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About this siteFor six years, the Internet Nexus served as my technology blog, but I've since started blogging at the SuperSite Blog instead. If you're looking for the blog, please head there. --Paul Tuesday, September 07, 2004The Song Remains the SameForbes: "The iPod is a raging success--but not the rest of Apple. By some estimates Apple, now at $11.9 billion in market value, would be worth $15.1 billion broken up, jettisoning the Macintosh business (see chart). In a Microsoft-dominated world, Mac's share is down to a scant 2%, and the business is valued at less than one-half times sales, one-fourth the level at Dell. Then again, Apple stock has doubled in two years and trades at 37 times projected earnings (versus 25 at Dell). That owes mostly to the iPod. In the past year iPod sales have more than doubled to $890 million, 12% of total sales and roughly 30% of Apple's $247 million in earnings before taxes, interest and nonrecurring items. (Song sales at iTunes are near $90 million a year.) But the bet on iPod is a risky one ... Already Apple's margins on the music players are shrinking. The iPod's operating margins peaked at 13% in December and, since then, have fallen a jolting five points. (These are estimates. Apple doesn't break out profits by product line.) The gadget's price is down so much this year that Apple will have to sell 20% more iPods next year to maintain profits; no problem, as analysts expect a 70% rise. Falling prices are fine if Apple, like Dell, were getting more efficient. But it isn't, and it never really has been. In 2000, when overall sales were 4% higher than now, Apple's operating margin was 9%. Today it is a mere 3%. Head count is up 32% from 2000, and sales per employee are down from $930,000 to $674,000. The iPod was supposed to create a halo effect, drawing lots of new customers to Apple's stagnant desktop and notebook lines, which still account for 64% of sales. But, with the exception of a nice 14% sales increase in Macs and iBooks in the June quarter, Apple's core Mac line has remained flat ... Hmmm. Falling prices, a penchant for proprietary design and a raft of new products from big rivals, with most of them running Microsoft software. Somehow, it all sounds awfully familiar."
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