“After Dell delivered its first-quarter earnings report on Thursday, investors’ attention quickly turned to the company’s disappointing gross margins, which contrasted greatly with Apple’s (AAPL) stunning recent numbers. And so when a reader asked me why there’s such a big difference between the two, I decided to dive in and do my best to explain,” Michael Comeau writes for Minyanville.
“There are a variety of factors driving gross margins for companies making physical products. But assuming companies have access to similar materials and manufacturing methods, difference in gross margin are driven primarily by uniqueness and branding,” Comeau writes. “In any given geographical area, gas prices are pretty much the same because all gas is pretty much the same, and there are a lot of people selling it. That means low mark-up and a low gross margin because people have no reason to pay up.”
“All computers running Microsoft’s Windows 7 operating system are basically identical, and you have hundreds of models to choose from,” Comeau writes. “And since PC companies can’t or are unwilling to set themselves apart with design or customer service, their products are commodities, no different from generic toilet paper.”
“Apple of course, is the exception… Apple has single-handedly revolutionized the computer, mp3 player, smartphone, digital music, electronics retail, and tablet markets. In doing so, it’s mastered the gentle art of making powerful products that are easy to use — the perfect complement to great design,” Comeau writes. “Embedded deep in Apple is a willingness to ignore critics, break the rules, and make products that change the world. It’s the uniqueness of the brand that makes Apple different from all of its competitors, and that’s why its products sell for a hell of a lot more than the sum of their parts.
Read more in the full article here.
[Thanks to MacDailyNews Reader “Wingsy” for the heads up.]