Apple’s 25% Solution

  • Posted: 08 November 2011 12:49 AM

    After reviewing results over the past 12 quarters, I’ve come up with Apple’s 25% solution.

    My premise is as follows:

    Make no mistake: Apple is primarily a hardware device maker. From beginning to end and at every spot in between, the company is focused on the sales of hardware devices and the development of high margins on products sold. The nearly 25% of recognized revenue that flowed to the net income line in FY 2011 is what I call “Apple’s 25% solution.” It’s Apple’s formula for consistent earnings growth and management’s solution to the complex questions that surround strategic product decisions.

         
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    Posted: 08 November 2011 01:24 AM #1

    Quality analysis, DT.

    Funny how so few companies master the art of increasing profitability with higher revs.  But that’s one of the benefits of intense product focus.

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  • Posted: 08 November 2011 02:30 PM #2

    Mav - 08 November 2011 05:24 AM

    Quality analysis, DT.

    Funny how so few companies master the art of increasing profitability with higher revs.  But that’s one of the benefits of intense product focus.

    There are three excuses salesmen (and many executives) cite for revenues coming in below expectations:

    Our price is too high;

    2.  Our completion has more/better features than we do;

    3 .  We don’t have all the variants (colors, sizes, shapes) that the market needs.

    All of these erode margin and don’t really address the question of whether the product itself is deficient.

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    Posted: 08 November 2011 04:02 PM #3

    DawnTreader - 08 November 2011 04:49 AM

    ]Make no mistake: Apple is primarily a hardware device maker. From beginning to end and at every spot in between, the company is focused on the sales of hardware devices and the development of high margins on products sold.

    I could not agree more.

         
  • Posted: 08 November 2011 04:28 PM #4

    In my view the software is a component of the product.  The hardware manufacturers can either buy (license) the OS or develop it themselves. The same is true of browsers, mail apps, iTunes, the App stores,etc.  This is no different than Samsung manufacturing their own screens.  It is part of the whole experience that goes with the product. 

    Apple provides many apps such as Pages and Numbers at affordable costs; most of the margin is generated by the hardware.

    I guess one could develop an accounting scheme in which some of the hardware profits are assigned to the software and services to show the ‘real’ value of these.  Perhaps Apple does this internally.

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  • Posted: 08 November 2011 07:53 PM #5

    westech - 08 November 2011 08:28 PM

    In my view the software is a component of the product.

    I like this. I’d go further and say the software is an integral component of the product and is not designed as a separate commercial product.

         
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    Posted: 08 November 2011 08:38 PM #6

    I’ll add:  Apple is proud as hell of its software and it doesn’t give a damn about selling it at any significant profit (or selling it separately at all, as the case may be).  Everyone at Apple knows hardware and software are completely interrelated.  They don’t have to be (see: most everyone else), but that’s why Apple is where it is.

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    Posted: 08 November 2011 08:41 PM #7

    I’d like to say that the software is integral to the product, but I won’t.  Some readers might believe this to be true for each and every piece of software and hardware.

    Safari, iTunes ?  Both on PC’s.

    The concept of “Data Independence” in functional code has been around for over 25 years.  http://en.wikipedia.org/wiki/Data_independence

    The goal is to separate the code for the hardware from the code for the user as much as possible.  So, the concept of “drivers” comes about.  A driver for a specific keyboard or mouse should exist in a separate chunk of code from another driver, preferably in a different file before compiling.

    OS X kernel and drivers are more an integral part of a Mac than iTunes.

    Degrees of integration vary a great deal.

    Hardware and software are both part of a Mac, but integral is too strong a word until people are proof positive that it is.

    [ Edited: 08 November 2011 08:47 PM by Tetrachloride ]      
  • Posted: 08 November 2011 10:33 PM #8

    The iTunes store is an integral part of the iPod. Hardware.  It doesn’t matter that it works on Windows hardware.  It sells products which run OS software,.

    I agree with you on Safari.  I have always believed that Apple felt that Safari was kind of like a necessary feature and didn’t have their hearts into making it an insanely great product.

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    Posted: 08 November 2011 11:21 PM #9

    Maybe.  But hey, look at QuickTime, right?  It’s the same way Apple is probably running OS X on ARM chips and other neat stuff.  Apple is incredibly cross-platform.  And split-process Safari will meaningfully improve Safari on the PC.

    Safari for Mac is awesome enough though.  Still the simplest out there, and very finely tuned for Mac hardware, as Firefox is for PCs (i.e. fastest, including running that god-awful Flash).

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    Posted: 09 November 2011 11:59 PM #10

    I agree with Westech and disagree with Mav in my measure of the overall quality of Safari.    The UI of Safari is good, but its so easy to make better.  Some of the underlying features are still not as good as Internet Explorer for Mac and I’m not talking about ActiveX and the like.

    I’m talking about “out of the box”.  No extensions.

    [ Edited: 10 November 2011 12:18 AM by Tetrachloride ]      
  • Posted: 10 November 2011 02:12 AM #11

    Tetrachloride - 10 November 2011 03:59 AM

    I agree with Westech and disagree with Mav in my measure of the overall quality of Safari.    The UI of Safari is good, but its so easy to make better.  Some of the underlying features are still not as good as Internet Explorer for Mac and I’m not talking about ActiveX and the like.

    I’m talking about “out of the box”.  No extensions.

    I use Safari exclusively (work and home, Windows and Mac). I prefer its simplicity and ease of use. Far fewer issues on Windows than with any other browser. Of course, I don’t often view entertainment content on the web and certainly not at work. But browsing between sites and with the amount of work I do on secure sites throughout the day, it’s my preferred browser.

         
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    Posted: 10 November 2011 03:27 AM #12

    Tetrachloride - 10 November 2011 03:59 AM

    I agree with Westech and disagree with Mav in my measure of the overall quality of Safari.    The UI of Safari is good, but its so easy to make better.  Some of the underlying features are still not as good as Internet Explorer for Mac and I’m not talking about ActiveX and the like.

    I’m talking about “out of the box”.  No extensions.

    “Quality” is subjective, Cl4.

    Safari was and never will be built for power users and feature hounds. 

    On the Mac side, I go for what’s fastest (Safari and it’s not all that close) and simplest.  I prefer Firefox on the PC and Safari on the Mac.

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    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
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