Apple (NASDAQ: AAPL) is making a big deal out of the fact that 60 million software applications have already been downloaded by iPhone customers. New numbers show how modest the return is on the new business.
According to The Wall Street Journal, "If sales stay at the current pace, Apple stands to reap at least $360 million a year in new revenue from the App Store." The data show the extent to which Apple is still a hardware company. Apple's revenue run rate is now about $30 billion a year.
The software figures point to a misconception about Apple. Its iTune and Mac OS products only drive very modest revenue for the firm. It could be argued that these services help sell computers, phones and iPods, but their small returns show that Apple is still saddled with a lower margin business -- building products with fairly high component costs.
Apple likes to perpetuate a fiction for its shareholders that it will move into the ultra-high margin business of software and will get great leverage for its earnings. Looking at the numbers, there is very little truth to that.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
8-11-2008 @ 10:47AM
alex said...
Silly.
Apple margins on hardware, are actually better than most of its competitors, if not all, in every single product of their line.
Douglas, you are the one who is perpetuating biased fiction.
8-11-2008 @ 11:05AM
Mitch said...
@Douglas A. McIntyre
Please provide some examples of "Apple likes to perpetuate a fiction for its shareholders that it will move into the ultra-high margin business of software and will get great leverage for its earnings"
I think you are making this up.
I have Apple say over and over that they don't make any money from the iTunes store but rather it helps sell Apple hardware.
8-11-2008 @ 11:48AM
FMarra7777 said...
Doug is another one that just doesn't get it! Ipods and iTunes is parts of a SYSTEM, not stand alone products. Just think how well iPods would have sold without iTunes... Not very well I'm sure. The reason that the iPhone is going to sell so great is because it is part of a SYSTEM!!!! if you are looking for stand alone systems, you should cover Rhapsody or Nokia. I'm sure that you would have an easier time understanding them.
8-11-2008 @ 12:34PM
Beltway Greg said...
Keep posting Doug. You're doing great.
Beltway Greg
8-11-2008 @ 1:33PM
Constable Odo said...
But who's to say it still isn't possible in the future. Apple may be designing some very critical apps for the iPhone right now. Navigation software for one and maybe speech input as another. Remember, the more iPhones that are sold, the more money it can make off one piece of software. If Apple creates a popular $15 app and 20 million users download it, that's some pretty decent revenue. I'm still waiting on the miracle that Apple will deliver an iPhone killer app that can't be duplicated on any other mobile platform.
I didn't realize that Apple was losing money from poor margins. I thought they were buying in such quantity that they were getting price breaks. If they can charge enough for their products and enough people are willing to buy them, they still come out ahead.
Well even if the big numbers don't materialize in the App Store, Apple still has the whole SYSTEM thing working for them.
8-11-2008 @ 1:40PM
injex said...
doug.. you're lost, pal.
8-11-2008 @ 2:30PM
Sheldon L said...
If Apple makes 20% margins on the $360m GROSS figure they make $72m or a very small amount of money amid it's billions. However, I would guess the venture would not be making any profit for a while so the ticker tape parades should not be scheduled yet.
8-13-2008 @ 3:34PM
realitybites said...
Doug,
I'm working backwards through your blogs...you are too funny.
Are you on drugs?
No really, are you on drugs?
Nice take on these things you don't quite understand.