Monday, January 16, 2006

Forbes.com - This Apple Is Too Shiny

Forbes.com - This Apple Is Too Shiny: "But this sales bounty masks a worrisome downward trend in profitability. Apple's computer business, which contributes 45% of sales, has a gross margin of 30%, estimates Eugene Munster of Piper Jaffray; the iPod, with a 33% (and rising) share of sales, has a margin of only 20%. The other businesses linked to the iPod do little more than break even, analysts estimate: The iTunes Music Store earns at most 4 cents pretax on each 99-cent download for Apple, and iPod videos, which sell for $1.99, have a similar margin.
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Founder-evangelist Chairman Steve Jobs has a cult following among certain computer users and the mostly worshipful attention of the business press. But it is unlikely that even his magic touch can alter the grim economics of consumer electronics gadgets: After a while they become commodities subject to vicious price competition. It happened to Sony's color TV, to Motorola's cell phone and to IBM's PC. It takes a lot of guts to take on an icon like Steve Jobs, but Apple admirer Andrew Neff of Bear Stearns lowered his rating from a buy to a hold in mid-December. "

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