Analyst: New products help Apple dodge effect of price hikes
Surges in the prices of displays and memory are expected to hurt Apple's profit margins in the current quarter, but a slew of new devices and well-timed product orders may help the company soften the blow, says a new note from PacificCrest Research.
Flash in particular was suffering the most from the spike, with the prices for 2GB, 4GB, and 8GB on-the-spot orders jumping by $2.92, $3.29, and $1.71 respectively in July alone. Though they initially appear small, the climbs will have been significant enough to cut Apple's margins on iPods by about 3 percent by the end of the quarter, according to the estimates. Prices are only likely to climb further through at least the current quarter, Hargreaves said, potentially compounding the situation for the Cupertino, Calif.-based electronics giant.
Computer display prices have also seen a hit of between $5 and $11 for every LCD due to a similar shortage, he added. The climb upwards was predicted to reduce the margins on iMacs and MacBooks by as much as 5 percent if display prices continued to rise at their existing rate, especially for the premium screens found in notebooks.
But Apple has likely taken much of this into account, the analyst noted in his report. The company had already factored higher prices for components into its guidance for the summer quarter, suggesting that it had already prepared for the added expense. Apple's 2006 deals with multiple suppliers such as Samsung and Toshiba may have given it a competitive advantage by allowing it to buy in advance or to secure discounts through the sheer volume of orders.
"Given the company's expectations, it is possible that Apple purchased components in bulk ahead of, or in the early stages of, the current price increases," Hargreaves said, "which would minimize the negative gross-margin impact."
The firm may also have hedged its bets with a string of new products that have shipped or will ship in the near future, including the iPhone and new iMacs, a possible new video iPod, and the already scheduled October launch of Mac OS X Leopard. The long-term success of possible subscription-based services and an increase in corporate Mac sales could also lessen short-term concerns, according to the report.
And despite the threat of reduced profits, Apple was described as having a unique amount of resistance to fluctuations in component costs that lets it set prices on its own terms.
"Apple is one of the premier brands in consumer electronics, which, along with its unified user experience, gives the company very strong retail pricing power," Hargreaves noted. "We believe that iPod's ability to maintain unit share of the MP3 [player] market despite premium pricing is evidence of this."
11 Comments
Surges in the prices of displays
Computer display prices have also seen a hit of between $5 and $11 for every LCD due to a similar shortage, he added. The climb upwards was predicted to reduce the margins on iMacs and MacBooks by as much as 5 percent if display prices continued to rise at their existing rate, especially for the premium screens found in notebooks.
Well, well, well, it seems that Apple do take a bit of a hit bundling displays. Now since new products seem to help the situation, some people may be led to believe an ideal solution would be a new product that just possibly doesn't bundle a display. Just when that idea hits home is the question.
There's no worry on the laptop side of course - Apple don't put premium quality displays in them.
And despite the threat of reduced profits, Apple was described as having a unique amount of resistance to fluctuations in component costs that lets it set prices on its own terms.
'unique resistance'. I think that's fancy talk for overpricing. They tie you to their hardware if you choose to use their software so they can charge what they like. That's pretty unique but not a commendable quality.
There's no worry on the laptop side of course - Apple don't put premium quality displays in them.
I'd argue that the notebook displays are of higher quality than the displays in the new iMac... if not backlighting. The high pixel density displays in the notebooks are probably more expensive than the low density ones in the iMac... otherwise both use TN, so that shouldn't be an issue.
/Adrian
'unique resistance'. I think that's fancy talk for overpricing. They tie you to their hardware if you choose to use their software so they can charge what they like.
It's called - "Premium"
I can buy cola at my grocery store and call it "Coke®", but we both no it's not. Does it fizz? Yes. Does it have that dark black, caramel look to it? Yes. Does it taste like "The Real Thing" - No, both in your mind and in reality.
As a Mac user, I'm not "tied" into anything and you hit the operative words in your post, and that is, ""if you choose". Sure, if I want the Mac OS, I have to buy Apple hardware. But that's like saying I want a Corvette but Chevrolet has me tied to a V8 motor when I prefer an envrionmentally better V-4 engine! There's no smoke and mirrors in either case about what you are getting into unless you are doing so with your eyes shut.
That's pretty unique but not a commendable quality.
I prefer the hand craftsmanship interior of a Rolls Royce, but I can't go to my local Dodge dealership and pick out a 'Charger' and expect to find the same thing. If I want my Rolls-Royce luxury interior, I'll have to buy a Rolls-Royce!
And it's not that unique... If I want wider seats and more space on an airline, I'll go first class, otherwise, I'm tied into traveling coach. If I want to be served by a waiter in a tuxedo, I'll dine at a five star restaraunt, otherwise, I'll be tied into seeing a name-tag on a sportshirt by a guy wearing a paper hat or ball cap when I dine fast food... I could go on. It's not about a commendable quality. It's what the customer desires and is willing to pay. I'm not rich, so forget box seats, I'm tied to sitting on the bleachers. But I'm not that poor that if I want a top of the line Power Mac or iMac so I can use the Mac OS, I can save and pay in full or put on credit card and make the monthly payments just like I do for other monthly expeditures like car payment, house payment, etc.
It's called - "Premium"
But that's like saying I want a Corvette but Chevrolet has me tied to a V8 motor when I prefer an envrionmentally better V-4 engine! There's no smoke and mirrors in either case about what you are getting into unless you are doing so with your eyes shut.
Vette's routinely get over 30 mpg, but for the rest of the lineup of GM cars, that is another story...
I thought Apple had secured a multi-year deal with a prominent flash memory supplier. These price increases and shortages should have no effect on Apple.