Apple’s been having an odd year with lots of ups and downs. And then there was yesterday’s earnings call. Apple—once again—fell short of analysts’ expectations. This would make the third quarter since Tim Cook became CEO that Apple failed to wow with larger-than-life sales and profits. Worse—the company is offering very conservative guidance for next quarter—the holiday quarter—which is typically the quarter in which Apple shareholders do the money dance.
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Tim Cook’s ascension to the role of CEO happened to coincide with Amazon’s release of its own super-low-cost tablet, the Kindle Fire.
Apple’s been stalwart in insisting that low-priced Android tablets have not been eating into iPad sales, and for the most part, this actually seems to be true.
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So, yes, Apple is still the biggest kid on the playground. But Tim Cook made an interesting comment in yesterday’s call that’s worth noting.
When the company delivered its low guidance for next quarter—diluted EPS of $11.75 on revenue of $52 billion, even though it made $13.87 on revenue of $46.33 billion in the last holiday quarter—one analyst pointed out that if Apple only makes $11.75, it will be the first time in years that the company has had a year-over-year decline in the holiday quarter. Apple is counting on high iPad Mini sales, but CFO Peter Oppenheimer explained that at the low(ish) price point of $329, the margins are a lot lower than usual for Apple.
Tim Cook chimed in that the team is “managing the company for the long haul.”
In other words, Apple is having to sacrifice its high margins to keep pace with low-priced tablets from Amazon and Google—who are producing their tablets at breakeven costs, because they’re not hardware companies. Their tablets are designed to further their real bottom line: content, in Amazon’s case, and ad sales, in Google’s case.
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Have Apple’s soaring stock prices been a direct result of the company’s ownership—more or less—of the tablet market and its high margins?
Since the Kindle Fire hit the scene, Apple’s sales and profits haven’t been doing as well as expected.
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But the fact remains that tablets aren’t necessary the way phones are. The iPhone 5 saw high sales this quarter because people need phones. Tablets are uber convenient if you need to fire off a quick email or read the paper, but they’re not really necessary to have if your car breaks down.
So consumers aren’t going to buy tablets the same way that they buy smartphones—and $500 is a lot to spend on a luxury item. The iPad mini is cheaper, but still—why spend $329 when you can spend $199 on something that functions pretty well and you plan to use recreationally?
Link to the rest at VatorNews