PC Profit Margins At An All Time Low
Margins from 7x PC Sales = the Margin from 1x iPhone Sale
Hewlett Packard (HP), the world’s largest seller of personal computers, is looking to sell off its entire PC manufacturing and sales division—assuming they can find someone who wants to buy it. So, one might ask, why would the world’s largest maker and seller of PCs be wanting to do such a thing?
The problem is that the profit margin in selling PCs has become ridiculously low. So low that even selling insanely large volumes of them does not make sufficient income for a large international company.
HP are saying that they need to sell six to seven personal computers in order to make the profit that Apple has factored into the sale of a single iPad or iPhone. Averaged across all models sold HP makes $50 net profit from the sale of a single PC. Whereas, Apple makes an estimated US$300 profit from the sale of single averaged model iPad or about US$330 for an averaged model iPhone (iPad numbers from ComputerWorld here and iPhone numbers from CNNmoney here).
Stated another way, Apple only has to sell about 15 percent of the number of iPads or iPhones to make the same net profit that HP does from selling six to seven PCs.
The worldwide sales of PCs for the next twelve months is forecast at around 280 million, or about 23 million per month. If these forecasts are achieved then all brand-name PCs companies combined will make US$14 billion from direct PC hardware sales (desktop and notebook PCs, and assuming all PC hardware vendors make about the same profit margin that HP do).
However, Apple is forecast to exceed this based on iPhone sales alone. If Apple maintains sales of around 6 million iPhones per month that will be 72 million units sold over 12 months. With US$330 net profit per unit that will give Apple very close to US$24 billion in profit—just from iPhone sales.
One of Apple’s key marketing strategies is that they never discount. No contracted reseller of Apple iPhones, iPods, or iPads is allowed to discount. If they do they lose their reseller contract. So, as they cannot offer discounts on the Apple devices themselves, what resellers do is add in other ‘free’ stuff to try and make people buy their Apple iStuff from them. They might bundle a free Belkin docking station, or free Logitech headphones, or maybe free speakers, but not one dollar will be directly discounted off the iPhone, iPad, or iPod device itself.
Did you notice that as the Australian dollar went from US$0.84 up to US$1.07 all the other electronics got cheaper by about 25 percent (e.g., LCD and Plasma screens, notebooks, desktop computers, hard disk, speakers, 208etc.,)—but the Apple iStuff didn’t drop by a single dollar?
