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Apple's Income Statement at a glance

This is the cascading view of Apple’s financial performance in the third calendar quarter. It only includes information that is already in the income statement but shows the relative growth of the individual product lines, their cost structures and the relationship between fixed (Operating) expenses and their variable (cost of sales) expenses at a glance.

In the past I would publish current and year-ago data, but in this quarter’s summary I present three years’ history of quarterly data. Note that the full view is quite large (2,220 x 886 pixels).

Here are some handy tips on how to read the chart:

  • The “top line” is the size of the first column in each quarter’s chart.
  • The “bottom line” is the size of the last column.
  • The blank areas are what Apple pays suppliers.
  • The red area is what Apple pays to the government.
  • The Pink and pale blue area is what Apple pays its “exempt” employees. (Other Income and Expense is also included but is nearly invisible).
  • The Green area is what is declared as earned and becomes the “E” as part of the P/E ratio. (Note that not all of this goes to the Cash account as the cash flow statement will reveal).
  • The colored areas in the first column labeled with product name and “GM” (for gross margin) represent what Apple keeps from the sale of each product after paying expenses tied to producing that product.
  • The ratio of sold areas to the corresponding white areas below in the first column represent the margin (as a percent) per product line
  • You can observe the trend over three years by tracking each of these quantities from left to right.

The scale of the chart is shown by the line near the top representing $30 billion.

  • Luis Alejandro Masanti

    Sorry, I’m do not know what it means by “exempt” employees.
    Thanks in advance.

    • http://www.asymco.com Horace Dediu

      Generally speaking, it’s an employee which is not involved directly in manufacturing and does not have the option to request overtime pay. I may not be using the term correctly here as probably store employees are included in the SG&A total and they may be non-exempt. What I mean is that the labor costs shown are not involved in the manufacturing of the products.

      • http://www.noisetech-software.com/Home.html Steven Noyes

        “Exempt” employees are those employees that are “exempt” from labor laws concerning over-time and other mandatory compensation rules. The three classifications I have seen are:

        “Exempt” – Traditional salaried employees. There are some untangables (laughable IMO) like not being “forced” to work all 40 hours (doctor visits and kid pick ups) and being able to shift some time.

        “Salaried non-Exempt” – Often these technician rolls that are not quiet traditional “professional” positions but are not quite traditional hourly. They may have a salary but labor laws concerning overtime still apply. Overtime rates, such as time and half, do not have to apply.

        “non-Exempt” – These are the hourly employees that cover administrative staff, production, union and other hourly professionals. Their pay is covered by state laws and standard over-time rates apply.

        Each state in the US may have slightly different variations of these.

  • Anonymous

    In the US exempt employees are similar to salaried employees. They are not required to be paid overtime (I’m considered exempt at my employer because of my professional status but i do get paid straight time for every hour i work. Just no time and half or other overtime.)

    http://biztaxlaw.about.com/od/glossarye/g/exempt.htm
    http://www.allbusiness.com/government/employment-regulations/808-1.html

  • Damonmc

    A small typo: “scale of the cart” should be “scale of the chart”.

    Thanks for another great post.

    -Damon

    • http://twitter.com/Marcos_El_Malo Marcos_El_Malo

      Is this the typo patrol thread? If so:

      “The ratio of sold areas . . .”, sold should be solid?

  • Anonymous

    FYI, Horace, I am not able to see this chart on my iPad.

    • Anonymous

      …and now an hour later it shows up. Odd.

    • http://www.asymco.com Horace Dediu

      Hm. It works on mine. Does it not appear at all? If I tap on it, it shows in full screen and can be zoomed in on.

  • Anonymous

    Did you get the cost of sales of each product line from an official apple document, or are the individual cost of sales an educated guess? I wasn’t aware that apple gave Gross Margin figures for each product line…?

    • http://www.asymco.com Horace Dediu

      Apple does not publish gross margins per product and, yes, I used a way to back into them by doing some educated guessing.

    • Anonymous

      They don’t, Horace is making educated guesses.

  • http://twitter.com/itzabitza Margaret – CEO, Sabi

    If I read your post correctly (and that’s a big assumption – my apologies on potential shortcomings in my ability to absorb this great info) – software (which I assume you mean appStore – both ios and mac) are very tiny revenue streams. I assume by music you mean iTunes? Which seems to cost them a lot (licensing) but makes very little revenue.

    Thus, by the numbers content looks “worthless” yet without it, the iPhone wouldn’t be able to be the innovative/convergent device that it is. In comparison to strong software companies like Microsoft – I believe Apple has it easier with experience definition because they (through the hardware) have control over the input and output (there is a reason input devices are called controllers on gaming devices…).

    • kevin

      Software includes Apple’s Pro as well as consumer Mac software, as well as OS X upgrade revenue. Music also includes iPod accessories (which I’m sure is a rapidly shrinking category).

      Apple has consistently said that its iTunes Store and App Stores are just above break-even.

      It’s interesting to observe the many different business models and watch how it plays out. Apple uses low-margin content sales to drive hardware device sales. Amazon uses low-margin Kindle sales to drive content, subscription (Prime), and other Amazon.com sales. Google uses free software (given to device makers and users) to drive advertising sales. Microsoft (for the Xbox only) uses low-margin device sales to drive high-margin content sales.

      • kevin

        Just looked at the most recent Apple quarterly summary: Music includes iOS App Store sales, but Mac App Store sales are part of Software.

        Here are the footnotes:
        Mac Desktop – (1) Includes iMac, Mac mini, Mac Pro and Xserve product lines.
        Mac Portables – (2) Includes MacBook, MacBook Air and MacBook Pro product lines.
        Music – (3) Includes sales from the iTunes Store, App Store, and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories.
        iPhone – (4) Includes revenue recognized from iPhone sales, carrier agreements, services, and Apple-branded and third-party iPhone accessories.
        iPad – (5) Includes revenue recognized from iPad sales, services, and Apple-branded and third-party iPad accessories.
        Peripherals and other hardware – (6) Includes sales of displays, wireless connectivity and networking solutions, and other hardware accessories.
        Software, Service, and other sales – (7) Includes sales from the Mac App Store in addition to sales of other Apple-branded and third-party Mac software and Mac and Internet services.

    • http://www.asymco.com Horace Dediu

      Software includes Apple’s own software titles (OS X, Logic Pro, iWork, etc.) but does not include sales of third party software through the iTunes App store.

      • http://twitter.com/itzabitza Margaret – CEO, Sabi

        Thank you. Apple takes 30%. Where does this amount go within their reporting (or does it matter…)?

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  • Z Kariv

    Great posting..again
    So, the Itune as we all know is about break-even. Supposly it was the “cement” for the entier system. It has no margin but it got Apple into hot water (the magazines’ cut, appruval of certain apps).
    Is the “cloud” can replace that function or the Itune can become its own producing product with future products (such as Itv??, streaming contants)?

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  • mieswall

    Nice graph…so if the educated guess is right, it is very interesting how between Q3/10 and Q3/11 cost of sales of iPhones are basically the same, but profits significantly higher. So, even if AAPL missed their EPS estimates last Q, the results could be in the final analysis not worse but better, since it is generating higher margin for free on “old” products…

    Unfortunately, I guess novel investors like me got trapped with the heat of expectations of upcoming stellar earnings (a lot of experts only days before wrote about $9, even $10/share: the results just above $7): In particular, I played a mindless, risky game with short-term out-the-money options, that were in fact returning a small fortune (12 to 15X at a given time) with AAPL stocks going up like a rocket for a week until just before market close, then losing ALL 5 minutes later, when actual earnings were known…

    Looking back, it could have been easy to predict that those estimates would fail, given the postponed iPhone renovation, clients then holding purchases…

    Do you know is any analyst assessed the impact of this late iPhone introduction in his past Q estimates? In the same line, is it now anybody assessing how much could help next quarters earnings the fact that the new iPhone is built with many of the costs of the old iPhone already payed, since at least physically the 4S is so similar to the previous model?