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A three year view of Apple's fourth quarter

This is a summary view of Apple’s income statement for the fourth quarter of 2009, 2010 and 2011. The full size is 999×893 pixels. Click on image below for full size bitmap.

 

The convention used is to show revenues in the first column, cost of sales in the second followed by operating expenses, taxes and net income in the last (dark green) column.

For the revenue column, individual products are shown stacked from highest to lowest revenues and further divided into variable costs and gross margin.

The costs are then drawn separately leaving net income (or profit). Ratios between various quantities can be visualized:

  • Gross Margin percentages are ratios between the empty boxes and their colored counterparts
  • Operating expenses as a percent of sales are the third column in relation to the first.
  • Tax rates are the fourth column as a percent of the fourth plus the fifth, etc.
  • Finally, the rate of year-on-year growth in all these quantities can be seen by looking through column sets left to right.

Given this perspective it’s perhaps more obvious how much and from which business Apple has grown.

  • http://www.facebook.com/christian.peel Christian Peel

    Looking at the income numbers, I feel like we need to christen the ‘Apple Law’ (like Moores’ law): “AAPL income will double every year.”   :-)

    Seriously, I am looking forward to see what happens in the 2015-2017 range with Apple.  Will iPhone and iPad sales be limited among the 3rd world and among those with less income, will Apple come up with new product categories (outside phone, tablet, PC) that will keep some sort of  Apple Law in effect beyond the iPad?

    • http://twitter.com/fivetonsflax fivetonsflax

      Televisions seem to offer an opportunity for new-product growth in rich markets.

    • Anonymous

      Sounds at least as valid as the “law of large numbers.”

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

      In other news: Apple renames itself Magrathea and names a new CEO, Startlebartfast.

      For those that understand the reference, this thought has come to mind a few times in the last few months with respect to Apple’s earnings and growth. As Apple grows richer and richer, can they get to a point where completion simply cannot compete? Even as they hold minority shares in most markets they compete in, they skim all the profit and revenu.

    • Anonymous

      The less income you have, the more you need an iPad. It has lower TCO than any Windows PC and it pays for itself.
      Same economics as 3rd world cell phones.

    • http://pulse.yahoo.com/_KHQWXGJWGQJ6SNSUWP64GMA3Z4 Alex H

      Apple still has long ways to go. It’s a wonder that more people don’t see this. A couple of years ago CNN/Money had an article asking if Apple would ever catch up with Exxon in market value. The overwhelming majority of the readers responded saying, “No way. Apple has ‘saturated’ the market and it makes unnecessary toys.” Blah-blah-blah…

      What Apple is accomplishing right now is so unprecedented that people just can’t rely on past metrics to predict how Apple will do in the future. So the only axiom that they’re going by is: “What goes up must come down” and they keep thinking it can’t possibly go higher or things will slow down at this size of $100 billion+ in annual revenues.

      Apple is still not even close to attaining dominant market share in the handset and notebook/desktop (traditional PC) market. There is still a lot of room to grow there. The tablet (or iPad) market is still at the front end of the bell curve. Apple is only beginning to make its presence felt in the enterprise market. And then there is the TV market and I’m sure there are other content markets that Apple is eyeing as well to continue expanding the most complete and seamless ecosystem on the market.

      The projected numbers down the road (5~10 years) seem pretty mind-boggling at the current growth rates. Seriously, 5 years ago could *ANYONE* have predicted that Apple would be a $100 billion+ company raking in net profits at 28% rate? Even at a reduced revenue growth rate of 50%, Apple will reach nearly $550 billion in revenues in fiscal 2015 – well larger than even Walmart and Exxon. At the same growth rate Apple will easily surpass $1 trillion by 2017. Pretty insane…

      Can it be done? Surely, Apple must have their own internal projections about how much they could grow and how they’re going to mobilize their supply chain to meet the demands of such growth throughout the world. 50% revenue growth over the next 5 years *does* sound far fetched but the last quarter’s numbers were well beyond what people have always thought of as far-fetched or undoable.

      But as Tim Cook pointed out, Apple’s current numbers are still pretty small when looking at the broad global market. I think when Apple attains market share of around 35~40% in the handset market and roughly the same amount in the PC market while maintaining the majority (50~60%) in the tablet market is when it reaches the saturation point with its core products. In the meantime the overall market will also continue to grow – especially when the economy picks up again. 

      By then, Apple should have broken into and pioneered new markets that we don’t yet know about. I’m sure Apple (under the guidance and tutelage of Jobs) has a good vision about the long-term future – probably as far out as 25 years or more based on the projected advancements of technology in general. 

      Apple still has some catching up to do in the cloud arena and they’ll continue to have fierce competition from Google and Microsoft there and that’s a good thing. Making the iCloud feature-rich, reliable, secure and seamless seems to be something that Apple must achieve to keep growing. It really will be what holds everything together moving forward.

  • mysterio

    Two things immediately pop out to me:

    1. Apple’s iPhone gross profit alone could fully fund the opex and taxes of the rest of their businesses (though, of course, their taxes would be reduced, so they’d be even more profitable).
    2. iPad gross profit could nearly fully fund the opex of the entire company.

    So, Apple could have sold iPads at their current prices and given away every other device and piece of media or software they sell at cost and STILL be profitable.  

    They could afford to run mac, iPhone, iTunes, iPod, and all of their software businesses as loss-leaders for the iPad.  This type of “razor blade” thinking is anathema to Apple’s culture and values, of course, but it’s amazing how much business model flexibility they have thanks to their profitability.

  • Anonymous

    Nice visual presentation.
    It would be helpful, perhaps, to add numerical % in these boxes (if possible) and/or Numerical % of acceleration (Ipod–deccelaration).
    I enjoy your articles very much

  • shawnpetriw

    It looks like iPhone GM is nearly exactly what the resulting Net Income is.

  • Andreas

    How can we measure the limits of Apple’s growth?
    Tim Cook and many analysts are referring to the relatively low *market shares* that Apple has as an argument for continued sustainable growth.
    But what about *profit shares*? Wouldn’t that be the better indicator for an “upper ceiling”?
     
    How much profit is there still to be made?
    What happens if we sum up remaining profits in these industries:
    - mobile phones
    - PCs
    - pocket cameras
    - game consoles
    - maybe TV for sake of argument

    Would that give us an upper limit of Apple’s potential? 

    • jawbroken

      Total profit seems a lot less fixed than total potential market size so I don’t think that would be a good estimate or bound.

      • twilightmoon

        If you assume that there’s a fixed amount of money spent on items, you still have to factor in how efficient Apple is with its supply chains. With fewer products, more focus, leverage on buying huge volumes of critical parts discounted with cash payed up front in advance, Apple gets more bang for the incoming dollar and keeps more of it in the form of higher margins and more profit.

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

      I think revenue share is more appropriate. There is a fixed amount of money to spend on devices. You may see an overall decrease in the number of units but a significant increase in profits.

      • Anonymous

        But there is not a fixed amount of money to spend on the devices that Apple makes, because they are general purpose devices that are user-expandable to hundreds of thousands of tasks. And they pay for themselves really easily. So Apple’s devices keep absorbing the budget from other single-purpose devices that they are replacing.

        For example, a few years ago I had a portable 4-track audio recorder and a portable audio mixer controller that were about $1200 of essential gear. They have been replaced by a $10 iPhone app and a $10 iPad app and even including the cost of the iPad and iPhone I am still ahead of the game. All the phone and music player and PC apps and other functions of iPad and iPhone are essentially free because they were paid for out of my portable audio gear budget, which previously was not getting spent in the phone and portable computer markets.

        Another example is the TV studios who replace their printers with iPads and do their scripts digitally. It’s much cheaper for the TV studio, but all the iPad money came out of their paper budget. It was previously being spent just on raw stacks of paper. So that is new money in the portable computer market because iPad can replace not just previous portable computers, but also non-computer items like paper.

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

        There is a lot more spending on phones now than there was before Apple was in the market (and a lot more spending on phones than before there were mobile phones.) See attached image showing revenue growth for the bulk of the competitors.

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

        But there is a lot less spending on MP3 players and DVD players and portable gaming systems and other gadgets. Unless there is a drastic increase in people’s earnings/year then there is a capped amount of available funds to spend on devices and gadgets. That is why profit share does not put an upper limit on growth. It is revenue share. Profit simple measures the efficiency of generating revenue and will always be less than total revenue generated.

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

      Profit can be seen as a proxy of value creation. As long as additional value is created then profit can be additive to the industry. In other words, you can capture all the profits in an industry and sill double them next year. You can see this more clearly in other industries. For example Facebook could be capturing the vast majority of profits in social media advertising and still double them every year. Almost all of iPhone profits are additive, meaning that they did not exist before Apple entered the market.

      • Andreas

        Is it really true that iPhone profits where additive to the market or is it simply that Apple sucked up the profits from multiple industries at once: mobile phones, game consoles, pocket cameras, music players & to a certain degree computing?

        This is an open question for me, I do not have the data.

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

        I have the data for the primary phone vendor’s profits and it’s attached as picture. This spans the time iPhone has been in the market. Note that the total profits available has grown roughly in proportion to Apple’s profits.

  • WFA

    OT (Sort of):

    Warren Buffett discusses stock buybacks in his just-released BH annual report. He hopes the stock prices of companies offering buybacks actually “languish” for some time. As I understand this, the cheaper the buyback price, the more buybacks happen. The more buybacks happen, the fewer the outstanding shares that remain. The fewer the outstanding shares, the greater the percentage ownership by the remaining stockholders. (The more learned here may correct me on this.)

    http://www.berkshirehathaway.com/letters/2011ltr.pdf

    See his buyback discussion starting at the bottom of page 6.

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

      Those are sound guidelines but Apple is not near the 110% of book value that Buffett requires. Apple has been at about 500% book for some time. On the other hand, BH growth is a tiny fraction of Apple’s growth.

  • Gregg Thurman

    The question about Apple’s growth potential should be phrased, ‘how long can Apple continue to add value to sectors it does not presently compete in’?

    As long as Apple can enter moribund product categories (or create new ones) with a paradigm changing value proposition, Apple will continue growing.