According to this list, Apple Inc. (NASDAQ:AAPL) is 17th in the Fortune 500 in terms of total revenues generated. The tech giant made close to $157 billion in revenue in its 2012 fiscal year, and Wall Street is predicting that, on average, it will flirt with $200 billion by the end of FY2013.
Why is this important?
Well, for starters, it can shed some insight into the reasoning behind a recent story that came from Reuters contributor Chris Taylor, that discusses an “Apple Tax” in the U.S. Unlike the traditional definition of a tax, Taylor defines this term as a payment that households are willing to pay, saying that “Americans are shelling out big bucks annually to outfit the entire household with Apple Inc. (NASDAQ:AAPL) products,” to the tune of $444 per household, according to Katy Huberty of Morgan Stanley.
Taylor points out that this total was much higher than the $295 figure that households paid in 2010. Even more intriguingly, he mentions that “[i]f Apple rolls out its own HDTV, as expected, Huberty sees annual Apple spending by households doubling, to $888 by 2015.” Now, obviously, we’re talking about averages here. Still, considering that the median household income in 2011 was $50,502, and it’s very interesting to think that Apple Inc. (NASDAQ:AAPL) could receive 1.5-2.0% of Americans’ income in the not too distant future.
Here’s where things get weird.
Well, for starters, this information is nothing that most investors didn’t already know, this data just hasn’t been presented in this particular fashion before. We’re all aware of Apple’s massive market cap, and most know that the company is a mammoth on the revenue side as well.
In his article, Taylor presents his facts well, but then goes a bit overboard in his assessment of the “Apple Tax,” calling Americans “slaves to the devices,” saying that one family he interviewed had an “indentured servitude to Apple.”
If you don’t see a problem with this way of thinking, we’ll break it down for you.
Remember above when we mentioned that Apple Inc. (NASDAQ:AAPL) is the seventeenth largest Fortune 500 company in terms of total revenues? Here are some companies that are higher on that list: AT&T, JP Morgan Chase, Ford, and Berkshire Hathaway.
While we don’t have the exact statistics, it’s reasonable to expect that on average, American households are spending the same, if not more on cell phone service plans, banking, automobiles, and insurance, than they are on Apple Inc. (NASDAQ:AAPL) products. So why is Cupertino being singled out in this way?
Another way to break it down is by looking at market share, let’s say in the U.S. smartphone market. Despite what most would think, Apple actually holds nearly the same amount of market share as Google Inc (NASDAQ:GOOG)‘s Android OS, according to this November report. If Android makes up approximately 46% of the American smartphone market – to the iPhone’s 48% – are we in “indentured servitude” to Google as well?
No.
Consumers’ demand for AAPL iPhones, Android phones, cell phone plans, and technology in general, acts exactly the same way as demand for other products. That’s Economics 101. It’s arguable that technological advancement is a basic factor of one’s standard of living, so, isn’t it an encouraging sign that household spending on Apple products is set to increase over the next three years?
Unfortunately, many who read about the “Apple Tax” will single out Apple Inc. (NASDAQ:AAPL) without taking a step back and looking at the entire situation. In this author’s opinion, it’s ludicrous to single out one particular company, in one particular industry. Let us know your thoughts in the comments section below.
