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News
Increased iPod Sales Could Harm Apple’s Profit Margins
Thursday, October 20th, 2005 at 3:00 PM - by Brad Cook
Even though Apple is enjoying greatly increased revenue as a result of runaway iPod sales, the company's long-term profitability could be harmed because the MP3 players represent lower gross margins than those found in sales of Macintosh computers. American Technology Research analyst Shaw Wu pointed out to Reuters reporter Duncan Martell the fact that Apple's overall gross margin dropped sequentially during the previous quarter, from 29.7% to 28.1%.
"Gross margin is one common metric analysts and investors track to gauge the health of a business and how much to pay for a company's stock," Mr. Martell wrote.
Deutsche Bank analyst Chris Whitemore told the reporter: "As music and iPods continue to outpace computer hardware sales we expect that shift to drive lower profit margins. But that will continue to translate into pretty strong operating-income dollars and earnings per share."
Mr. Martell pointed out that Apple is spending less on R&D, sales and marketing and other costs as a percentage of revenue, which helps mitigate gross margin declines.
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