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Periodicals > Link-Up Digital
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Profit Margins of the Makers of PCs and Handheld Devices
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Link-Up Digital

In the Steve Miller Band’s 1976 hit “Fly Like an Eagle,” they memorably sing, “Time keeps on slippin’, slippin’, slippin’… into the future.”

The digital market continues moving forward, some parts flying like an eagle, other parts chugging along like more pedestrian creatures.

Apple recently announced record profits of $11.1 billion on a revenue of $51.5 billion for its latest quarter, ending September 26, 2015. The sales of the newly released iPhone 6S and 6S Plus led the way. The company sold 48 million iPhones in the quarter, compared with 10 million iPads and 6 million Macs.

Apple’s profit margin remains astronomical, at 40%. This means that $400 of every $1,000 you pay Apple is profit, above and beyond the cost of materials, labor, rent, and so on.

In comparison, according to figures compiled by Butler Consultants of Plano, Texas, average profit margins for the electronics retail industry is 5%, equipment manufacturing 7%, computer design 9%, and telecommunications 11%. The industry with the highest profit margin is oil and gas at 26%.

Apple charges what the market will bear, which is how capitalism is supposed to work, and it pays taxes on its profits, which is also how it’s supposed to work. Apple now has $206 billion in cash on hand, meaning that it continues to be the world’s richest company.

Mention any of this to an Apple Store employee next time you see phone cases there selling for twice the price they sell for at Walmart or Target.

The other operator in the digital market known for its rabid money making, Microsoft, continues to perform well and nip after Apple’s heels. For its latest quarter, ending October 22, 2015, it announced profits of $4.6 billion on revenue of $21.7 billion, a profit margin of 21%.

Microsoft generated the largest chunk of its revenue, $9.4 billion, from its Windows operating systems, even though Windows sales declined 17%, along with the declining PC market as a whole. The company also generated $6.0 billion in revenue from its Office productivity suite and 5.9 billion from its server and cloud services, an increase of 8%.

Microsoft’s consumer-oriented cloud services include Office365 and Skype, while its business-oriented cloud services are headed up by Azure. Despite its high profits and rising stock price, Microsoft is in the process of eliminating 1% of its jobs, laying off 1,000 people, to “streamline” its operations.

The above numbers are independent of Microsoft’s one-time write-off of $7.6 billion from its acquisition of Nokia, the struggling Finnish smartphone company.

Microsoft for years has been trying to play catch-up with Apple in the smartphone, tablet, and laptop markets. Its disastrous Windows 8 operating system was a failed attempt to promote its smartphones and tablets by forcing customers to use the same smartphone and tablet interface with laptop and desktop personal computers.

Microsoft’s current PC operating system, Windows 10, returns to its PC roots. Microsoft is breaking with precedent and making its upgrade available to customers for free. Many would prefer to stick with Windows 7, and Microsoft has received criticism for being heavy-handed in trying to persuade people to switch, which would prevent it from having to support Windows 7.

The company continually foists reminders to people when they start up their computers that the upgrade is available. And reports indicate that Microsoft sometime next year may automatically begin installing the upgrade, depending on how you’ve configured your Windows Update settings.

Microsoft’s revenue from its Surface Book line of laptop computers is growing substantially, up 117% in the quarter. It’s competing here primarily with Apple’s MacBook Pro line. The Surface Book is a two-in-one device, with a detachable keyboard that lets you optionally use the laptop as a tablet.

The PC market as a whole continues to decline compared with the devices market, with 7.7% fewer units sold in the latest quarter, according to market research firm Gartner. Desktop PCs continue to lead the decline. But there’s still a huge installed base of desktop and laptop PCs, and 74 million PCs sold worldwide in the quarter, still a huge number.

The most popular PC maker worldwide remains Lenovo, the Chinese company that took over IBM’s PC business in 2005 and has subsequently moved it to number one. Lenovo currently has 20.3% of the market, according to Gartner, followed by HP, Dell, Apple, Acer, and Asus. In the U.S., HP is the top vendor, followed by Dell, Apple, and Lenovo.


Reid Goldsborough is a syndicated columnist and author of the book Straight Talk About the Information Superhighway. He can be reached at reidgoldsborough@gmail.com or reidgold.com.


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