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Economics & Research Blog

Apple's Horrible Financial Report: Profits Only 21.9% of Sales, iPads Disappoint at +65%

Stock analysts are a funny breed.

By Dr. Joe Webb
Published: April 25, 2013

Stock analysts are a funny breed. To listen to them, Apple had a terrible quarterly report. Profit as a percentage of sales was only 21.9%, iPhone sales increased a paltry +5.7% and iPad sales were up a disappointing +65%. At least, this is the way they look at it. In every aspect, Apple's continued march means that digital media becomes more ubiquitous and useful. Its competitors, like Samsung, ride the wave of consumer interest that Apple started. Apple skims the top of the market. There's room for many others that cater to the same consumer interests. Nowadays, it seems that there are no technology companies that do not build on or at least mimic the vision of computing that Apple unleashed. Remember, there are few new ideas at Apple, but an elegance in execution from design to delivery. Apple's iPhone became that standard for smartphones that others try to emulate or beat. This has resulted in significant smartphone adoption, and growing reliance on what people thought were phones but turned out to be palmheld computers. Ignore what the stock pundits say. That's not important to us. It's the effect of what Apple does that's important, and the competition it gets from others. The comfort and reliance with smartphones and tablets creates media habits and reliance that goes beyond Apple's supposed disappointing financial performance. The company could go out of business tomorrow, and the media habits and preferences of consumers would not return to prior patterns. They would continue to evolve as technologies that promote immediacy and convenience are embraced by the marketplace. Don't get caught up in the Wall Street stuff: keep looking at the end user. One of the end user issues is the relationship of content creator and content user. Business author Seth Godin made headlines with his decision to self publish. Now playwright and author David Mamet is doing the same. The idea is that readers are easier to reach because “everyone is connected” and the need for channel intermediaries is eliminated. Well... not so fast. Godin is back with his publisher. It goes to prove yet again that media and channels are increasingly hard to choose beforehand. You do have to be everywhere at once, it seems. What iPhones and iPads, and all of the products like them, actually do is cause a constant level of chaos, and make future business situations harder to predict, even though we have more information than ever about business history and current business transactions. It's wise to play into the chaos, and not shy away from it. Other Apple matters: The company is sending some of its load of cash back to stockholders, where it belongs.They will increase the quarterly dividend by 15% to $3.05 a share, and they will spend $60 billion on stock buybacks through 2015, an increase from the previously announced $10 billion. The company has almost $150 billion on its books. And Apple is borrowing money to pay for the dividends (good idea) and the buybacks (cowardly idea). The reason is that cash is cheap here and lots of the money is overseas. Bringing the money from its foreign subsidiaries would create a taxable event well beyond the costs of paying the interest. The money stays “overseas,” where two-thirds of the company's sales now are. I would have preferred a special dividend to relieve themselves of their cash rather than engaging in buybacks which have dubious value and only serve to increase earnings per share, which is often a criteria for executive bonuses. # # #

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink's Economics and Research Center.



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