“Apple Computer Inc. has a runaway hit with its market-leading iPod digital music player, but could the device’s success actually hurt the company’s profitability over the longer haul? ‘It’s an excellent question,’ said Shaw Wu, an analyst at American Technology Research, who estimates the gross margin average of all iPod models is about 22 percent, narrower than the margin earned on its higher-end Macintosh computers. ‘You look at last quarter, their gross margin went down a bit sequentially,'” Duncan Martell reports for Reuters.
“Gross margin, or the percentage of revenue left after subtracting product costs for Apple in its September-ended quarter was 28.1 percent, narrower than the 29.7 percent in the June-ended quarter. Gross margin is one common metric analysts and investors track to gauge the health of a business and how much to pay for a company’s stock,” Martell reports. “As Apple’s business shifts more to consumer electronics items like its iPod — sales of iPods now account for nearly a third of total Apple sales — that means the sales of its more profitable Mac computers make up less of the total. ‘As music and iPods continue to outpace computer hardware sales we expect that shift to drive lower profit margins,’ said Deutsche Bank analyst Chris Whitmore. ‘But that will continue to translate into pretty strong operating-income dollars and earnings per share.'”
Martell reports, “But even as Apple’s gross margin declined in the fourth quarter from the third and year-over-year, there are other things Apple is doing in its business that may hearten investors: it’s spending less on research and development, sales and marketing and other costs as a percentage of revenue. Operating income as a percentage of revenue in its most recent fourth quarter was 11.4 percent, more than double the 5.5 percent in the year-ago quarter, although down from 12.1 percent in the third quarter. ‘Apple has offset the gross margin pressure by managing its business better,’ Wu said.”
Full article here.
Advertisement:
The New iPod with Video. The ultimate music + video experience on the go. Buy it now at the Apple Store. From $299. Free shipping.
Related articles:
New Apple video-capable iPod dissected, gross profit margin estimated – October 21, 2005
Apple’s video-capable iPod and iTunes are first vital link in new distribution paradigm – October 21, 2005
USA Today: Apple’s new iPod + video: world’s foremost portable music players have gotten only better – October 20, 2005
Comprehensive review of Apple’s iPod 5G with Video – October 20, 2005
The Motley Fool: ‘Apple’s new video-enabled iPod is about to save the televised content industry’ – October 20, 2005
Ars Technica reviews Apple’s new video-capable iPod – October 20, 2005
NY Times Pogue: ‘watching video on new iPod’s 2.5-inch screen is completely immersive’ – October 19, 2005
MSNBC columnist: after initial coolness wears off, Apple’s video iPod will wind up in dresser drawer
Apple’s $1.99 iTunes TV show downloads may be ‘the savior of good television’ – October 17, 2005
Apple opens Pandora’s box for the media business, could have profound long-term consequences – October 17, 2005
BofA analyst: Apple video play an ‘evolutionary opportunity,’ 9.3m iPods to be sold this quarter – October 17, 2005
Apple has the potential to change not just the audio industry, but the whole entertainment industry – October 17, 2005
Advertisers welcome Apple’s iTunes Store commerical-free content – October 17, 2005
New York Times writer can’t think different: ‘video iPod may not be ready for prime time’ – October 17, 2005
Podfather: iPod porn is going to be huge – October 14, 2005
Forrester Research: Apple transformed music distribution, now it is doing the same for video – October 14, 2005
Watching episode of ABC’s ‘Lost’ on 2.5-inch iPod screen surprisingly compelling – October 13, 2005
Get ready for the iPod video torrent search sites – October 13, 2005
Apple’s new iMac G5, iTunes 6, iPod video designed to bait Hollywood – October 13, 2005
Apple video iPod+iTunes could create mass audience for video on the go, despite studios’ misgivings – October 13, 2005
Using QuickTime Pro to create videos for playback in new Apple iPods – October 13, 2005
Analyst: Apple has just produced ‘the tipping point’ for entertainment content – October 13, 2005
Apple’s video play likely to unsettle movie, TV, advertising and retail markets for years to come – October 12, 2005
Apple unveils new 5th generation iPod, now plays music, photos, and video – October 12, 2005