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Regarding Apple’s Gross Margins

In the wake of yesterday’s terrible no good very bad earnings warning, a bunch of people have been arguing with me on Twitter that Tim Cook is at fault for greedily raising prices to increase profits. I’ve been arguing since last year with the iPhone X that Apple isn’t raising prices, per se, but rather is making more expensive products.

But as this thread on Twitter with “Cremnob” shows, there shouldn’t even be any argument. Apple’s company-wide gross margins have been 37-38 percent for the last five years. Going back 10 years, there’s a bit more fluctuation, but the fluctuations were higher, peaking at 44 percent in 2012.

And these are company-wide numbers. Apple’s Services revenue is growing quickly (as Apple is very happy to tell you — count how many times Tim Cook mentioned it in yesterday’s letter to shareholders), and it seems like their margins on services are higher than on hardware. So if high-margin services revenue is growing but overall company gross margins are stable at 38 percent, that means their margins on hardware products like iPhone are actually shrinking.

Thursday, 3 January 2019