Are Apple's accounts well-kept? This is the question that analysts and investors may ask themselves in light of the answers given by the company's new CFO, Kevan Parekh. He was testifying before a London court, where a trial is being held on the practices of the App Store.
Apple's store is accused by consumers of abusing its dominant position to make "exorbitant" profits — the famous commission that applies to the sale of applications, in-app purchases and subscriptions. A class action complaint whose outcome could cost the manufacturer dearly: experts estimate that the company faces a fine of 1.5 billion pounds (around 1.8 billion euros).
One of the issues at stake in the trial is to know how much the App Store actually brings in to Apple. One of the plaintiffs’ lawyers recalled an estimate of the operating margin made by the manufacturer on its store: it would exceed 75%, according to an expert who had testified during a trial opposing Epic Games to Apple.
75% is much more than in Apple’s other activities, whose total gross margin is 37%, which is already comfortable. But the estimate is disputed by Kevan Parekh: “I wouldn’t say that [this figure] is accurate,” says the CFO. While he believes it is possible to calculate a "rough estimate," the margin cannot be calculated "with any meaningful precision," says Luca Maestri's successor.
Apple "cannot attribute all indirect costs to specific products or services," he also said in his written statement, adding that "any attempt to attribute these types of costs would involve imprecise and subjective judgments." In other words, the company cannot put any figure on the profitability of its store.
The argument had already been put forward by Phil Schiller, the big boss of the App Store, last year during another trial. And for good reason: a margin of 75% or more would give food for thought to all those who think that Apple charges excessive commissions because of its monopoly on the sale of iPhone applications.
This ignorance of a key indicator is nothing short of astonishing. Apple’s “services” business, which includes the App Store, is the second largest contributor to the company’s turnover ($25 billion in the last quarter), behind the iPhone. And Apple would be ignorant of the level of profitability? It’s hard to believe, but these testimonies were made under oath.
Source: Financial Times
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