Is Apple obligated to pass on commodity savings?

Summary:Apple delivered a blowout quarter largely based on lower commodity costs that boosted gross margins to a healthy 35 percent. Think about it: If all the parts of a $1,099 MacBook get cheaper and consumers pay full price that's a great business.

Apple delivered a blowout quarter largely based on lower commodity costs that boosted gross margins to a healthy 35 percent. Think about it: If all the parts of a $1,099 MacBook get cheaper and consumers pay full price that's a great business. 

In fact, Apple lowers prices once in a while, but for the most part it doesn't pass along savings to customers.

If you're an investor in Apple that stinginess is great and paid off nicely--so nicely that no one cares about the stock option backdating scuttlebutt (see Techmeme). If you're a customer it's not so swell.

Now Apple's point on its earnings conference call was that the cheap component prices in the March quarter were due to a supply imbalance that's already working out. Fair enough, but customers could have been thrown a bone somewhere.

Piper Jaffray analyst Gene Munster asked Apple CFO Peter Oppenheimer about whether cheap component prices were sustainable.

On the earnings conference call Munster said: 

Back to the component pricing question, obviously you guys don't really have a history of really passing on significant benefits of the price environment to the customers and obviously the price environment might even increase a little bit for the component side. Is it safe to say if you essentially maintain your pricing of your products that you should be having margins consistent?

Oppenheimer:

For the June quarter I've guided gross margins to 32 percent. While I'm doing that for June, I would continue to target gross margin in the 27 percent to 28 percent range on a longer term basis, despite our recent results which have benefited from a number of factors, including a very favorable commodity environment.

Now looking forward, we are likely to see other factors which will drive gross margin down, such as a different commodity environment or product mix. We do not see the current gross margin levels as sustainable and don’t want you to count on them.

Munster then followed up and Oppenheimer noted that he expects commodity prices to trend up in June.

There's one question that lingers though. Apple is reaping the rewards of lower commodity prices for roughly three to four months. Should customers get a chunk of that?

I'd argue that the answer is yes, but if you're Apple why would you bother? Apple doesn't have to scrap for every slice of market share like Hewlett-Packard and Dell. In the same situation, PC prices would have gone down already.

Apple's big advantage. It has a fan base that's not price conscious. It all adds up for big gains for Apple. Just don't expect customers to benefit to the same degree as Apple--if at all.

Topics: Apple

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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