Pachter: Apple 2013 Console

Excellent post. I agree 100%.
I don't think Apple will make a "traditional" gaming console. It's just not their style.
Just like when they entered the phone market, they made something that was so much more than the "traditional" cell phone.
I expect the rumored iTV to do just that to TVs, STBs, DVRs and gaming consoles.

 

If you believe that Apple receives only 99 USD for each sale of an iPhone 4, you are highly delusional and there's no debating with you.

Regards,
SB

 

Any moron knows they make similar profits to what other smartphone brands make, that's the whole point which you refuse to accept because you're too hung up on the adage that "Apple products will always have huge profit margins over similar products from competitors"...

 

You might want to look at their statements and compare them to the other phone suppliers. Apple most definitely commands a premium. It's not obvious to the consumer because it's on the deal negotiated with the carriers.

 

Really I'm not sure what's hard to understand. Do you actually believe that Apple is willing to live with potentially 0-5% gross margins on their hardware?

Unlike Microsoft they aren't predominantly a software company. Apple makes the vast majority of their revenue off of hardware sales. If hardware isn't profitable they don't make money.

All you have to do is a simple lookup of each companies financial reports.

For FY2011 (year ending 10/26/11) software revenue represented ~2.7% of Apple's revenue. Hardware profits and hence hardware margins make or break the company. Apple cannot afford to have low margins on hardware.

Now pull up just about any MS financial report and you'll see that software sales and services dominate their revenue.

Now look closer at the EDD division which is where almost all the hardware that Microsoft makes is located. Further make note of how small the profits are for that division in comparison to the revenue generated by that division.

Now keep in mind that you have extremely high margin software and services (MS tends to average around 70-75% margins for software although it may be lower than that in EDD, but I doubt it) in EDD helping to bolster the average margin for that division. How large could the margins possibly be for their console hardware?

Compare that to the revenue versus profit generated by Apple. And realize that high software margins cannot bolster low hardware margins. So, if Apple were to theoretically sell something for 10% margins it would by necessity have to have something to make up for that. Meaning elsewhere products would have to be significantly higher than 40% margins and in enough quantities to bring the average back to ~40% (though generally a few points higher).

This isn't about relying on myth or heresay or urban rumors. This is a fact of doing business. Your emotions don't change those facts.

Just for shits and giggles compare Apples financial filing to someone like Dell. 3.4 billion USD GAAP operating income on 61.5 billion USD revenue for Dell. I'll leave it up to you to look up Apple's numbers. Hint: the ratio is orders of magnitude higher. BTW - when looking up recently Apple filings be aware that Apple has recently started deferring reporting of some of the income earned by each product, meaning that a portion of income earned won't be reported until a later later SEC filing of indeterminate time frame.

The X360/PS3 divisions would have a similar or worse ratio to that if it weren't for the licensing and software sales. And even with those licensing and software sales, they don't come even remotely close to how much operating income Apple generates from its revenue stream.

So again, how is Apple going to enter the console market and maintain Apple levels of margins.

BTW - for shits and giggles look up how much an iPhone 4 costs without a 2 year phone service contract. Hint - nowhere near 99 USD.

Regards,
SB

 

How about the console design? Is it going to be sleek and have round corners with lawsuits attached?

 

MS doesn't even make hardware other than the Xbox and mice, keyboards, webcams....so the comparison is flawed. Of course MS makes most of their profits from software...duh. MS doesn't even make Windows phones. Apple on the other hand makes and sells LOTS of hardware, heck even if they didn't overprice some of their products their sheer hardware numbers sold would still dominate their profit numbers. Simple analogy...sell one piece of hardware for $400 which costs $200 to make = $200 profit or sell 5 pieces at $250 and make $250 profit. Either way it'll still show up as profit from hardware not software...duh.

How much does a Motorola Atrix 2 cost without contract? Nowhere near $99...more like $450....use your brain man. You go ahead and keep banging on that "Apple levels of margin" propaganda drum hoping it eventually becomes fact...

 

unlocked iphone 4s' retail for $649 for the 16GB, $749 for the 32GB and $849 for the 64GB.

And I've seen the atrix for $325 unlocked.

 

iPad isn't connected with the TV but it's used a lot in conjunction with a TV. There was some survey, showing a high percentage of tablet users were using with the TV on. (also, spikes in usage in the evenings and early in the morning, suggesting people check it when they wake up).

iPad with AirPlay and the HDMI dongle does support connecting to TV. However, obviously an always-connected device is an opportunity. As more and more content is targeted towards tablets in general and iPad in particular, maybe more people will look at using AirPlay or viewing this iPad-targeted content on their big screen.

 

Not from console buyers. There's just too few of them.

Lets go through the numbers again. Last year just under 2 billion cell phones were sold, or fifty times the number of stationary consoles. If Apple targeted the console market, and somehow managed to capture half of it, it still wouldn't be more than a single percent of the market where they are already competing successfully, and would barely affect their ability to distribute content.
The gaming console market is pointless for Apple to pursue. If they introduce a product, it will cast a much wider net. It might still affect the console market of course.

 

I don't own an AppleTV or an iPad (yet).

iPad1 wasn't the best with 1080p video. Presumably iPad2 is better.

Not sure how well 802.11n handles it either.

When their TV product comes out, presumably it will integrate with iOS devices via AirPlay and other means.

 

I think there may be more than 200 million iPhones. At least 200 million iPhones, iPod Touches and iPads.

They're selling over 20 million iPhones and about 15 million iPads a quarter.

Consoles don't come close to these numbers.

 

If I were Apple or Samsung and I wanted to own the living room, I'd add HDMI out to my mobile & tablet range, a fancy remote, and sufficient apps (which exist already). That'll provide all media functions using the company's prefered media outlet. A Galaxy or iPhone would knock spots of PS3 as a browser, meaning better YouTube and TV services, and a music service that matches what people prefer on their portable music playing devices. A handheld I can put movies on, watch movies on, then take round a friend's house and watch there, then browse the web, then listen to music on the way home, then plug into the home audio system - that's easily the best experience for media consumption. I've been considering getting a cheap tablet just to have a conventient browser as PS3 is crap and PC isn't on hand in the living room. Add some blue-tooth controller support for simple games and you're laughing.

I don't think the console gaming market is worth chasing. It's sunk plenty of companies, and made huge holes in plenty of other company's balances. Even Sony's two-generation landslide victory has resulted in little profitabililty over the past 15 years. It was important for Sony and MS to establish media services, which neither has done great other than getting some tens of millions of network users. As Netflix and iTunes and now Music and Video Unlimited are available on other devices, the console isn't necessary for anything other than gaming. Why spend billions securing AAA titles and competing against the big names when the they'd be lucky if the returns if they were successful covered the cost of entry?

 

Would entering this market really be as huge an expenditure as it was for Sony, MS? Apple already has the content distribution and a lot of the software (iOS + Apps) and services (GameCenter, iTunes, AppStore etc) ready. They aren't jumping in from scratch. There's the cost of new hardware. I'm with Shifty in believing this won't happen, but I don't think Apple has the same hurdles as MS and Sony had at the start of last gen. MS and Sony had to invent huge online networks for content distribution that Apple already has in place, for the most part.

The only reason I can see them jumping in, would be if they see Live and PSN capturing part of their content business. What impact is 100+ million games consoles between MS and Sony having on Apple's iTunes business? Maybe they'd figure they could turn that market into a 3 way split next-gen, and take back a quarter to a third of those content sales. I have no idea how much money that would be worth vs how much it would cost them to get in there. Maybe the success of Live and PSN are not significant relative to the sales of iTunes movies, music.

 

iTunes movies isn't a big business but apps and music are.

Remember seeing some survey about the biggest Netflix clients. PS3 and 360 were way ahead of AppleTV but not sure about iPad.

But this may have been before Netflix shot itself on the foot.