Re: Why DRM Can Never Succeed — ps Enable

[Greg Titus]

On Feb 17, 2007, at 8:19 AM, Scott Stevenson wrote:

>
> On Feb 17, 2007, at 8:10 AM, Greg Titus wrote:
>
>> Apple's margins for hardware were around 30%, but they don't break  
>> them down by product line. I'd expect the iPods to have even  
>> higher margins than the Macs. Conservatively at 30%, Apple made a  
>> profit of around $1,028 million on iPods.
>
> The iPods are actually lower, I believe. That's just the reality of  
> consumer electronics, and I think I saw a statement about it in the  
> 10-K.

You are right. This is from the 10-K, page 54 (yay for searchable PDFs):

> Gross margin percentage of 29.0% in 2006 remained flat as compared  
> to 2005. The Company experienced more favorable pricing on certain  
> commodity components including LCD flat-panel displays and DRAM  
> memory and higher overall revenue that provided for more leverage  
> on fixed production costs, offset by an increase in lower margin  
> iPod sales and other music-related services.
>
> The Company anticipates that its gross margin and the gross margins  
> of the personal computer and consumer electronics industries will  
> be under pressure due to price competition. The Company expects  
> gross margin percentage to decline sequentially in the first  
> quarter of 2007 primarily as a result of a shift in the mix of  
> revenue toward lower margin products such as the iPod and content  
> from the iTunes Store.
>

Which says that both iPods and iTMS songs are both less than 29%  
margin. It's hard to know more specifically than that. The iPod was  
nearly half (48%) of Apple's total net sales for 2006, though, so  
unless Macs have vastly higher margins than 29%, iPods can't be that  
much lower than 29%.

Anyway, if iPod and iTMS margins are similar, that still results in  
5.5 times as much iPod profit as iTMS profit, which was the original  
point.

	- Greg