Apple "Premium" on laptops

I met Philip Schiller (senior VP of Apple) today and he was saying how Apple makes about a 30% margin on their laptops which he claims are about average compared to other notebook manufactures. He emphasized that software is the key to success and Apple invests significantly on software development which (I assume) is the driving factor for the high production cost of Apple laptops.

That said, does anyone here know what the typical/average profit margin is for a PC laptop?

 

I think probably less than that - my understanding is most companies make the money on warranty and support.
Though I have no facts.

 

My guess for PC manufacturers would be 5-10% when sold through a retailer. Manufacturers typically don't have as much power to dictate retailer margins for their products, but I think Apple atypically does. I often hear that Apple products have razor thin margins, but purchases are almost always accompanied by accessories and warranties. Since retailers are almost assured these accessory purchases, I think they're more forgiving with the low margins on the core products (since these high margin accessories are usually 50-80% profit - $30 case with $2 cost?). In addition, the proprietary and popular nature of their products gives Apple monopoly powers in again dictating slim margins for retailers. Combine this with the massive economies of scale that Apple usually obtains per sku, and the 150% hardware premium they generally seem to charge, and I can easily see a 20-30% margin. Yes apple makes money on software, but the bulk of their income is still hardware.

 

Wow, Phil Schiller! I'd love to meet him.

Apple doesn't make a ton on the Macs...the profits are more in iPod and iPhone. The components are the same cost as the other manufacturers, and the average Mac is more expensive than the equivalent PC by hardware spec only, but the hardware is also used to cover the development cost of Mac OS X which Microsoft normally gets through sales of Windows at a higher cost than OS X is sold for.

 

...and it's been a while since I've been to business school, but if I remember correctly (and there is certainly no guarantee), 28% used to be the standard mark up for business...so 30% seems reasonable based on advanced technology...

 

So this is another way of saying that we pay for Apple's high software development costs, and not hardware quality?

 

Phil mentioned that Compaq's margin was about 5% and they've focused more on quantity over quality (which I 100% agree), but if TheShirt is right, then 30% is believable.

As for hardware quality, Apple does make their laptops better than the regular "cheap plastic" (exact words Phil said) consumer laptops, but everything still revolves around good software that just works. For example, the development of itunes is really quite revolutionary, although I know there are people that are strongly against DRM and would do everything to avoid itunes. You rarely hear people say "itunes made my computer crash" or "itunes wouldn't let me download a movie I just bought"..... this actually happened to me a few times while I was using Amazon's Unbox software (now replaced by Video On Demand) a while back. Phil also added that due to such success of itunes, it was able to sell over 5.5 BILLION songs since the launch of itunes. I'm sure that's a substantial portion of Apple's profit.

 

Only 30%!?

Well, I expect the aluminium unibody costs a lot. Dunno how much developing OSX costs keeping in mind that PC laptops have to pay Microsoft an undisclosed amount of money to install Windows.

The Apple "premium" is not the sheer profit Apple makes. It's the hardware you get for the money. You will almost always be able to find a PC laptop for cheaper at a given spec or better. You sacrifice the specifications for the OS and the quality which IMO is not worth it. You probably think differently.

 

Well here is some of Apple's financial data broken down in nice charts.

http://blogs.eweek.com/applewatch/content/corporate/apple_fiscal_2008_by_the_numbers.html

It doesn't show profits, but it does show that the combined revenue stream from desktop, notebooks, and peripherals still exceeds that of iPods, Music, and iPhones combined so Apple is still very much a computer hardware company selling Macs and monitors.

Personally, I find it fairly impressive that they are able to afford all the development that they do. Like the iPhone may be a big hit now, but it's been in development for years, and during all that time it must have been a huge money sink with no end in site. OS and iTunes development could be justified because they do have their own direct revenue streams, but Apple develops plenty of things that don't have a direct revenue stream. Like the development tools for OS X, which admittedly ensures app development for Mac, yet is constantly updated and given out for free. And similarly Safari and WebKit, the latter of which is being freely used by Nokia to compete against the iPhone and Google's using WebKit in Android and in Chrome against Safari. I doubt other PC makers do all this development in house and often with no direct profit, so it sense that their margins are lower.

 

My belief is that the profit margin for PC-laptops are also probably the same as Apple as they do not develop their own OS or software...a good example is Sony that also charges a premium on their laptop even though they did not develop the Vista or XP.

 

Switching to Intel was huge for Apple because it allows them to use more standardized parts, yet still charge a premium price. For those who've been around Apple long enough, you know that in the PPC days those machines were bulletproof and could last years without any major issues.

People still (wrongly) attribute that quality to Apple, but the reality is that todays Macs aren't much better than todays mid-range PC's in terms of hardware quality and logevity. Since the Intel switch I've had more hardware problems in 2yrs than I did in 10 with PPC macs so we definitely should be buying based on the idea that it's very likely we'll be replacing it in 2 1/2 years.

 

Going to quote this for truth.

And again, this time bolded.

 

Not to mention that very obvious fact that we can only get OSX hardware from Apple's. (Yes you can hackintosh but...) If I'm not satisfied by Apple's OSX notebook - well tough luck for me. In the Windows side, If I'm not satisfied with my Toshiba Vista laptop, I can always find tons of other Vista laptops on the market from other competing companies easily.

 

Yes, I agree with others switching to Intel has given Apple a boost on profit margins.

Apple does make bigger margins on their Macs than most PC makers and over time their profit goes up higher.

While most notebook makers are forced to cut prices to compete while offering newer features and higher clock CPUs, Apple is using the same CPUs they chose last year in the newest Macbooks.

The cost of those CPUs have gone down while the price of new Macbooks are higher.

The new Macbooks uses a newer unibody process will help further reduce cost for Apple.

 

I'd think it's more expensive.

 

Yeah but is longevity less because of the switch to intel or is it just they way technology is now? Think about it. There are 20 year old computers that still work, but if you build a computer now if you get 5 years with out a problem you'd be lucky. But even since 2000 it's changed a lot.

 

At this rate of new hardware and software coming out, you should only be expecting to get 2-4 years out of your laptop

 

I don't think they mean useful life, they mean life period. As in I've still got 15 year old laptops that are still kicking (but useless) whereas I've had much newer laptops that could still be considered decent die entirely.

 

This isn't always the case. The air was the first laptop to get the special intel shrunk c2d.
The new mb/mbp's were the first to get the new Nvidia chipset... the same day it was announced no less. While apple might not upgrade the cpu's as fast in already established products, they still get a speed bump every 4-5 months. To suggest that they always use +1 year old stuff and charge more is just plain false. The truth is that at launch most have the latest gear and you always have to pay a premium for that, no matter if its pc or mac.
How many laptops are running DDR3, LED screens, slot loading dvd drives, unibody construction, and 9400/9600 gpu's ???? Not many, and certainly not your average $500 walmart job.
But yes you do have to pay extra for apple... and people don't seem to care.

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Yea, I was talking about the useful life, laptops are usually useless for me after three years