Job’s Mob added the new warning on growth and profit margins to its latest annual report, adding it to the list of “risk factors” facing the tech group’s business.
“New products, services and technologies may replace or supersede existing offerings and may produce lower revenues and lower profit margins which can materially adversely impact the company’s business, results of operations and financial condition.”
The same 10-K regulatory filing in previous years suggested that new product introductions could have “higher cost structures.” However, until now, Apple has not been so direct in addressing the financial profile of its future products or claimed that its iPhone cash cow was a one-off.
In the filing, Apple added new warnings about the potential impact of “geopolitical tensions” — a phrase absent from its risk factors for several years — and safety risks from new AI features.
Apple is facing regulatory pressure on its App Store and other parts of its high-margin services business, while the recent US antitrust victory against Google threatens to cut off billions of dollars in licensing revenues that Apple makes from the search group.
Jobs’ Mob is set to be the first big tech company to receive a fine under the landmark EU digital rules over barriers it imposes on app developers to link out to cheaper offers outside the App Store. Bloomberg first reported on the potential fine.
The company is also losing its charm for long-term investors. Warren Buffett revealed on Saturday that his Berkshire Hathaway had cut its stake in Apple by almost two-thirds in just over a year.
Apple last week reported a six per cent rise in revenue to $94.9 billion for the quarter to September 28, with record gross margins of 46.2 per cent.
Analysts are warning that Apple’s new products are not sure to match the margin profile of the iPhone and its associated services, which range from music and video subscriptions to mobile payments and cloud storage.
Deepwater Asset Management Gene Munster said there are many unknowns for Apple at the moment.
Munster also questioned how Apple’s services business would make money from generative AI, beyond using the new features to drive device sales. Apple does not charge a separate fee for access to its AI features, which run only on its latest iPhones.
“AI is transformative, and the first cut at how they approach this isn’t their last,” Munster said.
Apple’s gross margin expanded from 33 per cent in 2007, the year the iPhone launched, to about 38 per cent or above for the past decade.
Despite intense competition from lower-cost rivals in the smartphone market, where growth has slowed in recent years, Apple’s gross margin has grown to more than 40 per cent since 2021 as more customers opt for higher-priced iPhones.
