The Cost of the iPod 217
An anonymous reader writes "The New York Times is running an article today entitled Apple's Got a Secret. They discuss the cost behind making the ever-popular iPod ... a secret the company is keeping close to its chest. As a result of the company's signature secrecy and antiquated way of tracking profits, analysts are beginning to question the 'trust me' nature of buying Apple stock." From the article: "Geographic disclosure was adequate when pretty much all Apple sold were computers, Mr. Renck said. But the iPod has changed everything. Sales of Macintosh computers now trail those of iPod, which last year made up 46 percent of revenue. 'Apple clearly has its feet in two separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry,' Mr. Renck said."
That was actually surprisingly good article (Score:5, Insightful)
"How about actually doing their job and analyze the company they are covering? What a thought -- actually doing some independent research without the companies giving them all the information on a platter."
He's got a point. It shouldn't be too hard to figure out what an iPod costs to make, within a margin of error, of course.
Or maybe not. (Score:4, Insightful)
'Apple clearly has its feet in two separate and distinct business models, namely computer manufacturing and software creation, and the consumer electronics industry,' Mr. Renck said.
Two Business Models: One for the rich and one ... (Score:5, Insightful)
Yeah, it's not like iPods ("consumer electronics") would ever interact with computer hardware or software in any way. It's also not like iPods themselves are computer hardware that run computer software...
Re:That was actually surprisingly good article (Score:5, Insightful)
Kinda Obvious. (Score:5, Insightful)
I had this problem myself when I was selling speedstream DSL modems. I had purchased a gros (144) for 9$ each. I made the mistake of telling people what I had paid for them, and everyone wanted them for ~10$. They were selling for 120$ retail at the time, or 10$/mth with the ISP. No one wanted to pay 50$, even though it was a great deal, because they knew what I had paid for them, and how much profit I was making. I ended up only breaking even, because word got around what my profit was on each sale, and everyone wanted to bargain me down to what I had paid.
The fact that apple doesn't want to tell what they cost to produce makes me think that their margins are pretty obscene, and they know it would make people angry to know just how much they're pocketing.
Re:That was actually surprisingly good article (Score:3, Insightful)
Pills that treat every major disease costs $0.25 (Score:5, Insightful)
R&D costs money. So does good design.
We love Apple (Score:4, Insightful)
It drives me up a wall how this company always gets a free pass on this and other sites. Apple is not the greatest computer company ever. They are certianly not Open Source or even close to it. They make pretty boxes for a lot of cash, and now there boxes are just another PC brand.
Atleast they are built better than Dell, I'll give you that.
Re:Two Business Models: One for the rich and one . (Score:5, Insightful)
The fact that they're technically similar doesn't mean they are similar businesses in similar markets. Clearly the Mac is in a very different kind of market to the iPod, as evidenced by one having like 3% market share and one having 50%+ ... and that's what matters to the shareholders.
Shareholders should really have this information; the iPod is going to start facing tough competition from the mobile phone manufacturers soon, and knowing how much they could slash prices by to maintain market share is important. I myself use my phone rather than a dedicated mp3 player these days .... the iPod is probably a better music playing device but it's not that much better, and it's not worth it to me to carry about two devices when one + a pair of headphones is nearly as good. And the phones will only improve.
Dev++ (Score:1, Insightful)
When one factors into account the variety of hardware spanning the iPod lineage and the effort Apple must put forth to not only update existing firmware but create new versions with new features, it's no surprise the cost of an iPod is slightly higher than that of its fat cousin at Creative.
Re:Kinda Obvious. (Score:3, Insightful)
If people know how much money you're making on a sale, then they feel bad about paying for it. They see the value of the item as what it actually costs to produce, not what it is being sold for. .e.g If my friend gets a great deal on a bucket of apples (say 5$), and offers to sell them to me at 10$ a bucket.. I won't feel too happy about that, knowing full well he is taking advantage of and making profit off my skin. If I don't know how much he paid, then I assume he is keeping my best interest in mind, and don't feel harshly towards him for selling me the apples (which at 10$ a bucket is still a great deal.)
I don't think that this is "kinda obvious" at all. How much do Nike running shoes or Gap jeans cost to make? Do consumers care except when they are in an anti-sweatshop mood?
The reason that Apple hides this information has nothing to do with consumers. It is about giving them control over the information they provide to stock analysts so that they can have more control over stock price growth. For example, they could lose money on every new iPod a while without freaking out the investors (e.g. if they added phone capabilities to try and conquer a new market). On the other hand, Microsoft is pretty open about the fact that their XBox unit is losing money which probably has a negative impact on their stock price.
Hearsay and models (Score:4, Insightful)
Therefore it seems to me a major part of the analyst job is at least to smell check the numbers released a firm, and in reality to generate independent data on major products services. Instead of complaining that Apple is not releasing profit margins, any analyst should be celebrating that Apple is now using mostly off the shelf compenants with widely known acquisition and integration costs. Furthermore, manufacturing costs should not be impossible as these seem to be also widely known in the competative market.
As far as the markets, Apple has for a long time produced solutions. They produced a solution for graphic artists, a solution for home users, etc. This is why the fact that the mac was closed was not a big issue. When one bought a mac, it was a solution. Now apple has found some success with music and video solutions. It is not new becuae it is applying integrated technology, both hardware and software, to solve a problem. Some analyst get confused about solutions becuase they have been raised with MS philosophy of suppling components that others will turn into solutions. Compenents work for some people, but most of us buy a completed car, a completed refrigerator, a completed TV, and don't expect the manufacturer to deny responsibility because a component is made elsewhere.
The only thing that has changed is that computing technology has become consumer technology, not the Apple has all of the sudden become a consumer technology company.
Re:Pills that treat every major disease costs $0.2 (Score:2, Insightful)
Re:That was actually surprisingly good article (Score:5, Insightful)
But it is his place to have all the info possible at his disposal in order to advise his clients though, right?
At the end of the day, whether or not Apple is meeting the requirements for a publicly traded firm is not for Renck or his firm to determine. However, Renck can assert whatever he wants to his clients, as his revenue depends to some degree on the accuracy of his analysis. What it seems like he's saying his ability to assess is hampered by the admitted lack of disclosure, and this is enough to make him skittish about the stock.
His assertion does not seem unreasonable by any measure.
Comment removed (Score:3, Insightful)
Re:That was actually surprisingly good article (Score:4, Insightful)
It's not really Renck's place to make that conclusion on Apple's behalf.
The determination is between Apple's CFO, Apple's auditing firm, and the SEC.
You are incorrect on two counts. First, Renck has the right to try to influence the decision of those people by publishing his opinion. It makes no sense to say that the only people who should speak of a decision are those directly involved. According to that logic, online commentators should not discuss Hamden because it is essentially between the Bush administration, the Supreme Court and a bunch of foreigners.
Second, the aggrieved party here is the shareholders, not the SEC, the auditing firm or the CFO. Renck is telling shareholders that they are taking on extra risk investing in a company that does not use transparent accounting. Not only is that his right, it is his job. He never claimed that they were doing something illegal. You're conflating the argument of an analyst (that Apple is a risky investment) and that of a Slashdot poster (that Apple may be breaking the law). Someone on Slashdot postulated that PERHAPS it was illegal. He also has a right to express his opinion.
So do I: it is totally ridiculous to say that Apple's 5% marketshare in PCs, it's much larger market share in music playing devices and its still larger market share in online music have "essentially the same future prospects." For example, the online music business is very vulnerable to changes in copyright law. The handheld business is potentially vulnerable to growth in MP3-playing cell phones (as someone else noted). And the computer business is vulnerable primarily to marginalization or dropping profit margins due to competition from Dell and other commodity PC vendors. I don't know enough about disclosure law to claim that Apple is breaking it, but I do know enough about Apple's business to say that one can easily imagine one of Apple's businesses going kaput while another soars and vice versa.
Re:That was actually surprisingly good article (Score:2, Insightful)
Yes, he is welcome to try to get all the info, so that he can advise better. However it's nobody's responsibility to give him any information, except what SEC mandates. Apple does that, and it does not owe any analyst anything else.
Can't get the info to analyze? Tough. Nobody held a gun to his head to become an analyst. He is free to get another job if this particular kitchen is too hot for him. Maybe he even will be doing some useful work then.
Re:Pills that treat every major disease costs $0.2 (Score:2, Insightful)
Re:What secret? (Score:3, Insightful)
When you release too much information, everybody on the Street decides they can play Monday-morning quarterback, and tear you apart with second-guessing.
What Apple is basically saying, by only releasing the minimum amount of information is, "we're going to run this business as best we know how, and you can trust us or not, based on our past performance." Some people -- a lot of people, apparently -- are willing to trust them and buy the stock. Some people aren't; which is fine. This guy apparently falls into the second camp. (I don't think I have to point out though that if he says 'sell' when he should have said 'buy,' he's going to be out of a job.)
However I think Apple's recent past performance is enough to justify to a lot of people that they're a 'buy,' without trying to micromanage or out-guess the management team.
Plus, there is always the issue of competition. If I was a major Apple shareholder, I'm not sure I'd want them to disclose to me a lot of information just to satisfy my curiosity, if it would also mean disclosing that information to the competition, and affecting the long-term profitability of the company. Maybe if I was just in it for the short term, and didn't give a shit if the company went under in a year, I'd still want to know, but those aren't the sort of investors that Apple wants to attract anyway.
Market != Business Model (Score:3, Insightful)
Re:Apple shifting focus (Score:3, Insightful)
Every DVD player I've used to date still has a shitty interface. If Apple came up with a DVD player with an interface as good as the iPod's, I'd buy it in a heartbeat. Throw in some computer capabilities, like automatic detection and playback from streaming sources courtesty of Rendezvous, I'd even buy my friends some.
which I think has been their greatest failure to date.
If by failure, you mean something that has made them a buttload of money. So they can't be number one, so what? The mac market is growing in size every day, and is more vital today than it has been in a long time. It's made a lot of users happy, and supports a decent sized third party software industry. It's not a monopoly with 99% of the market, sure, but that doesn't make it a failure.
Now they gone and made a Macintel, a Mac that most people want desperately so they can run Windows on it.
That's true, but it doesn't mean what you think it means. Do people want Intel Macs because they prefer Windows? Of course not. If they did, they'd just by any of a number of machines that run Windows. The reason they want Intel Macs is because they prefer OS X. Now that Windows can be virtualized on Macs, people who want to use OS X as their primary platform can now do so without compromising their ability to use Windows-only applications. Many of these people would not be able to use a Mac otherwise, no matter how dissatisfied they were with Windows. And of course they were dissatisfied with Windows, because if they were happy with it, they wouldn't give Intel Macs a second thought!
The iPod is basically subsidizing their Mac line up.
Macs still make up 50% of Apple's revenues, and they still have very healthy profit-margins on those machines. The iPod doesn't subsidize Mac development any more than Mas subsidize iPod development. What it does do is insulate Apple's bottom line from the vagracies of the computer market, and allow them to persue a more aggressive strategy with the Mac. You're on to something about the Mac Mini, but you misinterpret what it represents. It doesn't represent a "don't care" attempt, but rather a high-risk attempt at expanding the Mac market in key areas. Before the iPod gave Apple a safety net, they couldn't have taken the risk of making a low margin machine. The Intel switch, too, represents Apple's continued focus on the Mac. Apple's doing it because it allows them to make more competitive Macs. The success of the iPod doesn't make the success of the Mac any less important, what it does is give Apple the flexibility to really push the Mac platform without worrying so much about the risk.
Re:Dev++ (Score:4, Insightful)
I know this is a slight oversimplification, and bound to get me modded down, but just how innovative are iPods, really?
BW screen? I know, we'll make the screen colour.
10GB hard drive? I know, we'll make the hard drive 20, 30, 40, 60GB.
The iPod is too big? We'll make a smaller one with a 1.8" HDD, not a 2.5".
The iPod mini is too big? We could use these CF card and flash memory chips that the digital camera industry have turned into commodities and make one based on that.
Music is boring! We'll add video support.
These aren't "innovations" in any sense of the word. It's systematic small tweaks and mods - don't read me as saying they've not been getting better, they have - but it's not the "OMG!!! APPLE HAVE REVOLUTIONISED THE INDUSTRY BY GOING FROM A 40 TO A 60 GIG DRIVE!" that some people like to believe.
Re:That was actually surprisingly good article (Score:2, Insightful)
By typing http://www.isuppli.com into his Web Browser, as many posters indicated already. Some say that iSuppli does not know about specific deals on specific parts, and that's true, but you can't expect Apple to open the kimono on such sensitive, private deals. In many cases parties are not even allowed to talk about specific prices that they agreed upon (typical for MS OEM deals, as an example.) Anyway, he would be within a few percent off at most, since even a most lucrative deal can't go that far below a volume price, and that is usually well known. It's very cold, hard data. For example, see here [ti.com].
He's simply saying that there isn't enough real data from apple to judge the prospects of the company.
I don't read it as "not enough data", I read it as "sell all you have, as fast as you can." How can anyone read it differently?
Furthermore, what is unwise about it? It may be conservative, but not investing in a company is not unwise.
It may be wise and conservative only if the investor does not know who and what Apple is, and considers it a shady, fly-by-night company. But a Wall St. analyst ought to know better, and he is specifically paid to know better. But in this case he behaved like a scared cat, as if Apple directors are about to grab the cash and run to Argentina. There is no reason for alarm, aside from being alarmed of the "conservatism" (if we call it this way) of certain analysts.
But Apple's secrecy about it's roadmap does give me pause. Nobody has a clue what it up Steve's black turtleneck sleeves.
Ok, imagine two armies about to meet in a decisive battle. One is led by a general who can't stop talking, and every grunt in his army knows all the general's plans a week in advance. Another army is led by a tight-lipped general, who keeps all the strategy in his head, and in heads of his closest assistants who aren't talking either. All other things being equal, who is more likely to have an advantage?
tripe! (Score:3, Insightful)
Analysts are there to guide investors on what is value, what is growth. Apple is clearly not "value". Analysts that said "sell" Apple stock in 2004 and kept saying it stubbornly in the face of such performance should be out of work.
Re:That was actually surprisingly good article (Score:3, Insightful)
Apple stock holders need to know the overall costs and profits of the Apple iPod business so that they can see how much its running. Why do they need to know the production cost of an individual iPod? So they can point out ways to reduce costs? Stockholders are NOT managers.
If you have doubts that a company the size of Apple is incapable of optimizing the production costs of its products and should be doing it as cheap as possible, sell the shares and invest in Wal*Mart.