; as an added bonus, I can run any app on either platform. And I'm typing this (and managing several dozen Linux servers) from my Retina MacBook Pro as I recently damaged the screen on my PC laptop and am awaiting replacement parts. These devices are just tools, use whatever suits your needs and don't let yourself get bound to one or the other, because you never know when "whatever suits your needs" might change.

Re:Expensive Apple.....

[tonywestonuk]

dude - this mac is sold currently by apple, now, for the price I mentioned. The only reason they havent stopped production of it (they *are* still making it), is that its a big cash cow for them.

Re:Expensive Apple.....

[tonywestonuk]

dude, the macbook pro uses i5-3210M, the toshiba uses i5-5200U. I think you'll find the toshiba is faster.

Re:Okay! Let me shed a tear for Apple!

[Anonymous Coward]

As an IT person, it is hard to have any sympathy for Apple. They have so much cash, and could step into so many markets... but they have all but abandoned the enterprise sector (no XSan, no XServe, no rack-friendly models [1].)

Apple has been a toy maker for so long, they think they can continue to do so. Sony had this attitude back in the late 1990s... but then just got steamrollered. If Apple is to have long-term stability, they need to use some of that large cash stash, and either spin off an enterprise company or make a division for this. Think desktops, servers, and applications that can replace Exchange, Active Directory, and other items. Apple would also need to work like other sane companies and give roadmaps out. (For example, I can go to IBM, Oracle, HP, sign a NDA, and see what is going to happen in the next 3-5 years, product-wise. With Apple, you can't do this.)

With people related to the Fed like Marc Faber saying that there will never be a bull market in his lifetime, Apple needs to start battening hatches for the oncoming storm. Regardless of the economy, enterprise sales are a solid income, and it is easier to convince one CFO to pay for 100,000 Macs than it is to convince 100,000 consumers to buy one Mac apiece in a bad economy.

I hate doomsaying, even as an AC, but winter is coming, and the handwriting is on the wall. Apple needs to shift from iPhones and consumer toys back to meat-and-potatoes products (not just Macs, but infrastructure) in order to stay relevant in 5-10 years.

Perhaps virtualization. Build ESXi into the BIOS, slam some DRAC/iLO functionality onto machines, and this might shake things up in that market. Especially if Apple added Infiniband or Thunderbolt connections between blades and chassis, and Isilon-like OneFS functionality, so each blade could use another's HDD, with redundancy by drive, blade, and chassis built in. This is what MS is doing with Storage Spaces Direct, but the difference between 10gigE and Infiniband or Thunderbolt for cross-connects is significant.

Apple is sitting on a lot of cool stuff. Not just for making toys, but actually being able to play in the adult world where regardless of the economy, businesses still will be upgrading.

[1] No, a Mac Mini is not an enterprise geared machine. A Mac Pro can be racked with a third party kit (and take up a ton of space)... but that is a lot of kludging compared to a 1U XServe, or a rack and blade system. Especially if Apple actually went balls-out and used some of that cash to turn OS X into a virtualization platform (The XSan filesystem is still present and usable for clustering), or made some applications that could compete where MS is only present.

Since they offshore the profit anyway...

[ebrandsberg]

why does it matter? If they are taking the dollars, converting them into Euros to pass through Ireland for their tax scam, then sending it down to the Cayman Islands, a strong dollar just means it converts into more Euros, right?

Re:Since they offshore the profit anyway...

[UnknowingFool]

Because that's not what what they are doing. They are taking their Euros and keeping it Euros. They are taking their Yen and keeping it in Yen. Their dollars, they keep in dollars. To convert anything to dollars they would have to pay 40% in taxes to the US government in addition to any taxes they paid to the local governments.

Re:Since they offshore the profit anyway...

[gnasher719]

Because that's not what what they are doing. They are taking their Euros and keeping it Euros. They are taking their Yen and keeping it in Yen. Their dollars, they keep in dollars. To convert anything to dollars they would have to pay 40% in taxes to the US government in addition to any taxes they paid to the local governments.

No, you can have dollar accounts in Europe or Japan. They can take Euros from an account with a bank in Germany and put it into a dollar account at the same bank. They just can't transfer the money to the USA (and you can have a Euro account with a bank in the USA, so Apple could transfer money without exchanging).

iPhone 6 / 6S

[st3v]

We paid a lot for these phones. There's a huge difference between the iPhone 5/5S and 6/6S. I don't plan on upgrading my 6S Plus anytime soon. I think for most people, the 6 generation is "good enough" for a while. That's why sales are lacking.

Re:iPhone 6 / 6S

[The-Ixian]

Until they force and update which kills performance

Re:iPhone 6 / 6S

[Actually, I do RTFA]

Not likely. iOS 9 was supposed to extend how long you could use your iPhone 4S. Which makes sense. They make money off their hardware, but they make money off the app store.

Re:Okay! Let me shed a tear for Apple!

[JazzLad]

This is a great comment, I am going to copy/paste it tomorrow when this story gets duped.

From the company that invented the derivitave

[rickb928]

this is rich.

What he said was, in other words, was that Apple didn't do well insulating themselves from the currency fluctuations they once were able to do so well at.

And in the process they devised a clever financial instrument that found great utility for other uses. Some not so glorious.

Too bad. That's the risk in global sales. Welcome to the real world.

Revenue?

[smooth wombat]

That's not good when you get two-thirds of your revenue overseas.

And we know Apple accounts for all revenue it receives and accurately reports it on its taxes. It doesn't hide any revenues overseas.

DTT is powerful.

[Futurepower(R)]

Due to Digital Turnip Twaddling, it's required socially to have the latest iPhone.

Money

[stealth_finger]

All apple ever really gave a shit about.

Sensational headline misses the point

[enjar]

This affects all American businesses doing business overseas -- and that's a lot of businesses, not just Apple. American goods are selling at a considerable price premium versus competing goods in those markets. Long term, that's not a fantastic place to be as it acts like a export tariff on US goods and makes them less competitive. Also when you are selling overseas what sales you make take a cut due to exchange rates. It's demoralizing to see your sales force bust their ass to log a big YOY sales growth in their country but then have exchange rates eat that up and make it a 0% growth (or a loss) on the bottom line.

And I know we all like to throw barbs at Tim Cook sleeping on his mountain of cash, but this applies to all US business, not just Apple.

Re:Wishful Market Calculations != Lost Profits.

[BronsCon]

You should not be basing your companies performance on fictional numbers

Welcome to America. We base everything on fictional numbers. Deal with it.

Boo hoo

[wkwilley2]

Oh cry me a river Tim Cook.

You'll not get any of my money anyway.

they dont call it The SpaceShip for nothing

[peter303]

For five billion dollars theres probably a propulsion system in there someone. It can takeoff and land in whatever country is most tax-advantaged at a given time.

Re:Tim Cook should resign, NOW.

[BronsCon]

Jobs wasn't a techie, either, but he was a marketing genius and listened to the advice of the techies under his employ. Instead of marketing a product to engineering and telling them to go build it and keep the costs under $X as Cook does, Jobs insisted that engineering marketed their products to him, then he took it on himself to figure out how to market those products to us. The end result was higher quality and better performing products, because engineering was in control of quality and performance. Of course, Jobs did stick his fingers into the mix and insist that costs were cut on anything that wasn't cutting-edge, so there was still some margin left at the end of the day; that still allowed the unibody aluminum construction, which we all have to acknowledge would not have happened under Cook if it didn't already exist.

Re:Okay! Let me shed a tear for Apple!

[deKernel]

Wish you had not posted this as Anon because I think you have some good ideas.

Personally, I think a good avenue is to get into the markets that smaller business's really require. As an example, provide some type of cloud based email/calendaring solution for smaller businesses (think Google for Business here). Most of which seem to like using their Macs so that would support their existing products. They could provide something like Google does for Outlook so the PC people could make use of as well. With that, there is a natural extension for storage needs which would fit well. I am not a fan of cloud solutions, but most smaller companies have moved that direction so why not leverage that direction.

unless you invest in the stock market

[peter303]

Where Apple is the largest holding in every equity index fund (because its the largest company in every index). And growth funds have loaded up on it extra.

Re:Queer Words From The Queer-N-Chief

[U2xhc2hkb3QgU3Vja3M]

You think Apple used U.S.A.-based manufacturers before 2008? /laugh

Re:Okay! Let me shed a tear for Apple!

[jcr]

(no XSan, no XServe, no rack-friendly models [1].),

FYI, that whole market just isn't big enough for Apple anymore. When they stopped making the Xserve and Xserve RAID, they were already the #3 storage vendor, and they were about a year and a half away from becoming #1.

The scarce resource for Apple is engineering time. When the same guys could be developing an Xserve or another iMac, it's not a hard business decision to put them on the product that sells in million lots instead of the one that sells in the low thousands.

A lot of groups at Apple used the Xserves themselves, and they're sorely missed, but it's just not possible to justify diverting the people to make them now.

-jcr

Re:Laughing my ass off.

[jcr]

XServe died because it was useless and nobody was buying.

Incorrect. Xserve was a great product line and it made money, but it just wasn't big enough for Apple to keep around.

-jcr

It's not even about sympathy ....

[King_TJ]

The lesson here is that when American businesses decide to increase their presence in other parts of the world (typically to try to save money because of such advantages as cheaper labor or lower taxes), the downside is a growing reliance on the state of the global economy, vs. the U.S. economy.

Re:Okay! Let me shed a tear for Apple!

[SvnLyrBrto]

I don't think the xServe and xSan sold very well. After all, had they been runaway successes, I doubt Apple would have discontinued them. No public corporation is going to throw away easy money "just because". If the server products were really thriving, and Apple *really* wanted to just be all about consumer hardware; they'd have just spun the business off into a subsidiary, like they have in the past with FileMaker and Claris.

And really, Mac OS X doesn't make much sense as a server anyway, Unix underpinnings and their token OS X Server development notwithstanding. The big advantage OS X has over other Unix/Linux OSs is a GUI that doesn't suck and the availability of a good number of commercial consumer software products. Neither is relevant to a server. And a GUI and most of the other OS X features are a liability for a server. A server should have exactly and only the packages it needs to perform its specific job, and nothing more. That's not Mac OS X.

Perhaps Apple could publish some RPMs to be installed on RHEL, CentOS, or Amazon Linux with customized services targeted at the "classroom full of Macs" they used to cite as the use case for OS X Server... CalDav, CardDav, Wiki Server, Open Directory with non-sucky directory templates, and so on. Combine this with an easy-to-use client that'd run on a Mac to manage these services and you have a server offering that makes sense for Apple. But dedicated Mac server hardware always was a really odd duck out and never made a whole lot of sense. And I say that as someone who likes Apple, owns many of their products, and practically grew up with their computers. All the way back to that first Apple ][+ I can hardly recall a time when I did *not* have Apple kit. But for a server in any kind of production environment? As much as I like Apple and hate, for example, Dell; I'd choose CentOS on a pair os R220s (for redundancy) over Apple's offerings... even the xServe when it was available... every time.

Add to all that the fact that many businesses these days... especially the startups that are open to Apple products in general (It's not like you'll see many Macs in an SAP building or on a Lockheed Martin campus.)... don't even want to own their own rack mounts or datacenter space in the first place; but would prefer to to just spin up infrastructure in AWS and avoid the headaches of owning and maintaining hardware. Why would Apple... or anyone, really... want to jump into the 19" pizza box market now?

Re:Tim Cook should resign, NOW.

[jcr]

Tim Cook has fucked Apple up since he has been in charge and he needs to resign.

You're an idiot. Tim has done a brilliant job of leading Apple, and they've grown at an incredible pace for a company their size. I remember people like you saying the same thing about Steve.

-jcr

Re:Okay! Let me shed a tear for Apple!

[deKernel]

I hear you about diverting resources IF you are working under the premise that you must keep your costs fixed (aka not add to the resource pool). However, 99% of the time, you need to increase your resources to be able generate new products.

Hard to feel sorry

[Buzz_Light]

I _might_ feel a little more sorry for Apple, you know, if they actually paid any decent percentage of US taxes.

pathetic

[argStyopa]

Seriously: "strong" != "good" in the context of a currency, depending on how you define good.

Re:Queer Words From The Queer-N-Chief

[Austerity Empowers]

Not very many people at all USA manufacture, and have not for 20 years. Apple is the richest of the lot currently, but they're not alone in their suffering. Having a strong dollar is great if we actually manufactured things here, or had a plan to do so in the short term.

Re:Laughing my ass off.

[R3d M3rcury]

It made money, but not enough for Apple to keep spending the R&D cash to upgrade it.

Re:Okay! Let me shed a tear for Apple!

[Austerity Empowers]

... but they have all but abandoned the enterprise sector

Corporate customers are absolutely horrible, margin destroying machines. Can you blame them? Two of my employers derived the majority of their revenue from enterprise sales, and both of those companies are shadows of their former self. Unless you have a monopoly (or near to it), you will be nickled and dimed into obsolescence, which is a good market for China where tehy can compete with each other on equal footing, but US based companies get run out quickly.

On the other hand, individuals still have an eye for a good product, and will pay a lot of money for a good product. We don't have to report out quarterly earnings, nor do we even have to necessarily make the financially optimal solution. That's a much better market for American (or European) companies to be in. Unfortunately, because of our other economic woes, very few people can often afford to pay for the good product over the cheap shit, so the best one can hope for is to have a small but significant market share.

Toys are a good market for Apple, Enterprise is a good market for China.

Re:Okay! Let me shed a tear for Apple!

[Chas]

The thing is, Apple simply doesn't WANT this business sector.
They have no real understanding of it, and no real desire to become a real, enterprise-grade support organization. It's too important to them to be these foofy, artistic, independent "fuck the man" mavens.
Plus, enterprise, while a lot of money flows around, is EXTREMELY cutthroat. So the margins tend to be smaller than you'd think.

Re:Tim Cook should resign, NOW.

[rahvin112]

People like you said the same thing about the Apple CEO from Pepsi that cut R&D and raised prices which maximized revenue for about 5 years, that is until the company began to flounder because the reduced R&D caused them to no longer be competitive once the in channel developments were used up (about 5 years later).

Bad CEO's generally aren't revealed for a number of years. Carly Fiorina was praised for the first 5 years, that is until the reduced R&D and focus on commodity printer market flatlined all growth.

Is Tim Cook as bad as Pepsi guy that was CEO? No, but is he as innovative and as big of an asshole as Jobs? No. Given that he hasn't been in charge that long the jury is still out on whether he's a good CEO.

Re:Purchasing Power

[slew]

The stronger US dollar also means that Apple's capital now has more purchasing power overseas.

Which means that Apple's production costs should be moving down, since most Apple devices are not made in America.

It's all too easy to look at flat numbers and come to erroneous conclusions.

The bulk of Apple's capital is not in the US denominated in US dollars, it is in places like Ireland. Thus Apple's asset/capital structure is "dollar-lite". It hold about $40B in cash and short term notes, but about $164B in overseas "investments" that are mostly denominated in foreign currency. The reason it can operate cash-lite is that it issues bonds backed by its foreign holdings to finance it's operations instead of repatriating the money

As the value of the basket of foreign currency declines relative to the US dollar, the purchasing power overseas remains relatively constant meaning their margin is relatively constant (revenue-cost)/investment. However, the net return denominated in US dollars per share goes down when the margin is unaffected.

That combined with the fact that the global downturn will likely result in lower net demand, they just can't invest the any "savings" (if there were any) in more inventory to make more money at that same margin to improve net return on investment per share likely because of the price/demand curve for their products (e.g., they couldn't really sell more at the same price unless they were capacity constrained and in that case they should have raised their prices and sold few units which mitigate the effect of production costs on their profitablity).

"strong" US dollar

[ooloorie]

It's not so much that the US dollar is "strong", it's that European governments are screwing up even worse than the US government.

Re:Okay! Let me shed a tear for Apple!

[Chas]

XServes and XSans were decent entry-level products.
And they actually sold moderately well.

However, there were some valid criticisms of the platforms. And Apple didn't want to invest the time and effort into addressing them, nor scale their offerings.

Re:Okay! Let me shed a tear for Apple!

[myowntrueself]

I don't think the xServe and xSan sold very well.

Apple should have called them iServe and iSan. Then they'd have sold well.

Re:The real issue

[myowntrueself]

He's probably deepthroating a nigger *right now*.

That image gets you hard. Admit it.

Re:Okay! Let me shed a tear for Apple!

[thegarbz]

and either spin off an enterprise company or make a division for this.

Enterprises buy based on performance, not on shiny. Apple can't win in that market.

Re:Okay! Let me shed a tear for Apple!

[jcr]

Spoken like someone who has no idea how much effort Apple puts into recruiting.

-jcr

Re:Tim Cook should resign, NOW.

[jcr]

People like you said the same thing about the Apple CEO from Pepsi

Nope. I gave up on Apple when they canned Steve, and I became a NeXTSTEP customer in 1989.

-jcr

Re:Okay! Let me shed a tear for Apple!

[Bob the Super Hamste]

No public corporation is going to throw away easy money "just because".

Yes they will. For some reason there are these useless twats called MBAs who think that they are god's gift to management. They tend to run companies and I have seen cases where they wouldn't do something not because it didn't make money, but instead because it didn't make enough money. The company I am at had an opportunity a couple of years ago to make 5% on something with 0 effort and expense (things would be drop shipped from the actual manufacturer or something like that) but didn't do it because they didn't want their average profit to drop below 10%. So because the average profit margin would have dropped, even though total profit and revenue would have been higher, they didn't do it.

What are we hoping for here?

[micahraleigh]

Is Cook wishing the US was suffering the same economic turmoil (from China) the rest of the world is suffering through?

I don't see how that would be good for Apple.

If there is less wealth overseas (and there isn't because of China) people have less margin for fancy phones.

Diluting the dollar isn't going to make overseas customers more enabled to buy iPhones.

Re:Okay! Let me shed a tear for Apple!

[deKernel]

I would agree that I am speaking without knowing all of the facts. I do find it interesting that Apple has a hard time finding talent to work for them though. I just wonder if they thought about opening an engineering center somewhere else than Cupertino since that is obviously an area where good talent is at a premium due to so many tech businesses.

Exchange rate risk

[sjbe]

A strong dollar also reduces manufacturing costs, since manufacturing is overseas. This improves margins. I'm not seeing the issue.

Foreign exchange is often counter intuitive. In crude terms a strong currency helps importers but hurts exporters. If Apple in this case is the exporter. The stronger the currency gets the less units per dollar Apple's customers can buy. Since 2/3 of iphone sales are international Apple customers are unable to buy as many iPhones for the same amount of money.

It doesn't have anything really to do with manufacturing costs. Apple's manufacturing costs are mostly contracted well in advance for large volumes. This means their costs are close to fixed. So if the exchange rates move significantly after the contract is signed and Apple isn't hedged against currency movement then Apple will sell less product or have to accept worse margins.

Re:Exchange rate risk

[MightyYar]

Apple is an exporter and an importer. They are importing goods to the US (and exporting them from China) - on those units, they see an increase in profit. On units sold in China, the units are domestically produced and the profit margin remains the same. On units sold in Europe, Apple is an exporter (from China) and an importer to Europe and the profit margins will be at the mercy of the Euro-Renmimbi exchange rate. On that, they lost some profit margin recently. It appears to be a wash, since Apple has kept their margins at around 40% for many consecutive quarters.

I don't know why you say that manufacturing costs are not a factor. It seems like you are assuming that their contracts are all in dollars. That seems very unlikely. More likely with a business their size, they have contracts in many different currencies and so currency fluctuations balance out.

Their revenue in dollars is almost certainly down. But that's not a number that investors should really be looking at unless it does something remarkable.

Cost of Goods Sold

[sjbe]

Software development and engineering are not marginal expenses (they don't vary with the number of items sold).

Software development and engineering account for a tiny fraction of Apple's costs. Something like 10-15%. Look at any software company's financial statements. You'll find that their development costs are always somewhere between 10-20% of total cost. It's true for Microsoft, Oracle and any other software company. You are correct that they are fixed costs but their effect on the bottom line in this case is relatively minor.

Apple's manufacturing is done in Asia (where costs have fallen in dollar terms) but Apple's development is mostly done in America.

Look at Apple's financial statements. You'll find that Apple's Cost of Goods Sold is almost 10X their SG&A and 15X their R&D costs. Cost of Good Sold is the direct cost attributable to making the physical products Apple sells - direct labor and materials. Engineering falls under SG&A and/or R&D. The costs aren't even close.

What you are missing is that even though Apple's manufacturing is done in Asia, what is important is that at the end of the day Apple's revenues and costs are in dollars. Since 2/3 of their sales are outside the US, a strong dollar hurts Apple on a net basis because it makes Apple's products more expensive outside the US.

Disclosure: I'm a certified accountant.

Repatriation is not relevant here.

[sjbe]

as well as all of that money they've been refusing to bring into the US because they don't want to pay taxes on it. They're really taken it in the poo over that, with exchange rates taking such a dive. Guess they should have brought it home and paid those taxes, eh?

You are conflating two issues. Yes Apple has been incentivized to keep their currency reserves in other countries to a substantial degree. That has little to do with this problem. 2/3 of Apple's sales come from outside the US and their base currency is the dollar. When the dollar gets strong people in other countries can afford to buy fewer Apple products for the same money because their currency buys fewer dollars. Apple is effectively a net exporter of their goods and a strong dollar hurts exporters whose base currency is dollars. Whether or not they repatriate that money is irrelevant. They are getting fewer dollars per unit of goods sold whether or not they bring that cash back to the US. Exchange rates affect companies regardless of where the currency is actually held.

Re:Repatriation is not relevant here.

[bingoUV]

They are getting fewer dollars per unit of goods sold whether or not they bring that cash back to the US

But those dollars are of greater value than earlier. Every single one of these dollars can buy more internationally than it could buy before 2014. Since they are not bringing the cash back to the US, only the international value of the cash is relevant.

Follow the money

[sjbe]

What part of this company is American anyway?

Their money is and that's the bit that matters. Apple does it's business substantially in dollars so exchange rate risk is a big deal for them like most multi-nationals.

Hedging?

[mnassri]

Is there a reason that Apple doesn't do currency hedging, despite all the transactions/holdings in foreign currencies?

Re:Hedging?

[gnasher719]

Is there a reason that Apple doesn't do currency hedging, despite all the transactions/holdings in foreign currencies?

You can only hedge so much.

Germany 1986

[wbtittle]

I went to Germany in 1986. My host father taught me a lesson. When I got there the Mark traded 3 to 1 with the $. As the year went, it dropped to less than 2 to 1. German companies liked when the Mark was 3 to 1. That meant it was easier to sell product to America.

This is not new news. It has been know for REALLY long time.

China pegged itself to the $ to maximize its ability to do what it did.

Huh?

[hondo77]

Would someone point me to where Tim Cook actually said "What's good for the US dollar is bad for Apple"?

Re:Okay! Let me shed a tear for Apple!

[castionsosa]

AFP isn't so bad. For a small setup (Synology NAS), it works well enough.

However, that is one thing I can agree on. HFS+ just needs to go. Apple has enough cash to pay Oracle for a clean license for ZFS, Microsoft for Storage Spaces + ReFS, or IBM for AIX's JFS2. The ideal would be ZFS just because it is so resilient... and Apple has dabbled in that arena before with various OS X seeds. Plus, it would solve the RAID issue without additional moving parts needed.

OS X is still gaining marketshare, but it would be nice if Apple could add some more enterprise-friendly features, just so that it is an acceptable alternative to Windows.

As for enterprise hardware, this wouldn't have to be Apple. They could spin off an enterprise company that licenses Apple IP, so Apple itself would not lose focus. Then make more enterprise-friendly desktops that have the option to be sans cameras or microphones.

Re:Okay! Let me shed a tear for Apple!

[Krishnoid]

Perhaps, but lots of upper-level decision-makers buy based on shiny.

Which is it?

[mbone]

If Apple is not paying US taxes because they are parking revenue in Ireland, why should they care what the US dollar does? Or are they admitting that they are repatriating that money to the US? In that case, why aren't they paying tax on it?

Re:Okay! Let me shed a tear for Apple!

[thegarbz]

Yep then the procurement department goes to tender.

Re:Tim Cook should resign, NOW.

[BronsCon]

This is also the same guy that insisted against the engineers' advice that the Apple III (and others) not have a fan

To which I will repeat:

Of course, Jobs did stick his fingers into the mix and insist that costs were cut on anything that wasn't cutting-edge

I don't think putting a fan in a computer was cutting-edge at that time, nor was not doing so. That was also in hist first "term" with Apple. He let the engineers mostly run development during his second. Speaking of fanless designs and disastrous results, have you seen the 12" MacBook Cook let out the door?

Strong currency is good for imports bad for export

[neoritter]

Say it with me now, "A strong dollar is a good for imports. A weak dollar is good for exports."

Re:Laughing my ass off.

[mjwx]

XServe died because it was useless and nobody was buying.

Incorrect. Xserve was a great product line and it made money, but it just wasn't big enough for Apple to keep around.

-jcr

So basically you've just said he's right and no-one was buying it.

However much you try to sugarcoat it in fanboy logic.

Dear Princess Tom

[LifesABeach]

So what?

Re:Okay! Let me shed a tear for Apple!

[jcr]

Apple has development groups in Pittsburgh, Paris, Cork, and somewhere in China, I forget which city.

-jcr

Re:Laughing my ass off.

[jcr]

So basically you've just said he's right and no-one was buying it.

You fail at comprehension. Try again.

A product that's making enough money for a smaller company to keep around is not the same thing as a product that's worth Apple's investment.

-jcr

Re:Okay! Let me shed a tear for Apple!

[Plumpaquatsch]

I don't think the xServe and xSan sold very well. After all, had they been runaway successes, I doubt Apple would have discontinued them. No public corporation is going to throw away easy money "just because".

Just because what? Because it has enough highly successful and profitable products and services, that dropping one slightly less profitable product that other companies would kill for, simply because putting the resources from that product into the even more profitable products actually makes sense?

People like you don't understand just how big and profitable Apple is.

US dollar is a giant Pyramid scheme,

[NewYork]

US dollar is a giant Pyramid scheme,
http://www.zerohedge.com/print...