How much money apple has

The Economics of the iPhone

What Are the Economics of the iPhone?

It’s estimated that more than 900 million people in the world own an iPhone.   From our culture to the economy, the small, handheld device has made a splash, changing the way we live, and that influence is likely to continue.

Apple Inc. (AAPL) unveiled the XR and XS in 2018, which was the company’s cheapest phones in recent years.     Meanwhile, the iPhone X saw its international launch with a $999 price tag.   In 2019, Apple unveiled its latest iPhone with the iPhone 11, which has a dual-camera lens and the iPhone 11 Pro along with its three camera lenses. 

However, Apple’s greatest product has also been its greatest curse. The iPhone makes up approximately 50% of the company’s total revenue, meaning the company is at the whim of the mobile smartphone market. As a result, Apple has been busy creating ancillary services and products that complement the iPhone. 

With all of the products and services intertwined, it’s made it challenging for investors to determine, just how much money Apple earns from iPhone sales.

Key Takeaways

• Sales from the iPhone make up more than 50% of Apple’s total revenue. 
• Although it’s estimated that 900 million people own an iPhone worldwide,   sales were down in 2019 versus 2018. 
• Apple’s services and wearables businesses grew by 16% and 41% respectively, which indirectly adds new revenue streams for the iPhone. 

Understanding How the iPhone Makes Money

Investors and analysts can not easily calculate how much profit Apple earns on each product. Apple, in the past, had reported unit sales for each product. However, the company has stopped that practice and instead, reports revenue by product. The table below contains the products and services revenues for the past three years. The data was pulled from the company’s 10K report on September 28, 2019. 

• Apple reported $260 billion in revenue for the end of the company’s 2019 fiscal year–highlighted in green in the table below.
• The iPhone generated $142.3 billion in revenue in 2019, meaning the iPhone represented approximately 55% of the total revenue for the year.
• The iPhone revenue declined in 2019 by 14% versus 2018. However, revenue for 2017 was an 18% increase from the year prior. 

Apple is one of the most valuable companies to date, yet more than 50% of its revenue depends on one product line.

Services and Wearables

Apple has been actively expanding its services business in recent years, which includes iTunes and Apple T.V. The company has also grown its wearables business such as the AirPods.

It’s important to consider that the company’s services and wearables business is an extension of the iPhone and other hardware products. To conclude that Apple had a poor year by only looking at the 14% decline (-$22 billion) in iPhone revenue for 2019 versus 2018 would not be a fair analysis. 

The company also grew its services business by approximately $6.5 billion and wearables by $7.1 in the same period for a total of $13.6 billion. The $13.6 billion only partially offsets the $22 billion decline in iPhone revenue from 2018. However, the services and wearables businesses are growing at faster rates–16% and 41% respectively–versus the decline in iPhone sales of 14% from 2018. In other words, Apple is using the services and wearables business to fill the gap left from iPhone revenue declines. 

The ancillary businesses would not be possible without the hardware products such as the iPhone, which makes determining the overall profitability for the iPhone that much more complex.

What Does it Cost to Build an iPhone?

Apple’s sourcing model is one of the reasons it generates attractive profit margins. The company makes very little of its own products. Instead, components and materials are gathered from around the globe and sometimes even from direct competitors, such as Samsung. This process significantly lowers capital expenses for Apple, saves the consumer a bit of money, and lets shareholders benefit from the difference.

The iPhone 11 Pro Max has a retail price of $1,099 per unit.   It’s estimated that all of the components that make up the iPhone cost approximately $490.50 per phone, according to a report by NBC News. Some of the components include the Samsung battery unit, which costs $10.50, the triple camera costs $73.50, and while other equipment such as the processor, modem, and circuit boards cost approximately $159 per phone. 

A $490 cost and a retail price of $1,099, Apple appears to be earning a $609 profit per phone. However, it’s difficult to determine the actual profit per unit since there are other cost factors that go into making the iPhone. The manufacturing, assembly, software, research, and development costs all must be paid for with the $609 profit per unit. There are also marketing and advertising costs as well as the cost of sales, general, and administrative costs such as the corporate office.

How the iPhone Helps the Economy

Apple took it upon itself to illustrate its effect on the economy and the job market. Apple reports that the company has created a «job footprint» of nearly 2.4 million jobs across the U.S. 

According to Apple, most of the jobs created are in the app economy, which is:

«Currently responsible for 1.9 million American jobs—an increase of 325,000 in the last two and a half years.» 

Apple also employs 90,000 workers in all 50 states and is planning to add 20,000 more jobs by 2023. 

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How Apple Makes Money

Apple’s biggest revenue sources are the iPhone and the Americas

Apple Inc. (AAPL) is a global technology company that designs, manufactures, and sells smartphones, personal computers, tablets, wearables, and accessories. Some of its main products include the iPhone, the Mac line of personal computers and laptops, iPad, Apple Watch, and Apple TV. The company also has a fast-growing services business that includes its iCloud cloud service, and its digital content streaming services such as Apple Music and Apple TV+, the latter launched in November 2019.

Apple faces numerous competitors including smartphone manufacturers Samsung Electronics Co. Ltd. (005930) and LG Electronics Inc. (066570), computer manufacturers Lenovo Group Ltd. (0992) and Dell Technologies Inc. (DELL), streaming-content providers Spotify Technology S.A. (SPOT) and Netflix Inc. (NFLX), and other technology companies like Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), and Amazon.com Inc. (AMZN).

Key Takeaways

• Apple sells smartphones, personal computers, tablets, wearables and accessories, and services.
• iPhones are Apple’s biggest source of revenue by product, and the Americas is the largest revenue generator among its geographic regions.
• Apple’s services business generates the highest gross margins.
• Apple recently acquired classical music streaming service Primephonic.
• Apple announced changes to its ecosystem that will allow developers to offer payment options to users of their apps outside of the App Store.

Apple’s Financials

Apple posted net income of $21.7 billion on revenue of $81.4 billion in Q3 of its 2021 fiscal year (FY), the three-month period that ended June 26, 2021. Apple refers to revenue as net sales in its financial reports. Both net income and revenue rose compared to the year-ago quarter. Net income grew 93.2% as revenue climbed 36.4%.

Both Apple’s Products and Services businesses grew during the quarter. Revenue for the Products business rose 37.4% compared to the year-ago quarter, comprising about 79% of Apple’s total revenue. Among its products, iPhones comprised 49% of total revenue; Macs (10%); iPads (9%); and Wearables, Home and Accessories (11%). Services revenue grew 32.9% compared to the same quarter a year ago, comprising 21% of Apple’s total revenue.

Apple has mounted a major corporate strategy to reduce its dependence on lower-margin hardware products, which face slowing growth, while accelerating the growth of its Services business, which has higher margins and a more predictable, recurring revenue stream. Apple has introduced many new services in recent years, including Apple Arcade, Apple TV+, Apple News+, and Apple Card. The company now offers many of its services in one simple plan called Apple One.

The high margins in Apple’s Services business have continued to rise. Gross margin as a percentage of sales was 69.8% in Q3 FY 2021. Its annual gross margin in FY 2020 was 66.0% compared to 63.7% in FY 2019 and 60.8% in FY 2018. Gross margin as a percentage of sales for Products was 36.0% in Q3 FY 2021. It was 31.5% in FY 2020, down from 32.2% in FY 2019 and from 34.4% in FY 2018.

Apple’s Business Segments

Apple provides a breakdown of revenue and operating income for the following geographical segments: Americas; Europe; Greater China; Japan; and the Rest of Asia Pacific.

While the U.S. is still the dominant market, Asia is rapidly catching up. In Q3 FY 2021, markets in China, Japan, and Asia Pacific contributed 36% of operating income and 33% of revenue. That makes the Asia region dramatically more important than Europe to Apple for growth and profits.

Americas

The Americas segment includes both North and South America. Revenue grew 32.8% in Q3 FY 2021 to $35.9 billion, comprising about 44% of Apple’s total revenue. Operating income grew 62.0% to $12.9 billion, comprising about 41% of the operating income for all segments.

Europe

The Europe segment includes European countries, as well as India, the Middle East, and Africa. Revenue grew 33.7% in Q3 FY 2021 to $18.9 billion, comprising about 23% of Apple’s total revenue. Operating income grew 60% to $7.1 billion, comprising about 23% of combined operating income for all segments.

Greater China

The Greater China segment includes mainland China, Hong Kong, and Taiwan. Revenue rose 58.2% in Q3 FY 2021 to $14.8 billion, comprising about 18% of Apple’s total revenue. Operating income rose 84.6% to $6.3 billion, comprising about 20% of the combined operating income for all segments.

Japan

Revenue for the segment rose 30.2% in Q3 FY 2021 to $6.5 billion, comprising about 8% of Apple’s total revenue. Operating income rose 43.4% to $3.0 billion, comprising about 10% of the combined operating income for all segments.

Rest of Asia Pacific

The Rest of the Asia Pacific segment includes Australia and those Asian countries not included in the company’s other reportable geographic segments. Revenue for the segment grew 28.5% in Q3 FY 2021 to $5.4 billion, comprising about 7% of Apple’s total revenue. Operating income grew 54.0% to $2.1 billion, comprising about 7% of the combined operating income for all segments.

A note to readers that the combined operating income used in the segment breakdowns above and in the pie charts was $31.5 billion in Q3 FY 2021. To arrive at Apple’s lower, reported consolidated operating income of $24.1 billion for the quarter, Apple makes deductions for research and development expenses and other corporate expenses.

Apple’s Recent Developments

On Aug. 30, 2021, Apple announced that it has acquired Primephonic, a classical music streaming service. Financial terms of the transaction were not disclosed.

On Aug. 26, 2021, Apple announced that developers will be able to share purchase options with users of their apps outside of Apple’s ecosystem. The change, which comes as part of a proposed settlement of a class-action lawsuit, will make it easier for Apple’s customers to use forms of payment other than the App Store.

How Apple Reports Diversity and Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Apple and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Apple releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether Apple discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Apple breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and membership in the LGBTQ+ community.

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If You Invested $100 in Apple’s IPO, This Is How Much Money You’d Have Now

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NASDAQ: AAPL

Apple Inc.

Extreme patience would have been required to stick with Apple through the 1990s, but it would have been worth it.

Apple ( AAPL -0.30% ) is one of the most fascinating business success stories of all time. It would have been impossible to imagine in the late 1970s how two guys (Steve Jobs and Steve Wozniak), making circuit boards in a garage, were starting down a path that would create one of the most iconic consumer brands in the world.

Today, Apple has 1.4 billion active users around the world, 137,000 employees, and $260 billion in annual revenue. But how much money would you have in the stock if you bought at the IPO?

Image source: Getty Images.

The results of patient investing

Apple first sold shares to the public on Dec. 12, 1980, at $22 per share. The stock has split four times — three times at 2-for-1, and one split at 7-for-1. This means you would have received two shares for every one share, or seven shares in that one case. The way stock splits work is that you receive more shares but the stock price is cut proportionally, so the value of your investment stays the same.

If you had bought just one share of Apple, you would own 56 shares today after the stock splits. Those shares would be worth $14,896 at the current price of $266 per share.

A $100 investment would have purchased 4.54 shares at the IPO price. After the stock splits, you would now be the lucky owner of 254 shares of Apple, which would currently have a value of $67,564.

By comparison, one of the first Apple computers ever made was recently auctioned off by Christie’s for $477,000. The Apple 1 originally retailed for $666.66 in 1976 and only 200 were made.

The return in Apple stock doesn’t sound like a lot since we’re talking about one of the greatest tech companies ever. However, that’s only for a relatively small investment of $100. In percentage terms, Apple stock has compounded at 18% per year since its IPO price. That means that if you had invested $10,000 in Apple in 1980, you would have about $6.7 million.

Dividends would have padded your investment return somewhat. Apple first paid a dividend in 1987, but financial trouble caused the company to suspend dividend payouts in 1995. After selling millions of iPods, iPhones, and iPads, and raking in billions in profits, Apple reinstated the dividend in 2012. The company currently distributes a quarterly payout of $0.77 per share. With 254 shares, you would be earning $782 every year in dividend income — a nice return on an original investment of just $100.

Deep faith in the Apple brand would have been required

It wouldn’t have been easy to hold Apple all those years. In fact, it would have been a smart move to sell Apple and buy shares of Microsoft in the early 1990s. After Steve Jobs resigned from Apple in 1985, the company entered a dark period. Management during those years focused more on profits instead of making great products, as Jobs explained in the biography Steve Jobs by Walter Isaacson. Apple lost a significant amount of market share to Microsoft during that time.

But most of us know how the story ends. Jobs officially returned to the company in 1997. He discovered the brilliant design work of Jony Ive, who had been working for Apple since 1992. Following the philosophy that less is more, the duo went on to design incredibly successful products and fulfilled Jobs’ vision to change the world.

At the heart of Jobs’ design approach was to make technology accessible for everyone. Some thought it was a crazy idea that people would find any use for a computer in the early 1980s, but the Mac changed the idea of what a computer could be. Jobs’ thinking influenced the design of the iPod, which was first introduced in 2001. It was the first user-friendly MP3 player that features a simple interface, a scroll wheel to navigate, and the built-in support of iTunes to legally buy all your songs. The built-in user base of the iPod laid the foundation for Apple to sell tens of millions of iPhones and iPads later on.

Jobs’ ideas have filtered through the company so completely that it has even influenced the design of Apple’s new campus, Apple Park, in Cupertino, California.

Apple is not floundering in the second post-Jobs era the way it did between 1985 and 1995. Apple stock is currently hitting new all-time highs, as the company sees strong growth from its wearables and services segments. Its user base also continues to gradually expand around the world each year.

Apple’s ongoing success after Jobs’ death in 2011 is a testament to his leadership skills. Despite the fact that Jobs was famously difficult to work for, it’s obvious that he established a culture for excellence that should carry Apple forward for many years.

Most of us were not fortunate enough to buy Apple at the IPO, or even when Jobs returned in the 1990s. But that’s OK, because Apple still has plenty of growth potential, especially in new services like Apple TV+ and advertising. A small investment could still be very rewarding over the long haul.

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