Take a bite out of Apple and find out how it spends its money

There is no doubt that Apple is one of the most successful and valuable companies in the world. But how does this big and valuable company spend its money? Master Business has done a breakdown of Apple, Inc’s expenses and gives us some clues about its formula for success! Breaking its own records Apple recorded record revenue and profit in the fourth-quarter of the 2012 financial year after selling 26.9 million iPhones – a 58% growth over the same quarter in 2011. The total operating expenses for the financial year 2012 were $13.421 billion. Net income before taxes for the financial year 2012 was $55.763 billion, net sales were $156.508 billion (higher than 2011 when they were $108.249 billion). Spending on the Increase Apple has grown and developed incredibly in the last few years, but and have invested heavily to make this possible. In “Selling, general and administrative” areas, they have invested $10.04 billion in the 2012 financial year, against $7.599 billion in 2011, $5.517 billion in 2010, $4.149 billion in 2009 and $3.761 billion in 2009. Apple has invested significantly in research and development as well. In the 2012 financial year they spent $3.381 billion, against $2.429 billion in 2011, $1.782 billion in 2010, $1.333 billion in 2009, and $1.109 billion in 2008. However, it’s worth mentioning that Microsoft, Intel, International Business Machines (IBM), Cisco Systems and Google have invested more than Apple in research and development. A few key expenses If you are interested in other details, here are a few key expenses:
  • In 2011, the average pay for Bay Area/Silicon Valley CEOs was $3 million. With his stock options, Apple CEO Tim Cook’s pay came in at a staggering $378 million.
  • In 2012, there was a 94% increase in data center spending from 2011, with an estimated $7.04 billion of expenses. However, this is expected to rise only 7% in 2013.
  • $614 million was budgeted for retail stores in 2011, while the amount increased to $900 million in 2012.
  • $7.1 billion was budgeted in 2012 for product tooling and manufacturing process equipment, corporate infrastructure and facilities and the information systems enhancements, software and hardware as well.
A lower tax rate How much income tax rate does Apple pay? Well, for the financial year 2011 they paid 24.2% income tax, meaning they paid $8.283 billion in income tax. For 2012, they paid 25.2% income tax, and the income taxes paid were $14.03 billion! Apple has a 35% statutory income tax rate and the reason cited for paying lower rate is the following one: foreign earnings are excluded because they're "intended to be indefinitely reinvested outside the U.S." (SEC Annual 10-K, 2011). This way, in 2011, Apple’s global tax rate was actually 9.8%. Building an image It pays off to build your brand and invest into your image. For example, Apple spends a great deal of money on advertising: in 2011 $933 million; in 2010 $691 million, in 2009 $501 million. They pour lots of money into advertising key products: they’ve invested $647 million into advertising the iPhone since 2007 and $457 million advertising the iPad. All in one, Apple is investing about $500k in government lobbying – not so much if you have a look at other technology/innovation companies. For example, Facebook invests $816k, Intel $882k, Amazon $900k, Microsoft $1.8 million while Google $5 million. The real cost of Apple products I’ve heard a lot of rumours about the low cost of an iPhone, but the real data are here: For a 16GB iPhone 5 there is a $199 bill for materials and $8 for manufacturing. This means that the bill of materials plus the manufacturing costs equals 15.4% of the price (without contract). For a 16GB iPad 3rd Generation WiFi+4G, Apple pays $347.55 for the materials and $10.75 for the manufacturing cost. In conclusion, the material costs plus the manufacturing equals 57% of retail price. I hope this post has answered some of your questions about Apple’s budget and you have some found interesting figures. If so, don’t keep it just for yourself. Share it!
May 07, 2014