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Apple’s 10-K Filing Reveals Exciting Product Potential in 2011

The details of Apple’s (s aapl) 10-K filing for 2011 include an increased employee headcount, higher capital expenditure targets, and a decrease in its gross margin, for the second year in a row. Is this a mix that promises another year as innovative as was 2010?

Apple made its annual regulatory filing with the Securities and Exchange Commission Wednesday. It said gross margins will fall again in 2011, just as they did in 2010, “due to a higher mix of new and innovative products,” and predictions of higher prices for components and other production-related costs.

It said much the same thing last year; 2010 brought the introduction of the iPad, possibly Apple’s biggest gamble of the past decade when viewed from the vantage point of Dec. 2009. No wonder they expected gross margins to fall.

This time around, what might account for the same worry? The iPad is a winner, as will be its successor, and one would assume that the next iteration will be evolutionary, not revolutionary, so margins should go down. Same with the iPhone and its next iteration, though Apple might shake things up in that arena to get rid of the stigma of the antenna problems that plagued its latest smartphone release.

The redesigned MacBook Air, which will affect Apple’s 2011 financial year, could account for some of those narrower margins, but I think Apple has even more up its sleeve if it sees the gross margin percentage dropping below levels of a year when it launched a brand new product category. Maybe we’ll see changes as dramatic as the MacBook Air’s new internals come to the rest of the notebook line, or another new device category to extend the reach of iOS further still.

One other noteworthy element of the filing is Apple’s prediction regarding capital expenditure. The company plans to spend $4 billion in 2011, with $600 million of that earmarked for new brick-and-mortar retail. Plans for new stores include between 40 and 50 new locations, more than half of which will be located outside the U.S.

While 2010 is a tough act to follow, the next year should be another big one for Apple, especially as the Android(s goog)-iOS battle heats up. What do you see it planning for 2011?

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3 Responses to “Apple’s 10-K Filing Reveals Exciting Product Potential in 2011”

  1. The one thing I’ve been wondering about is the following. Apple is currently using last generation Intel technology in their lower priced, highest selling notebooks (MB, MBA and 13″ MBP). The new MBA refresh did not fix this. We know they are getting these last generation Intel chips for dirt. Once Sandy Bridge comes out they will have to pay top dollar for the up to date CPUs. There are only three ways they can do this:

    1, Substantially cut their margins
    2, Raise prices
    3, Not update until prices drop on Sandy Bridge CPUs

    We know they hate to raise prices though it is not completely unheard of (see the current generation low end iPod Touch up $30 from previous generation low end :). I don’t know how long they can put off an upgrade given that they are a generation behind on the CPU (with good reasons, but still…). So I suspect the warning in the report has to do with option #1.

    If I were Apple, I’d follow the strategy they follow with the iPhone (and used to follow with the last generation iPod Touch). Sell a Core 2 Duo as the base model of MBP, MBA. Charge a relatively large premium for the high model and make that Sandy Bridge. (Alternatively they could use an AMD product on the lowest model. This would be necessary if Intel dries up the Core 2 Duo supply completely. But I don’t think they will. I also don’t think we’ll see a low end Apple with iCore chips.)

    Apple could just not upgrade MBs until Sandy Bridge prices dip. Or hell, do not upgrade it at all – kill the MB line completely. They can afford to kill it if they come out with a Core 2 Duo 13″ Macbook Pro upon refresh. They just need to push the price down a bit more to $999. There were some people speculating here about a $800 Macbook. I don’t see it. I think we’ll just see plastic go away and the unibody base model drop to $999.

    I think this strategy would allow Apple to keep prices on base models keeping their current margins and make nice profits on laptops upgraded with Sandy Bridge.

  2. anthony aaron

    Don’t forget the other factor in Apple’s soon-to-be rising prices: Foxxconn, et al., are going to be raising their manufacturing costs. While this is a very small part of Apple’s overall cost structure, it’s just one more thing that they will have to probably absorb in the short term, rather than raising their prices. Foxxconn is probably just the tip of the iceberg here, at least in the near term — others will probably want to test the waters with Apple, too. Of course — these developments will have effects for manufacturers other than Apple, too.

    In any event, 2011 could be another interesting year for this amazing business enterprise that is Apple.

  3. Angry Zebra

    Less emphasis on content creation and application developer resources unless it ties directly to iOS. Anybody remember Shake, Final Cut, or Studio? Does Apple care whether Oracle develops Java for Mac? Will QuickTime ever grow again?

    Continued emphasis on hardware design that uses yesterday’s tech to make hardware smaller.

    Continued emphasis on not using the web as a communications medium (think Ping).

    Lack of commitment to the desktop OS becoming more apparent.

    Paying for the NC server farm in 2011.

    Purchasing companies that can be fit within Apple’s walled gardens like iTunes.

    In short, Apple circa 1984 but with more money and more focus on Steve’s vision.