Apple’s (AAPL) 5 Most Profitable Business Areas

Apple’s (AAPL) 5 Most Profitable Business Areas

Apple, Inc. (NASDAQ: AAPL) designs, manufactures and markets mobile communication and multimedia devices, personal computers (PCs) and portable digital music players. The company’s products and services include the iPhone, iPad, iPod and Apple Watch.

All of Apple’s divisions generated higher sales and operating income in 2018. The company manages its operations by geographic region. Below, we’ll take a look at the five reporting sectors, each contributing different percentages of profitability.

Basic Takeaways

  • Apple is a global technology company with a strong brand and innovative products.
  • While Apple does not report individual performance of its product lines, it does segment regional business units.
  • America leads Apple’s revenue, increasingly followed by China. Japan and Europe are on a downward trend for Apple sales.

The Americas region is the largest contributor

Apple’s Americas region consists of North and South America. In fiscal 2018, which ended September 26, 2018, the segment posted operating earnings of $31.2 billion. This represented 37.2% of the company’s total segment operating profit, which excludes company-level expenses such as research and development (R&D) and stock-based compensation.

The unit was the highest producer of sales, which were $93.9 billion in 2018. This produced one of the lowest operating margins among the segments at 33.2%. In 2018, the Americas had an operating profit of $26.2 billion, contributing 42% of Apple’s total profits. The margin was lower, at 32.7%, on sales of $80.1 billion.

Greater China is developing

The Greater China segment includes China, Hong Kong and Taiwan. It’s the second largest contributor to Apple’s profits, but it’s growing rapidly and becoming increasingly important. In 2018, the business had an operating profit of $23 billion, which was 27.4% of the company’s total operating profit. Its operating margin of 39.2% makes it one of the highest among Apple’s divisions. Its net sales were $58.8 billion, the second largest total.

Results improved sharply from 2017, with sales and operating profits increasing by 84.3% and 108.4%, respectively. In the year-ago period, the Greater China division had sales of $31.9 billion and operating profit of $11 billion. This was 17.7% of total operating profit in 2017. The margin was 34.7%.

Europe’s importance is declining

Although the European division’s sales and operating profits are growing, they are not growing at the same pace as those in Greater China. In 2018, the unit, which includes European countries and India, the Middle East and Africa, had profits of $16.5 billion, which was 19.7% of Apple’s total operating profit.

Europe sales were $50.3 billion. The business generated a margin of 32.8%, making it Apple’s lowest. Europe had an operating profit of $14.4 billion on sales of $44.3 billion in 2017. This represented 23.2% of Apple’s total profits. The industry margin was 32.6%.

Japanese trails back

The Japanese division is Apple’s fourth largest profit driver. The business generated operating profit of $7.6 billion, or 9.1% of all of 2018. It is the highest profit margin, which was 48.5%. In 2017, Japan’s sales were $15.3 billion and its operating profit was $6.9 billion, which was 11.1% of that year’s total. The district’s margin was 45.1%.

Rest of Asia Pacific

This activity includes Australia and other Asian countries not included in the company’s other operating segments. The unit’s sales were $15.1 billion, generating an operating profit of $5.5 billion. The geographic region was responsible for 6.6% of Apple’s operating profit in 2018. Its margin was 36.6%.

In the previous period, operating profit was $3.7 billion, or 5.9% of Apple’s total. In 2017, the margin was much lower, at 32.7%, on sales of $11.2 billion.

Other Factors

Apple does not break down its earnings by individual business unit or product line, although it discloses sales that way. In the fourth quarter of 2018, global iPhone sales reached 64.5 million units, earning Apple a 15.8% market share during the period. That’s down from 73.2 million unit sales and a 17.9% market share in Q4 2017.

Analysts’ consensus estimates call for revenue of $61.48 billion, up 16.9% year-over-year and near the high end of Apple’s forecast. Earnings per share pegged at $2.78, up 34.3% from the year-ago quarter.

In the previous quarter (Q4 2017), Apple earned $52.58 billion in revenue. During this quarter Apple sold 46.7 million iPhones, 10.3 million iPads and 5.4 million Macs. Services include revenue from the iTunes Store, App Store and Apple Pay, among others. Other products consist of Apple TV and Apple Watch sales, as well as iPod and Apple accessories.

Leave a Reply

Your email address will not be published.