Everyone is struggling (except Apple)
Macworld ·
Macworld Last week, the Wall Street Journal ran a piece describing how memory and flash chip manufacturers were finally “getting their revenge” on Apple. The demand spike from AI-driven data centers has made it so Apple can no longer negotiate extremely low prices. Provocative language aside, it’s worth noting that while Apple may indeed be paying a lot more for components, it isn’t exactly hurting here. The company just posted its biggest September quarter of all time. Yes, you would expect revenue to be up with price increases, but Apple’s profit broke records for both the 4th quarter ($30.7 billion) and full year ($132.2 billion) while prices on Macs and iPhones rose to fresh highs. In other words, everything is more expensive, but Apple is raking it in while you pay more. Fleecing you on RAM and storage upgrades The most interesting part of the WSJ story was the data on just how badly we have all been overpaying for Apple’s flash storage upgrades all these years. We’ve noted for a long time that Apple’s prices for upgraded storage on all its products, and RAM on new Macs, are excessive. The WSJ’s research points out just how bad it has been. It’s shocking how high the margins used to be for storage upgrades, but they’re still really high today. Wall Street Journal Last year, Apple charged users between 8 and 12 times more for storage upgrades on the iPhone than its own costs. Sure, the company has margins to protect, but over a thousand percent? This year, with the chip scarcity and higher prices, Apple is only charging you triple what it pays. A bargain! The article doesn’t break down Apple’s costs and margins on RAM upgrades for Macs over the years, but it’s not much different than flash storage. Apple has charged $400 to increase a MacBook from 16GB to 32GB. Today that may cost Apple as much as $200, but a year ago it was as little as $40. The chip crunch has moved Apple’s margins from “astronomical” to merely “high.” Passing on the costs This quarter, Apple’s margins dropped from 50.1 percent last quarter to 47.9 percent (actually closer to 48 and 47, respectively, after adjusting for tariff refunds). Don’t be fooled, Apple’s not really feeling the pinch of these higher component prices. Apple’s margins are actually up a tiny bit (from 47.2 percent) compared to the same quarter last year, and are way up over time. A decade ago, Apple’s margins were hovering around 38 percent. They’ve dipped down several times in the last few years, too, usually in the fourth quarter, just like this year. For a company that largely sells consumer hardware, Apple’s margins are very high and climbing. Don’t let one quarter fool you. Six Colors In other words, Apple is making a higher profit on more revenue than ever before. While you pay more for every Apple product, the company is protecting its margins, not its profitability. Lower costs were rarely passed on, but higher costs almost always are. It’s like Exxon making billions when the price of oil rises. To put it in perspective, other huge tech companies with even higher margins are all primarily software and service companies (Microsoft, Meta, Alphabet, and Amazon all enjoy higher margins than Apple). Selling consumer goods carries with it higher costs, so margins are tighter. Apple enjoys much higher margins than consumer tech hardware companies like Samsung (39 percent), Dell (20 percent), Lenovo (15 percent), or Sony (31 percent). Services revenue helps bring the number up (look at how the gross margin rose after Apple TV launched in 2019), but Apple also enjoys higher hardware margins than those other companies. Looking ahead, Apple expects a gross margin of 45-46 percent for the holiday quarter (Apple’s first quarter of fiscal 2027) and total company revenue to grow between 7 percent and 10 percent year-over-year despite constrained supply. That would give Apple revenue of around $154 billion, an all-time record. Granted, it’s not the 16 percent growth or the 48.2 percent gross margin it saw last year, but it’s hardly a hardship. The truth is, Apple is looking out for its real customers–the investors. It repurchased $86 billion in stock this fiscal year, including $24 billion last quarter, a practice that started in 2024 under Tim Cook and will almost certainly continue under Ternus. When Apple pays more for components, it raises your prices instead of cutting back on stock buybacks or lowering margins. The share price is king. So enjoy your $2,499 2TB iPhone.