Problem magnification: All Apple problems are dire


Apple’s faced a modest decline in its profit margin over a period of a few years. Must be time to overreact.

Writing for Bloomberg, Shira Ovide says “Honey, I Shrunk Apple’s Profit Margins.” (Tip o’ the antlers to a reader in Dallas.)

R&D spending is the culprit…

How dare they invest in the future!

…and it’s hard to tell whether it’s being put to good use.

You mean Apple isn’t detailing what it’s developing?! How very surprising.

Financial types trying to understand Apple is perpetual Groundhog Day.

But this isn’t another tale of Apple’s impossible-to-believe profit power, because Apple isn’t the powerhouse that it used to be.

If you look at just this one measure.

Ovide references Bloomberg’s own calculation of operating income as a share of revenue to show that Apple is at its lowest level since 2009. Apple’s own gross margin figure, on the other hand, shows the company at the same level it was at in 2017, 2016, 2014 and 2013.

Apple’s shifting profit character is dramatic.

Using Bloomberg’s numbers it’s down 6.7 percent over the last four years, which is not exactly a precipitous fall. Apple forecasts its margin will be flat for the current quarter.

More than 100 companies in the S&P 500 have higher profit margins than Apple.

Which is another way of saying Apple is in the top 1/4 of S&P 500 companies when ranked by profit margin. Sounds terrible.

Ovide is basically comparing everything to Apple's high water mark of 2012 to early 2013 which, when you look at the chart, is something of an outlier. By contrast, Amazon’s profit margin is the perfect example of a Jeff Bezos chart, a line going up dramatically from zero. Nowhere is it noted that it’s going from zero to 3 percent, which is Amazon’s current profit margin.

Steve Jobs once said that “innovation has nothing to do with how many R&D dollars you have.” Now it seems as if Apple is putting its foot on the R&D gas, hoping it will result in more innovation.

We have no idea what this is going toward so we’ll just assume Apple’s throwing money at a problem.

If Apple hits a growth wall in coming years, it’s not hard to imagine the company facing similar calls to justify its climbing research-and-development bills.

Pundits circa 2011: At 3 percent, Apple isn’t spending enough on R&D!

Pundits now: At 5 percent, Apple’s spending too much on R&D!

4 percent was the sweet spot, Apple. Duh.

Even as investors stare at those 12 zeros in Apple’s market value, it’s tough to argue that the company deserves an even richer valuation, as long as those margins stay squeezed.

Amazon’s PE ratio is still more than seven times higher than Apple’s. That’s ludicrous (not to be confused with Ludacris, the groceries-buying rapper).

Wake The Macalope when Apple has real problems.

That’s a joke. The Macalope can never get to sleep in the first place thanks to all the caterwauling about all these little problems.

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