Profit made by apple

The Cost of Making an iPhone

Apple (AAPL) is one of the most popular companies in the world and produces one of the most ubiquitous smartphones. Despite the iPhone being one of the most sought after products in the world, as of 2019, Apple was third in market share for smartphones, behind Samsung and Huawei.

Apple controls 14.5% of the global smartphone market share, while Samsung controls 21.8% and Huawei controls 17.6%. That being said, in terms of profits from smartphones, Apple is the leader. The company took 66% of the industry’s profits and 32% of revenue in 2019.

It seems that the company must be making a sizable markup if it’s the leader in profits but third in sales. Let’s find out how much it costs to make this iconic product.

iPhone 11 Pro Max

The current and most expensive iPhone is the iPhone 11 pro max, released in late 2019. Depending on the storage size, the cost of the phone ranges from $1,099 to $1,449. It’s quite a hefty price tag, especially when it’s estimated that the actual cost of all the components to make the phone amounts to approximately $490.50.

Cost Breakdown

The breakdown of the cost of the components of the phone is as follows:

  • Screen: $66.50
  • Battery: $10.50
  • Triple Camera: $73.50
  • Processor, Modems, and Memory: $159
  • Sensors, Holding Material, Assembly, and Other: $181

It’s important to note that this cost does not include research and development (R&D) or marketing, which would increase the price of the phone.

Labor Costs

The iPhone is primarily assembled in China by Taiwanese companies, such as Foxconn. The starting wage for an iPhone worker in China is $3.15 per hour. Much lower than the minimum wage in the U.S., which is $7.25 per hour. In 2018, it was quoted that employees at Foxconn make around $300 a month.

According to Tim Cook, the CEO of Apple, the reason to build in China is not because of the lower labor costs. If this were the case, Apple could make its phones in even cheaper locations. The main reason, according to Cook, is the skill required in tooling engineering. He claims that the specific skill set is no longer available in the U.S., but in China the expertise is prevalent.

In addition, logistically, China makes the most sense to ship a product around the world as the country has seven of the world’s largest 10 ports. If Apple were to build the iPhone in the U.S., it would only be able to build a small amount a year at a significantly higher cost.

Labor Conditions

In the early days of iPhone production, there were reports that labor conditions for workers were awful, however, this seems to have improved over time. According to some employees at Foxconn, the conditions are no worse when compared to other factories in China, and sometimes better. Outside of the big cities in China, most of the country is still underdeveloped and the cost of living is low, resulting in wages that may appear low when compared to Western society. The issue, really then, is not the wages, but the conditions employees endure to earn those wages.

The Bottom Line

Apple is a very successful company, and as consumers, we pay a premium price for the products the company makes. Some people purchase Apple products to become part of the ‘trendy’ Apple brand. However, for Apple to maintain its high profits and low manufacturing costs, the company will continue to manufacture its phones in China, as it looks for other low-cost locations, such as India and Vietnam.

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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).

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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.

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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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How Apple Makes Money? Understanding Apple Business Strategy

This post is about how Apple makes money. Firstly, we explain the key elements of Apple business strategy. Then, we explain the key elements of Apple business model. Then, we share Apple product segment revenues and geographic segment revenues for the year FY 2015 (fiscal year ending September 2015). Then, we share the revenues, the profits, and the profit margins of Apple for FY 2015.

Key Elements Of Apple Business Model

Apple sells its products to consumers, small and mid-sized businesses, education, enterprise and government customers.

Apple products and services include iPhone, iPad, Mac, iPod, Apple Watch, Apple TV, a portfolio of consumer and professional software applications, iCloud, Apple Music, Apple Pay and a variety of accessory, service and support offerings. Apple generates revenues from product sales, subscription fees associated with iCloud and Apple Music, and extended warranty fees for its products.

source: 7-themes.com

  • iPhone is the company’s line of smartphones. iPad is the company’s line of tablet products. iPhone and iPad run Apple iOS operating system.
  • Mac is company’s line of personal and portable computers. Mac computers run on OS X operating system.
  • iPod is the Company’s line of portable digital music and media players, which includes iPod touch, iPod nano, and iPod shuffle.
  • Apple Watch is a personal electronic device that enables users to communicate in new ways from their wrist and track their health and fitness through activity and workout apps. Apple Watch runs on watchOS operating system.
  • Apple TV connects to consumers’ TVs and enables them to access digital content (photos, videos, music, games) directly on their TVs. Apple TV runs on tvOS operating system.
  • Apple application software includes iLife (iMovie, GarageBand), iWork (Numbers, Pages, Keynote), and various other software, including Final Cut Pro, Logic Pro X and FileMaker Pro.
  • iCloud is the Apple’s cloud service which stores music, photos, contacts, calendars, mail, documents and more, keeping them up-to-date and available across multiple iOS devices, Mac and Windows personal computers, and Apple TV.
  • AppleCare offers a range of support options for the company’s customers.
  • Apple Pay is the company’s mobile payment service. It allows users to pay for purchases in stores accepting contactless payments and to pay for purchases within participating apps on qualifying devices.
  • Apple Music is a subscription-based internet streaming service that also provides unlimited access to the Apple Music library.

Apple also generates revenues from the fees charged to content owners and developers for selling their digital content and applications through the iTunes Store, App Store, Mac App Store, iBooks Store, and Apple TV App Store.

  • The iTunes Store, available for iOS devices, Mac and Windows personal computers and Apple TV, allows customers to purchase and download music and TV shows, rent or purchase movies and download free podcasts.
  • The App Store, available for iOS devices, allows customers to discover and download apps and purchase in-app content.
  • The Mac App Store, available for Mac computers, allows customers to discover, download and install Mac applications.
  • The iBooks Store, available for iOS devices and Mac computers, features e-books from major and independent publishers.
  • The Apple TV App Store provides customers access to apps and games specifically for the Apple TV.

The Company sells its products in most of its major markets through its retail and online stores and its direct sales force. In addition, the company sells a variety of third-party Apple compatible products, including application software and various accessories through its online and retail stores. The Company also employs a variety of indirect distribution channels, such as third-party cellular network carriers, wholesalers, retailers and value-added resellers. During 2015, the Company’s net sales through its direct and indirect distribution channels accounted for 26% and 74%, respectively, of total net sales.

source: macworld.com

Key Elements Of Apple Business Strategy

  • FY 2001: $5 billion revenues. Net loss of $25 million.
  • FY 2007: $24 billion revenues. Net profit of $3.5 billion.
  • FY 2010: $65 billion revenues. Net profit of $14 billion.
  • FY 2015: $234 billion revenues. Net profit of $53 billion.

Very few companies in the world would have witnessed such a growth in their revenues and profits. These numbers prove a simple point that how focus on few world-class products can change the fortune of a company. Apple launched iPod in October 2001, iPhone in June 2007, iPad in April 2010, and improved versions of these products almost every year. These three products have contributed to majority of the Apple revenues over the past years. The competitors are not able to catch up. Why is it so? Why are Apple competitors not able to grow their revenues and profits at a similar pace to that of Apple?

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Apple has built a sustainable competitive advantage by focusing on three key business strategies: (1) Creating best user experience through vertically integrated model (2) Building platforms for content and apps distribution on Apple devices (3) Expanding the network of company-owned retail stores.

Apple Vertically Integrated Model

Apple focuses on providing the best user experience and owns it completely. Apple designs and develops own operating systems, hardware, application software, and services. Then, it integrates them seamlessly to build easy-to-use products. Apple is not dependent on its partners for any technical breakthroughs. Apple innovates at its own pace.

There are so many companies in the world that are good at building hardware or assembling components. But, building robust operating systems to run on that hardware is difficult. Even more difficult is creating developer communities that write applications for those operating systems. Other personal computer manufacturers or phone manufacturers find it hard to to beat Apple in that.

The product differentiation helps Apple maintain a premium pricing. When combined with a low cost sourcing and product assembly strategy, Apple is able to improve the business profit margins. The increased profits provide investments for research and development and marketing and advertising to develop and sell innovative products.

Apple Platforms For Content And Apps Distribution

Apple has created platforms for content owners and application developers to sell their content and apps respectively. Consumers access these platforms through Apple devices and pay to the content owners and application developers for the paid content and apps. Apple takes a fee from the content owners and developers because it owns and maintains the platforms that connect consumers with them.

These platforms are designed to induce cross-side network effects. As Apple customer base grows and more consumers access the platforms with their devices, the platform becomes more attractive to the application developers and the content owners. Similarly, a centralized access to the content and the certified apps attract more consumers towards the platform.

The devices and platforms help Apple lock-in the consumer into its ecosystem. First, Apple achieves hardware lock-in with the devices. Then, it achieves software lock-in with operating system software, application software, and third-party software and apps. Then, iCloud helps Apple achieve the data lock-in.

source: businessinsider.com.au

Apple Retail Store Strategy

To ensure a high-quality buying experience for its products, Apple continues to expand the number of its own retail stores worldwide. The stores are designed to simplify and enhance the presentation and marketing of the Apple products. The stores also offer a wide selection of third-party hardware, software, and other accessories that complement Apple products. The retail stores employ experienced and knowledgeable personnel who can provide advice, service, and training on Apple products. Apple retail stores are typically located at high-traffic locations in quality shopping malls and urban shopping districts. As of September 26, 2015, Apple had a total of 463 retail stores. 268 of those were in U.S. and 195 were in International locations.

Apple FY 2015 Products Revenues

Of the total revenues of $233.7 billion in FY’15, Apple generated

  • $155.0 billion revenues, 66.3% of the total, from iPhone.
  • $23.2 billion revenues, 9.9% of the total, from iPad.
  • $25.5 billion revenues, 10.9% of the total, from Mac.
  • $19.9 billion revenues, 8.5% of the total, from Services. Services includes revenue from the iTunes Store, App Store, Mac App Store, iBooks Store, Apple Music, AppleCare, Apple Pay, licensing and other services.
  • $10.1 billion revenues, 4.3% of the total, from Other Products. Other Products includes sales of Apple TV, Apple Watch, Beats products, iPod and Apple-branded and third-party accessories.

Apple FY 2015 Geographic Segments Revenues

Of the total revenues of $233.7 billion in FY’15, Apple generated

  • $93.9 billion revenues, 40.2% of the total, from the Americas segment. The Americas segment includes both North and South America.
  • $50.3 billion revenues, 21.5% of the total, from the Europe segment. The Europe segment includes European countries, as well as India, the Middle East and Africa.
  • $58.7 billion revenues, 25.1% of the total, from the Greater China segment. The Greater China segment includes China, Hong Kong and Taiwan.
  • $15.7 billion revenues, 6.7% of the total, from Japan.
  • $15.1 billion revenues, 6.5% of the total, from Rest of Asia Pacific segment. The Rest of Asia Pacific segment includes Australia and those Asian countries not included in the company’s other reportable operating segments.

source: dailypioneer.com

Apple FY 2015 Revenues, Profits, and Profit Margins

Of the $233.7 billion of Apple total net sales in FY’15, $140.1 billion were the cost of sales. This resulted in $93.6 billion of gross profit and a gross margin of 40.1%. Apple other operating expenses were $22.4 billion. These include research and development expenses, and selling, general, and administrative expenses. This resulted in $71.2 billion of operating income and an operating margin of 30.5%. After interest and other non-operating income and expenses and income taxes, Apple had a net income of $53.4 billion and a net margin of 22.8%.

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