Stable Mac prices fuel reliable profit engine

Mac division's operating margin is actually higher than Google's

Even though iPhone revenue dwarfs the Mac, Apple's personal computer line remains important to the business because its average selling price is virtually unchanged from four years ago.

In the June quarter, the average selling price, or "ASP" of all Macs was $1,255, just $1 more than the ASP of the September 2010 quarter.

During the same nearly-four-year stretch, the iPad's ASP fell by 33.5%, as both the smaller iPad Mini and more capable second-and-later generations were discounted when they aged out of the premier spot. After the second quarter of 2011, the iPad's ASP has been in a slow decline.

The iPhone's ASP has also fallen since the 2010 September quarter; last quarter it was down 12% from four years earlier.

Although Apple does not disclose how much profit it makes from each of its three major hardware lines, the assumption is that the amount of profit from each Mac, if not the percentage of the revenue that becomes profit, is highest for the Mac because, well, d'oh, it's priced higher than either an iPhone or iPad.

The fact that Mac ASPs have remained stable -- certainly they've fluctuated over the four years, but for the long haul they haven't changed -- means that Apple hasn't had to amp volume to make up for ASP declines, as it has had to do with the iPhone (very successfully) and iPad (less so).

That doesn't change the dynamics of Apple's business -- it's still largely a smartphone maker and seller, with 53% of last quarter's revenue coming from the iPhone. But maintaining Mac prices provides a dependable profit engine for the company.

Over the last 12 months, for instance, the Mac has generated revenue of $23 billion, 45% more than Google made in its most recent quarter. (Put another way, Mac revenue for the past year was 74% of what Google earned in the first half of 2014.) While the comparison may be ultimately unfair because of the companies' wildly different business models, and thus their presumed profit margin, it is fair in putting the Mac, by reputation a niche product, in the context of a company considered extremely non-niche.

But is the Mac's operating margin really that different than, say, Google's?

Not according to estimates made last year of Apple's Mac business by independent analyst Horace Dediu. In an analysis titled "Escaping PCs," Dediu calculated that Apple's profit from the Mac was greater than the top-five personal computer makers' combined. (For Dediu's estimate, and his inferences, head to his April 2013 piece.)

Computerworld duplicated Dediu's estimate of Mac profit by plugging in numbers from the June 2014 quarter -- Dediu had used the December 2012 period in his example -- and came up with a margin for the Mac of 27.5%, an average operating profit of $345 on the sale of each computer, and a total operating income of $1.52 billion in the just-concluded quarter.

Google's company-wide operating margin for the June quarter was 27%.

So, how does the Mac stack up against the iPad?

Nicely, in fact: Using Dediu's same generalized formula, Apple turns an average operating profit of $122 on each iPad. But because Apple sells far more iPads than Macs -- 13.3 million versus 4.4 million in the latest quarter -- it ends up producing a larger amount, $1.62 billion during the April-June period, in operating income from tablets.

The bottom line, literally, is that the Mac, with just 33% of the unit sales that the iPad recorded last quarter, generated 94% of the iPad's operating income. In even plainer terms, that means that Apple must sell almost three iPads for every Mac to put the two lines in profit-generating harmony.

Increase the number of Macs sold, and the revenue produces a inordinate amount of profit, at least compared to the iPad (and also compared to the iPhone, but the comparison really breaks down there, as everyone needs a phone).

No wonder analysts like Ben Bajarin of Creative Strategies have been optimistic about the Mac, its future, and its impact on Apple.

Mac ASP and sales volume
While the Mac's ASP, or "average selling price," has fluctuated somewhat over the last four years, it's been remarkably stable over the long haul. (Data: Apple, SEC filings.)
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