What is apple profit

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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Apple’s 5 Most Profitable Lines of Business

Apple Inc. (AAPL), founded in 1976, became the first U.S. corporation to surpass $1 trillion in market capitalization in 2018. Apple’s spectacular growth in sales, profits, and its share price have historically been driven by solid sales of its iPhone products. However, as sales of their iPhone and other technology hardware devices have slowed down, the company has made aggressive efforts to transform itself into one of the world’s leading providers of digital services. Apple’s fiscal year 2019 was characterized by a series of ups and downs, but overall, they were successful in boosting their revenue from services, while their earnings from their most popular products, such as iPhones and MacBook laptops, fell somewhat below 2018 levels.

Key Takeaways

• Apple’s spectacular growth in sales, profits, and its share price have historically been driven by solid sales of its iPhone products.
• As sales of their iPhone and other technology hardware devices have slowed down, the company has made aggressive efforts to transform itself into one of the world’s leading providers of digital services.
• For the fiscal year 2019, the company’s iPhone business accounted for approximately 54.7% of total sales; the company’s Services segment made up approximately 17.7% of revenue; Mac sales generated 9.8% of total revenue; Wearables, Home and Accessories segment comprised 9.4% of the company’s sales; the iPad accounted for 8.1% of the company’s sales.
• For the first fiscal quarter of 2020, Apple experienced an all-time company record for both net income and revenue, at $91.8 billion and $22.2 billion respectively.

For the first fiscal quarter of 2020, Apple had forecast revenue between $85.5 billion and $89.5 billion. The company announced revenue of $91.8 billion and profit of $22.2 billion, an all-time record for both net income and revenue.

Apple’s New Profile

Apple’s services business is led by the App Store and Apple Music. In May 2019, Piper Jaffray analyst Michael Olson claimed that Apple had evolved its service business so much that it was worth $502 billion, using an analysis that assesses the value of each business unit and then combines them together for an overall valuation estimate. At the same time, Olson estimated that Apple’s hardware business was only worth $398.8 billion. This would make Apple’s services business worth more than its hardware business.

In fiscal year 2019, Apple posted sales of $260.17 billion on a net income of $55.25 billion. In the first quarter of 2019, earnings came in at $4.18 on a per share basis; at that time, this was a record high for the company. But in the first fiscal quarter of 2020, earnings per share were up to $4.99.

For fiscal year 2019, the company’s iPhone business accounted for approximately 54.7% of total sales. Apple’s growing services segment made up approximately 17.7% of revenue, ahead of the Mac, which generated 9.8% of total revenue. The wearables, home and accessories segment comprised 9.4% of sales and the iPad accounted for 8.1%.

Here is a more detailed look at Apple’s five most profitable business lines.

iPhone

Apple’s core product, the iPhone, has ranked amongst the top five smartphone vendors in the world since 2009. For the first fiscal quarter of 2020 ending on December 28, 2019, iPhone sales were $55.96 billion. Overall, Apple’s reported profit and revenue for the quarter were significantly higher than Wall Street analysts had predicted; this was partially due to the popularity of the new iPhone models. The first quarter of the fiscal year is a very important period for Apple because it covers the holiday season and the three most lucrative months of the year–October, November, and December.

In previous quarters, any decline in iPhone sales have been attributed to a slowdown in China, a longer iPhone replacement cycle, and heightened competition in the global smartphone market. Apple’s ‌iPhone 11‌ has become Apple’s best-selling smartphone since it launched.

Regarding Apple’s Q1 2020 holiday performance, CEO Tim Cook said, «We are thrilled to report Apple’s highest quarterly revenue ever, fueled by strong demand for our iPhone 11 and iPhone 11 Pro models, and all-time records for Services and Wearables.»

Services

Apple’s Services segment posted revenue of $46.3 billion in the fiscal year 2019 and $12.72 billion for the first quarter of the fiscal year 2020. In the fiscal year 2019, Apple’s services business posted gross margins of 63.7%, approaching double the 32.2% gross margin of the company’s product sector. As a whole, Apple’s subscription business (including subscription apps) grew 40% year-over-year. This revenue comes from selling a range of services, such as iCloud storage services, Apple Music subscriptions, and AppleCare warranties. According to Apple, there are over 450 million paid subscriptions on Apple’s platform.

In 2010, Apple’s services business revenue generated only $5.2 billion in revenue. Over the next two years, it nearly doubled to $10.2 billion. Quarterly services revenue has skyrocketed since then, and Apple’s CEO Tim Cook has made it a goal to speed up that growth. Recently, there have been several additions to Apple’s services business, including a streaming movie and TV service, a new video game subscription, and the Apple Card, which will compete against other financial payment giants.

The performance of some of these new services, such as Apple Arcade and Apple TV+, are reflected for the first time in the financial results for Q1 2020.

Apple’s personal computer business, built around the Mac, generated sales of $25.7 billion in fiscal year 2019. Mac’s contribution to Apple’s growth has consistently fallen as the personal computer industry has experienced slowing demand worldwide. For the fourth quarter of the fiscal year 2019, Mac products only accounted for approximately 11% of the company’s revenue. However, from a strategic perspective, Apple’s personal computer business is very important for the company because it’s part of a broad, interlinked product family running on the iOS operating system.

When Apple launched its iPad in 2010, it quickly became the first commercially successful tablet computer to hit the market. In the first three months after it was released, the device sold more than three million units. As of the fourth quarter of 2019, the iPad held a 36.5 % share of the global tablet market. In the fiscal year 2019, iPad sales came in at $21.3 billion.

Wearables, Home, and Accessories

Apple’s Wearables, Home and Accessories segment is made up of devices such as AirPods, Apple Watch, and HomePods. The segment posted $24.5 billion in sales in the fiscal year 2019. Apple has been ramping up the release of products in this category. The second generation of AirPods, the company’s popular wireless headphones, launched in the first half of 2019 and the noise-canceling AirPod Pro wireless headphones launched in October 2019.

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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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