Apple’s gross profit margin in Q1 2022 was 43.7% From FactSe

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In May this year, the inflation rate in the United States reached 8.6%, the highest level since 1981. For apple, the last time it faced such an inflationary environment, it had been on the market less than a year, and the best-selling product was Apple II home computer. In addition to the United States, other major markets of apple are also facing similar or even higher inflation levels.

At present, apple is facing the possibility of rising global logistics costs, rising employee wages, and consumers delaying the upgrade of iPhone due to declining purchasing power. At the same time, apple is also facing supply restrictions related to epidemic prevention and control this year, which may cause the company to lose $8billion in revenue.

Many companies, especially those with pricing power, can pass on the increased costs to consumers through price increases, especially in the case of strong demand. Apple has not raised the price of iPhone in the United States, but will regularly adjust the global price according to exchange rate fluctuations. However, in recent years, apple changed its pricing structure when it released a series of new devices in the autumn.

Apple may also bear some of its own costs, which will have an impact on its profit margin, but it can maintain price stability to avoid falling demand. “From the perspective of inflation, we see inflation,” apple ceotim cook (Tim Cook) told investors at the earnings conference call in April. “Our gross profit margin and operating costs in last quarter clearly reflect this. CFO mestry also included its impact in this quarter’s performance index. So we will certainly see some degree of inflation, and I think everyone has seen it.”

Rising costs have dragged down gross profit margin

Cook pointed out that at least two indicators on Apple’s balance sheet reflect inflation: gross profit margin and operating expenses.

Data from FactSet, a financial information provider, showed that Apple’s gross profit margin in the first quarter was 43.7%, higher than analysts’ expectations, but slightly lower than that in the fourth quarter of last year. In the last quarter of last year, Apple’s gross profit margin hit its highest level since 2012.

US inflation rate reached 8.6%

Mesteri said that Apple’s gross profit margin in the second quarter would fall to between 42% and 43%. However, Apple’s gross profit margin has risen during the epidemic, so historically, it is still at a high level.

Apple’s operating expenses in the first quarter were $12.58 billion, an increase of nearly 19% year-on-year. In the second quarter, apple expects operating expenses to grow to about $12.8 billion month on month. Freight is a reason for rising costs. “Freight is a huge challenge.” Cook said in April this year.

Apple may also face rising labor costs. Earlier this year, some competitors, including Google, Amazon and Microsoft, adjusted employee compensation to attract and retain top scientific and technological talents. In order to cope with the competition, Apple has also increased the salary of enterprise and retail employees according to the market conditions.

Katy Huberty, an analyst at Morgan Stanley, said in a report: “other companies we are concerned about have seen profit margins decline due to cost inflation, but Apple believes that its basket of costs is relatively stable, and the decline in commodity costs offsets the rise in labor and freight costs.”

Demand is the greater risk

However, rising costs are not the worst case for apple. The greater risk is that inflation and other macroeconomic conditions will eventually damage the demand for Apple products.

Economists said that traditionally, consumers would postpone purchasing durable goods, including electronic products, during the economic recession or in the face of declining purchasing power. Taking apple as an example, this may mean that consumers who bought mobile phones two to three years ago may decide not to upgrade to the latest model this year and postpone this expenditure until the economic situation improves.

“Sometimes you just have to be cautious and postpone buying,” said Jim Wilcox, an economist at the University of California, Berkeley. “It’s a very wise financial strategy to wait and see.”

Investors are gratified that Apple users are loyal, so it is likely to continue to update devices regularly, but the inflation related recession may call this belief into question and damage Apple’s P / E ratio.

Toni sacconaghi, an analyst at investment bank Bernstein, said this week: “As far as apple is concerned, they have a very strong ecosystem, and their users are very loyal. However, most of their income comes from product sales, which is largely driven by loyal users. If the economy is in recession, users may delay buying or upgrading. Therefore, this source of income is not recurrent, but mainly transactional.”

So far, Apple has shown no signs of weakness. Apple said in April this year that demand was still high and hinted that it did not see any signs of deterioration in consumer confidence. At that time, the bigger problem was that Apple needed to produce enough products to meet the demand for its products.

However, the smartphone and laptop markets are showing some signs of slowing down. Although the overall mobile phone sales have begun to decline, Apple’s high-end smartphone market is performing better than the low-cost mobile phone market. Micron, which provides memory for Apple devices, warned on Thursday that sales of smartphones and PCs are expected to be significantly lower than previously expected, due to weak consumer demand, in part due to rising global inflation.

Counterpoint research, a market research company, recently estimated that in the first quarter of this year, shipments of so-called high-end smartphones priced at $400 and above fell by 8%, while shipments of the entire market fell by 10%.

Fruit powder is richer

Apple can bear some extra costs. In the past two years, its sales have been growing, and it has maintained a healthy profit margin envied by hardware competitors.

However, Apple may not have to bear these higher costs on its own. Compared with Android device buyers who tend to choose based on price, Apple users tend to have considerable disposable income.

According to counter point, apple accounted for 66% of the first quarter shipments in the “ultra high end mobile phone market” with a price of more than $1000. “With the rise of global inflation, entry-level and lower price mobile phones may be more impacted.” Counterpoint researchers said.

A survey conducted by Morgan Stanley in June showed that 70% of American consumers plan to cut spending in the next six months due to inflation. However, wealthy families, that is, Apple’s target users, are more optimistic about their financial situation and economic development trajectory.

“Families with incomes above $150000 are more flexible. The increase in spending cuts is the largest among middle-income groups.” Morgan Stanley analysts said.

Will the price rise?

Apple has raised the price of iPhone several times in the past five years.

In 2017, Apple launched the iPhone x with a price of up to $1000, attracting a considerable number of users who are willing to spend more money on more powerful devices. Then, apple quietly raised the price in 2020, raising the starting price of the then best-selling mainstream iPhone 12 from $699 to $799.

This fall, Apple will release a new generation of flagship iPhone 14, which is said to adopt the design of “pill hole digging screen”. According to the supply chain news, apple is expected to start the final trial production of the iPhone 14 series in mid July. Affected by global inflation, various raw materials have risen, and labor costs have also increased, forcing apple to raise the price of the iPhone 14 series. At the same time, Apple will also pull the configuration between Datong series products to guide users to buy.

IPhone 14 may look like this

According to an apple supply chain source, the price of the iPhone 14 series may rise further this year. Except for the ordinary version of the iPhone 14, all other versions will be $100 more expensive than the previous generation. The price of the National Bank of China for iPhone 14 series will rise. Since there are no mini models this year, the starting price of iPhone 14 series is directly the price of iPhone 14, which is expected to be 6199 yuan, 200 yuan more expensive than iPhone 13. The price of iPhone 14 Max is between iPhone 14 and 14 pro, and the starting price may be 6999 yuan or 7199 yuan.

Supported by demand, the price rise of iPhone 14 seems to have stopped. Famous apple analyst Guo Mingxuan recently tweeted that according to his latest survey of Chinese dealers, retailers and scalpers, the demand for iPhone 14 in China may be higher than that of iPhone 13 series.

Guo Mingxuan said that the demand for iPhone 14 was higher

Guo Mingxuan said that Chinese dealers paid the highest deposit ever for iPhone 14 to ensure sufficient supply, which means that the demand for iPhone 14 in the Chinese market may be higher than expected. At present, the deposit for iPhone 14 in China is significantly higher than that for iPhone 13, and even twice as high as that in other regions. He predicted that iPhone 14 shipments in the second half of this year may reach 100million or 90million. The high demand for iPhone 14 in the Chinese market may alleviate the market’s concern about the reduction in orders after the launch of iPhone 14.

IPhone 14 hasn’t been released yet. Apple has raised the price of iPhone 13. Due to the sharp depreciation of the yen, Apple has quietly raised the price of Japanese iPhone models, with a maximum increase of nearly 20%. Apple’s online store in Japan shows that the starting price of the cheapest third-generation iPhone se 64GB has risen from 57800 yen (about 2837 yuan) to 62800 yen (about 3083 yuan), while the price of the 128GB iPhone 13 Pro is now 144800 yen (about 7109 yuan), which is much higher than the previous 122800 yen (about 6029 yuan).

In addition to the iPhone, Apple Mac also seems to have signs of raising prices. Apple unveiled the new MacBook Air at the global developer conference in June, which is a new design and equipped with M2 chip. Apple’s official website shows that it will be launched in July, but the latest news says that its specific launch date is July 15, with a starting price of 9499 yuan. In contrast, the starting price of the M1 chip MacBook Air is 7999 yuan.

Read more from Phoenix Technology: SFG: Apple iPhone shipped 45million units in Q1 2018, a year-on-year decrease of 13% counterpoint: the top five of the top ten best-selling iPhone models in 2021 YouGov: according to the survey, nearly half of American consumers are interested in folding screen phones sellcell: nearly one fifth of American Apple users taboo “iPhone 13” Loup ventures: the number of Apple’s old mobile phones reached 420million canalys: in Q3, the global smartphone market shrank by 6% year-on-year due to the shortage of parts in 2021. Sellcell: the shortage of chips has made iPhone 13 series smartphones more value preserving. Figure shows the impact of the release of iPhones on Apple’s stock price IDC: China mobile phone market analysis report in April 2011 counterpoint: iPhone 13 was the best-selling smartphone market in April 2022, accounting for 5.5%. Economic Daily : Apple iPhone se sales in Q2 in 2020 exceeded 12million CIRP: Apple iPhone se sales in Q2 in 2020 accounted for 19% of all iPhone sales IDC: the new iPhone se mainly attracted Old Apple users canalys: Apple sold 15million iPhones in the United States in Q2 in 2020 mixpanel: research shows that iPhone users prefer high-end models

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