Mac Corner: Apple’s Amazing Profit Machine

By Larry Grinnell, Palm Beach Phoenix Apple Users Group

Pity poor Apple. They just can’t get any respect from the computer press. Now Wall Street, that’s another story. Wall Street LOVES Apple (at least today). Apple’s financial results came out a few weeks ago, and like most companies, they had a tough time making their numbers. In the end, they did make them with the best non-holiday quarter ever.

The new iPhone 3Gs made a major contribution to the quarterly results, and helped Apple beat the street by a fair amount. iPhone profits also masked slowing, but still strong computer sales.

What Apple’s report didn’t state, but what kept the computer pundits on the tech podcasts like MacBreak Weekly and Cranky Geeks all abuzz was a very interesting statistic. In the market category of computers retailing for over $1000, Apple has a market share of about 90 percent.

That’s right. For every ten dollars in sales in that segment, Apple got nine of them. What this means is that virtually every other personal computer maker out there is fighting it out in the sub-$1000 marketplace, where margins are razor-thin and profits are hard to find, while Apple is luxuriating in 35-plus percent profit margins.

iPhone margins are even better at nearly 60 percent according to a recent analysis piece in Fortune magazine. What an envious position to be in. Sure, overall market share is somewhere between 5 and 10 percent, but every computer rolling off the assembly line is returning immense profit.

The main thing Apple needs to do now is to not do anything stupid. iPod sales are shifting rapidly toward the iPod Touch, and away from the Nano, Shuffle, and Classic models, so if you are looking for an iPod that can hold your entire music collection, get a Classic now, or be prepared to wait for another year or more for iPod Touch-class products with 64 to 128 GB of flash memory storage. That’s going to require another major reduction in the cost of flash memory, but that’s not out of the question.

Laptops are the mainstay of Apple’s computer line, and as long as they continue to innovate, they will be able to continue to sustain their incredible profit margins. iMac sales are softening as more and more users are finding the portability of laptops more than satisfying for their computing needs.

The big Mac Pros continue to be steady, high-profit sellers for media professionals who need the horsepower for video and music production. The Xserve line of industrial-class servers remains a niche market, and will remain so until Apple decides to take the enterprise more seriously.

Another niche product is the Mac mini, which is one of the more misunderstood computers in Apple’s product line. Diminutive in size, but not in power, the mini offers more performance than entry-level MacBooks, but need the addition of a monitor, keyboard, and mouse (not included).

It’s also the ideal heart of a media center that can connect to your high-def TV, while pulling content off of local hard drives as well as the internet. I’ve actually got two minis: one is a media center, and the other is a very stable, very reliable web server.

The Apple Tablet rumors continue to fly around, the latest news being that Apple may have something as soon as this October, while others think Apple will wait for the Macworld conference in San Francisco next February.

Don’t expect them to be in the netbook category. No one is making any money in that arena. With prices rapidly dropping below $300, it’s not just the PC makers who are losing their shirts. Chipmakers like Intel who sell their Atom processor to makers in this segment, too, are losing big time, as the Atom processor is a low margin product line.

Yes, Apple’s suffering from a high-class problem, and an enviable one, too. They absolutely dominate the high-end market, but still don’t have enough overall market share to attract the unwanted attention of the SEC and other agencies — at least for computer sales.

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About Larry Grinnell: Larry has been working with Macintosh and Windows PCs for over 25 years and worked as a senior technical writer and IT support professional for a major midwest-based consumer electronics and telecommunications equipment manufacturer here in South Florida. His musings on a wide variety of topics from computers to jazz guitar to strange foreign cars from the 1950s can be viewed at the MyMac.com website. Got a question? Click here to reach him by email.

Writers of this column are members of the Palm Beach Phoenix Apple User Group, a nonprofit organization for Apple Computing Device Users, recognized by Apple Inc., with the purpose of providing educational training and coaching to its members (students, professionals and seniors alike) in a cordial social environment. The club meets the second Saturday of each month from 1 to 4 p.m. at the Fire Station #2, 4301 Dixie Highway in West Palm Beach (just two block south of Southern Boulevard). Click here to visit their website. Click here to reach them by email.