Apple reports $9.5 billion second quarter profit

http://www.loopinsight.com/2013/04/23/apple-reports-9-5-billion-second-quarter-profit/

by shawndumas • 13 years ago

66 86 13 years ago

loopinsight.com

ttrreeww3• 13 years ago

Time to pay the employees more.

dmix2• 13 years ago

That's for Apple and the market to decide.

ttrreeww3• 13 years ago

The market would just pay the money to the shareholders and management in a stock buyback/cancel deal.

r00fus2• 13 years ago

Share buyback will do that for many Apple employees.

ttrreeww3• 13 years ago

If I have a penny every time I hear this...

Samuel_Michon8• 13 years ago

Every year for the last 4 years, Apple has spent 50% more on labor[1]. Mainly because it’s hiring so many new employees, but also because it’s raising salaries and benefits.

As of September 2012, Apple had 76,100 employees, including 42,400 Apple retail store employees. Operating expenses in FY2012 divided by the total number of employees were $176,360.

As for employees at Apple’s suppliers, Apple releases a Supplier Responsibility report every year[2], in which they detail exactly what they’ve done to ensure suppliers treat their workers well. Apple already made Foxconn pay their workers more in past years, but the pay increase alone is not a good solution. From Apple’s latest report:

“Third-party labor agencies help many suppliers recruit contract workers from other countries. [...] Workers are often required to pay fees to each of these agencies to gain employment. [...] They must hand over a high proportion of their wages to recruiters to pay this debt, and they have to remain at the job until the debt is paid. We consider this a form of bonded labor, and it is strictly prohibited by our Supplier Code of Conduct. When we find violations, suppliers must reimburse excessive recruitment fees—anything higher than the equivalent of one month’s net wages—for any eligible contract worker found working on Apple projects.”

[1] Apple annual report FY2012: http://files.shareholder.com/downloads/AAPL/2439775143x0xS11...

[2] Apple Supplier Responsibility report 2013: http://www.apple.com/supplierresponsibility/

mtgx• 13 years ago

It seems they sold more iPad Mini's and their profit dropped. I imagine it would be even worse for their profit if they ever released an "iPhone Mini" or whatever that cheap iPhone everyone talks about would be named.

itg• 13 years ago

It's a tough position. Do they also go after countries where subsidized plans aren't common by making a cheaper iPhone (Europe/India/etc)? The iPhone 4 which is 2 years old is still around $400 unsubsidized. Or do they try to keep high margins and let competition (which lets face it, is Samsung) dominate those markets.

dmix2• 13 years ago

Apple rarely competes on price. Their business model(s) for the last decade has shown that at least (Tim Cook may be different). But they tend not to be fans of low margin markets.

roc• 13 years ago

“The Mac user interface was a 10-year monopoly,” says Jobs. “Who ended up running the company? Sales guys. At the critical juncture in the late ’80s, when they should have gone for market share, they went for profits. They made obscene profits for several years. And their products became mediocre. And then their monopoly ended with Windows 95. They behaved like a monopoly, and it came back to bite them, which always happens.”

analog• 13 years ago

Subsidized plans are common enough in Europe as far as I'm aware. It's just that you've also generally had the option of buying the iPhone outright.

Fwiw I think the 'cheap iPhone' option has been the iPod touch.

Geee• 13 years ago

They sell a lot of older iPhone models which eats their profits, while they're still quite expensive to manufacture. Making a cheap model to replace those would increase their profits and increase total sales volume.

umsm2• 13 years ago

I wonder how true this is. The older a tech is, the cheaper it is to build and easier to refine.

w1ntermute• 13 years ago

iPhone growth has slowed: http://www.theverge.com/2013/4/23/4258068/apple-posts-9-5b-p...

thoughtsimple• 13 years ago

Which is going to lead to Apple having to make a tough choice. Reduce margins but increase growth in countries that sell mostly unsubsidized phones or maintain margins and live with slower growth. Should be interesting to watch.

iPad sales growth is still amazing though.

umsm2• 13 years ago

I think it's because their iphone 4S was so good that most people weren't willing to "upgrade". It's getting hard to justify buying a new phone every year considering the great advancements made to them in the past few years.

bane• 13 years ago

the 4s was so good, and the 5 has been very very "meh"

Samuel_Michon8• 13 years ago

Official Apple press release: http://www.apple.com/pr/library/2013/04/23Apple-Reports-Seco...

65% more iPads sold and 7% more iPhones sold than in last year’s FQ2. Mac sales remain stable, while the rest of the PC market continues to shrink.

Profit margin decreases as Apple offers cheaper tablets (iPad mini) and phones (iPhone 4 & 4S). Profit margin on Macs is also lower because of retina screens, but Mac sales represent only a small part of Apple's income, it’s not significant on the whole.

sinnerswing4• 13 years ago

China Mobile (703 million subscribers) doesn't carry the iPhone (yet), India, T-Mobile, etc. lots of room to grow.

guiomie• 13 years ago

One of my main reason I got long Apple 4 weeks ago.

sandipc• 13 years ago

Do iPhone 4/4S sales actually result in significantly lower profits for Apple? Those devices are sold at $200 off or $100 off the price of an iPhone 5, and I would imagine the cost of manufacturing the older devices must have dropped significantly by now. (the iPhone 4 is going on 3 years old at this point!)

Also, one would expect a drop in sales of the '4S' (or '3GS') model when the "completely redesigned" iPhone 5 (or iPhone 4) is announced, relative to sales of the iPhone 4 when the 4S was released, or sales of the iPhone 3G when the 3GS was released. The release of the iPhone 5 makes the 4S look especially old, while the release of the 4S didn't really do that for the 4.

MichaelApproved6• 13 years ago

"Do iPhone 4/4S sales actually result in significantly lower profits for Apple?"

Not lower profits, lower profit margins.

Edit: a really basic example that shows the difference in profit and profit margin is the calculation below.

(Profit Margins) X (Revenue) = Profits.

ajross3• 13 years ago

Notably: this is exactly what the investor set expected when the mini was announced. Remember all the hand-wringing about why Apple's stock price dropped? The investors were right -- the market wanted cheaper hardware that Apple couldn't make as much money on. And, of course, Apple was right to give it to them.

tnuc• 13 years ago

>And, of course, Apple was right to give it to them. How was Apple right? The market always wants cheaper hardware.

They devalued their products by competing on price. It will be a short term gain but a long term loss.

signalsignal2• 13 years ago

Mac sales are critical in that they are also development machines used internally as well as their "partners" who create and sell apps for the platform. Apple will never abandon the Mac platform even if it looses them money.

Samuel_Michon8• 13 years ago

I wrote that income from Mac sales is not significant, looking at the whole of Apple’s income. That’s not to say that Mac’s aren’t critical to Apple’s philosophy. It’s hard to see the ’Digital Hub’[1] without Mac computers.

[1] The Digital Hub (2001): http://www.youtube.com/watch?v=9046oXrm7f8

sinnerswing4• 13 years ago

it's actually impressive that they sold 37.4M iPhones this quarter considering they sold an amazing 47.8M iPhones last quarter. Compare that to last years numbers.

Q1 2012 = 37M iPhone, 15.4M iPads

Q2 2012 = 35.1M iPhones, 11.8M iPads

Q1 2013 = 47.8M iPhones, 22.9M iPads

Q2. 2013 = 37.4M iPhones, 19.5M iPads

loceng• 13 years ago

Really just mind-boggling numbers. Just the ability to ship that many. Mind you they are smaller-sized consumer products, still need a lot of factories making them though.

Samuel_Michon8• 13 years ago

Possible causes for the longer momentum: Apple added several carriers last Fall[1], added LTE service for more than 40 carriers[2], and more countries where iPhones can be bought unlocked[1].

The iPhone 5 was announced 3 weeks earlier in the season than the iPhone 4S was the year before, but Apple was better prepared to deal with the demand. That meant that during the holiday season, you could actually buy a new iPhone in stores.

[1] http://support.apple.com/kb/ht1937

[2] http://www.apple.com/iphone/LTE/

bitcartel• 13 years ago

Perhaps the most important thing to remember from today - the CFO said that Apple, for the first time, will take on debt.

In a nutshell, a company with around $100bn in cash (and equivalents) held offshore[1] would rather raise debt and pay interest on that debt, than repatriate funds to the US and pay corporate income tax.

[1] http://www.zerohedge.com/sites/default/files/images/user5/im...

sinnerswing4• 13 years ago

That's because the cost of borrowing money is a lot cheaper than the tax hit that the company will incur if they repatriated cash back to the US. In most cases the tax rate is as high as 35%[1]. Microsoft, for example, reported that it would owe $19.4 billion if it repatriated its $60.8 billion in offshore holdings[2]. using the same numbers, Apple will have to pay $35 billion in taxes if they repatriated $100 billion in offshore profits earned (and already taxed) in foreign countries.

[1]http://appleinsider.com/articles/11/02/16/apple_lobbies_for_...

[2]http://www.bloomberg.com/news/2013-03-08/offshore-cash-hoard...

Companies do this all the time.

"Google Borrowing $3 Billion In First Ever Bond Offer"

http://www.businessinsider.com/google-bond-offering-2011-5

xpose20003• 13 years ago

It feels like Apple is now on the defensive by announcing a buyback initiative and a higher dividend. They realized their growth peaked from insane highs and they have no new product to give it another boost in the short term. Very smart move.

However, I will say that they really need a killer new product by 2015, which is when their stock buyback initiative ends. Repurposing the iOS in various form factors such as the iPhone, iPod, and iPad has run its course.

r00k• 13 years ago

What do you mean by "they really need a killer new product"?

They're the most profitable company in the world. What pressure are they under?

dopamean• 13 years ago

> They're the most profitable company in the world. What pressure are they under?

The pressure is probably focused on remaining the most profitable company in the world.

yid• 13 years ago

I think he's predicting a Microsoft-like fate, where the indisputable de-facto of a market segment eventually stagnates and then is disrupted.

Androsynth• 13 years ago

their profit is irrelevant. public companies are always under pressure to increase growth.

xpose20003• 13 years ago

Immense pressure. I can think of no other company that has the amount of pressure of Apple to follow up their iPhone/iTouch/iPad cash cow.

MichaelApproved6• 13 years ago

Pressure 1) Their stock price has gone from a high of just over 700 to a recent low of just under 400. Stock is a form of compensation to employees. They don't need explosive growth but they must stop the bleeding to get their employees better compensation.

Pressure 2) They're seeing increased competition and they will not remain an dominant player if they don't continue to innovate.

recoiledsnake2• 13 years ago

The issue is that they don't have a big moat like Google, Facebook and Amazon do. Competitors are nipping at their heels(the big decline in margin from a year ago shows it) and one bad iteration of their products is enough to turn the tide against them.

guywithabike• 13 years ago

Dividends and share buybacks are not defensive moves.

xpose20003• 13 years ago

For Apple it is. “We acknowledge that our growth rate has slowed,” Tim Cook.

Osmium3• 13 years ago

I agree. Correct me if I'm wrong, but aren't share buybacks exactly what you'd do if you believed your stock was undervalued?

r00fus2• 13 years ago

Exactly. It's company-sponsored arbitrage.

If markets, according to company insiders, are not behaving rationally (AAPL P/E is amazingly 9.21, compared to ~15 for MSFT and ~24 for GOOG), then buying when you think it's cheap is a wise move.

recoiledsnake2• 13 years ago

The real news is that their margins seems to have shrunk dramatically from 48% to 38% and profit is down 18% from the year ago quarter.

Looks like they're facing pressure and are dropping prices to maintain sales.

Osmium3• 13 years ago

The iPad Mini didn't exist last year, and that's surely a lower margin product. I also have no doubt that margins are tighter than they used to be on their MacBook Pro line now they've switched to Retina screens and all-SSD. But both of these are likely to be less of an issue as the tech gets cheaper, so it might not be quite as dramatic as it seems at first glance. That said, they are surely facing tougher smartphone competition than ever now.

cooldeal3• 13 years ago

>The iPad Mini didn't exist last year, and that's surely a lower margin product

Why is it "surely" so? We're talking percentage margin here, not the margin in dollar terms. The iPad Mini can theoretically have a higher margin than the iPad.

ajross3• 13 years ago

To be clear: this is great news for anyone who isn't an Apple shareholder. If you're a fan of the hardware, it's getting cheaper! If you like the other brands, iOS's margins are shrinking and competition is working! It's a win-win all around. The kind of profit's Apple's been making over the last half decade really aren't a good thing, even for Apple. They can barely spend it, and that money could be driving growth elsewhere.

MichaelApproved6• 13 years ago

I was with you until you said that amazing profits aren't a good thing, even for Apple.

Yes, the amount of money is more than what Apple can realistically spend but they can give that money to shareholders who could invest that money in other ventures. That's an amazing result of great profits.

LekkoscPiwa2• 13 years ago

which is very stupid of them. It's akin to Porsche cutting prices on 911 because market (i.e. market analysts should be the term) demands it. I don't want cheap phone from Apple or a cheap car from Porsche. I want a smartphone from Apple that has the best design, the best build quality, the best user interface, the best customer service. Samsung and others are just assembly plants and they don't seem to "get" value added portion of the products. Switching from iPhone to S3 was for me what switching from Mac OS X to Win Vista/7/8 could have been. A disaster. I don't want cheap Mac OS X. I want one that doesn't suck like the competition does. And hell yeah, I'm going to spend more on it. The earnings are lower because Apple started to be more like everybody else - a commodities manufacturer where the cost is everything. Anybody resurrect Steve, please?

SupremumLimit• 13 years ago

And yet that's exactly what Porsche did with the Boxster. It's exactly what BMW did with expanding their product line with the 1 series. I guess if you want continued growth, eventually you might have to expand into lower margin products.

It's not so black and white between expensive products and commodities, by the way. Both Boxster and 1 Series are still relatively expensive.

pvdm• 13 years ago

White dwarf collapse down to a neutron star. Sad.

robocat• 13 years ago

What are they going to do with their massive bank account?

Maybe something in the services sector (not directly dependent on a piece of hardware)...

Do a GE? Become a bank? Buy Disney?

Samuel_Michon8• 13 years ago

A lot of Apple’s stash can’t be spent freely, with a lot of it in Braeburn Capital[1] and set aside in tax havens[2]. To use those funds would mean sacrificing a lot of it in taxes. They haven’t been willing to do so in the past, but today Apple announced it will return $100 billion to shareholders in the next few years[3]. Last year, Apple also launched a program in which it matches employee donations to charities, up to $25,000 a year per employee.

Of course, there will still be plenty left to build new offices, open new retail stores, and acquire companies[4] – as they have done in the past.

[1] http://en.wikipedia.org/wiki/Braeburn_Capital

[2] http://www.telegraph.co.uk/finance/newsbysector/mediatechnol...

[3] “Apple More than Doubles Capital Return Program – Total of $100 Billion to be Returned to Shareholders by End of 2015” http://www.apple.com/pr/library/2013/04/23Apple-More-than-Do...

[4] https://en.wikipedia.org/wiki/List_of_mergers_and_acquisitio...

Apple reports $9.5 billion second quarter profit

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