Apple In A Diversification Mode Of Operation

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Feb 20, 2015

Grapevine has it that Apple (AAPL, Financial) is gearing up for something unconventional. If reports are to be trusted, Apple is planning to be working on a car that resembles the shape of a minivan. The Cupertino campus is brewing new ideas to launch the electric minivan the big way.

Hundreds of employees have been appointed to materialise this highly secret project. The employee list boasts of experienced managers from Apple’s iPhone unit. Employees from some leading automobile manufacturers are also being roped in. That also includes Steve Zadesky, vice president at Apple’s product design, a former engineer at Ford (F, Financial) and entrusted with the project dubbed as the "Titan."

Besides calling on Steve Zadesky, Apple has taken other employees from other well-known companies on board too which includes the ex-head of research and development at Mercedes, Johann Jungwirth. Apple has also been pulling in employees from the dominant electric car maker Telsa (TSLA, Financial). It is nothing like rocking the boat because Telsa has also undertaken the same tactics for their company lately.

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Apple in the diversification spree

In view of the U.S. car market scene in 2014 which sold 16.5 million cars, Apple needs to expand its car operation abroad, which would expand areas where Apple can turn over additional profits and match the U.S. market expectations. As for some trivia regarding the 2014 U.S. car market:

  • According to Kelley Blue Book data, the average transaction price for a light vehicle sold was $32,500 as of September last year.
  • The average transaction price for a vehicle multiplied by the total sales in units gives us the idea that the U.S. auto market is valued well above half a trillion dollars.

Most of the analysts suggest that Apple is expecting to expand its minivan market overseas to see the maximum revenue and profits pouring in.

Although a paradigm shift, Apple’s is still expected to perform as a hero even in minivan making. When it comes to technology, Apple has a kind of its own. We can only guess about the Apple’s ambitions for the car stretch but judging by the employees Apple has taken on board, it directly hints at the secret project Apple has put on a roll which obviously belongs to the auto industry.

If only Apple embarks upon car making, analysts are hopeful that it would charm hearts like ever which will ratchet up the revenue and profit by a larger margin. It can also make good use of the massive market cap it holds to add more sustainable growth.

Will Apple gain by hopping into the auto sector

If one compares Apple’s business size with Porsche (POAHF, Financial) which made about $2.6 billion of operating profit which means 20% operating profit margin on revenue of $14.3 billion, whereas Apple made about $53 billion of operating profit in the fiscal year ending in September 2014, a spectacular 28% operating profit margin on revenue of $182 billion, Apple’s profit is likely to increase by 5%.

Likewise, if one compares Apple with General Motors (GM, Financial) that boasts of operating profit of $1.5 billion in 2014, about a 1% profit margin on sales of $156 billion, Apple’s profit would grow even less, say about 2%.

Moving on, if someone goes on to compare with Telsa, Apple’s profit could grow by about 2%.The idea of buying Telsa wouldn’t fructify just now as Telsa is amid a losing streak.

The same 2% profit will be generated by Apple if it is to be compared with Bayerische Motoren Werke AG (BMW) which earned about $11 billion in 2014.

Parting thoughts

Overall, it seems impressive how Apple is chalking out its plan to rub shoulder with ace auto makers in the U.S. market. Apple shareholders must be happy to read the above speculations about how much profit Apple would draw if it sets foot in the automobile market.