Apple's cost of success: More staff, lower margins

Workforce grows by more than 12,000 over past year, with many of those jobs added at Apple's retail stores, while the company reiterates its forecast of lower profit margins.

Apple added more than 12,000 employees to its ranks in the past year--a reflection of its sharp revenue growth and expanding retail presence.

High production costs for the iPad ding Apple's profit margins.
High production costs for the iPad ding Apple's margins. Apple

As of late September, Apple had 46,600 full-time employees, as reported in a 10-K statement it filed yesterday with the Securities and Exchange Commission. That figure reflects a healthy surge from 34,300 workers in 2009 and 32,000 in 2008, according to Reuters.

Most of those gains came in Apple's retail stores, which now employ 26,500 people--10,000 more than last year. The company currently has 317 retail outlets--233 in the U.S. and 84 stores in other countries. And it's eyeing more. In the past few years, Apple has opened 25 to 50 new stores each year. For 2011, it expects to launch 40 to 50 new stores, half of which are likely to be outside the United States.

One huge market that Apple has been pursuing is China. With four stores already open there, the company has said it plans to have 25 retail outlets in China by the end of 2011.

But Apple's product expansion--particularly with the iPad--is putting a damper on gross profit margins, which is revenue minus production costs. The company said in the 10-K statement for its 2010 fiscal year, which ended September 25, that its gross margin for the year was 39.4 percent--slightly lower than the 40.1 percent last year and mostly due to the higher production costs of products like the iPad. Those higher expenses weigh against what Apple asks consumers to pay for the iPad, which Apple has been trying to price aggressively.

The forecast of lower profit margins isn't new--Apple has already mentioned this, as during its conference call last week regarding its blow-out fourth-quarter earnings --so the figures here don't reflect a change in the forecast, but rather what Apple officially reported to the SEC this week.

For the near term, Apple reiterated in its 10-K that it expects its gross margin percentage to drop further as a result of new products that cost more to make and increases in the cost of product components. As a result, the company is eyeing gross margins of around 36 percent in the current fiscal quarter.

For 2010 overall, Apple poured $2.6 billion into capital expenses, including $404 million for its retail stores and another $2.2 billion for equipment, corporate facilities, and other items. Next year, the company expects to have $4 billion on capital expenses.

 

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