Tuesday, May 17, 2011

Will Apple's Profits Be Investigated Next?

Q1 2011   ExxonMobil     Apple
Revenue$114.0B$24.7B
Earnings Before Tax$18.94B$7.96B
Income Taxes$8.0B$1.9B
Net Profit$10.65B$5.98B
Effective Tax Rate42.20%24.22%
Profit Margin9.30%24.27%
Profit/Employee$127,392 $128,470

I wouldn't want to give Obama or Congress any ideas, but in the first quarter of 2011, Apple was more profitable than ExxonMobil based on both having a higher profit margin (24.27% vs. 9.30% for Exxon) and higher profits per employee ($128,470 vs. $127,392 for Exxon).  In addition, Apple's effective income tax rate was only 24.22% compared to Exxon's 42.2% rate, so it must be getting some very generous tax breaks and subsidies?

69 Comments:

At 5/17/2011 11:47 AM, Blogger PeakTrader said...

Comparing Apple and ExxonMobil is comparing apples and oranges.

Apple produces new products with quality improvements and falling prices over time.

ExxonMobil produces the same depleting resource, i.e. oil.

 
At 5/17/2011 11:57 AM, Blogger juandos said...

"Apple produces new products with quality improvements and falling prices over time"...

Well PT obviously you're correct but do you think that would matter to this particular administration and its cohorts?

 
At 5/17/2011 12:06 PM, Blogger author said...

Obviously you just don't get it, Professor Perry.

We /like/ Apple. We /don't/ like Exxon.

Make more sense now?

 
At 5/17/2011 12:11 PM, Blogger PeakTrader said...

Juandos, it's a delicate line between killing the goose that lays the golden eggs and forcing more eggs out of that goose.

 
At 5/17/2011 12:27 PM, Blogger Benjamin said...

Publicly held companies should try to make as much profit as (legally) possible. That is their mission.

 
At 5/17/2011 12:39 PM, Blogger juandos said...

"it's a delicate line between killing the goose that lays the golden eggs and forcing more eggs out of that goose"...

Well PT of that I have no doubt but my question is, does this administration understand that bit of practical advice?...:-)

 
At 5/17/2011 12:44 PM, Blogger PeakTrader said...

SimplyHired.com
May 17, 2011

The average salary for apple computer jobs is $49,000.

The average salary for exxon mobil jobs is $65,000.

 
At 5/17/2011 12:47 PM, Blogger PeakTrader said...

http://www.simplyhired.com/a/salary/search/q-exxon+mobil

 
At 5/17/2011 12:49 PM, Blogger The High Priest said...

The aggregates posted by PeakTrader are meaningless. It doesn't take a Ph.D. in economics to realize that the distribution of types of jobs in those two companies will be totally different.

 
At 5/17/2011 12:50 PM, Blogger PeakTrader said...

http://www.simplyhired.com/a/salary/search/q-apple+computer

 
At 5/17/2011 12:51 PM, Blogger Rand said...

Petroleum engineering is the highest paid undergraduate profession. I think only physicians and lawyers make more money than petroleum engineers.

 
At 5/17/2011 12:55 PM, Blogger PeakTrader said...

The High Priest, if you have better data, I'd like to see it.

 
At 5/17/2011 1:00 PM, Blogger PeakTrader said...

Wikipedia:

ExxonMobil employees 2010: 83,600

Apple Computer employees 2010: 49,400

 
At 5/17/2011 1:17 PM, Blogger PeakTrader said...

Types of Oil Field Jobs

Roughnecks are oil field employees that work on and around drilling rigs and platforms. These opportunities pay an average salary of $44,000 as of October 2009, according to Indeed.com. However, roughneck opportunities overseas often pay much more.

As of October 2009, tool pushers make an average annual salary of $80,000...Drillers earn, as of October 2009, an average annual salary of $43,000...The average annual salary of a derrickhand is $68,000...The average annual roustabout salary is $34,000.

 
At 5/17/2011 1:20 PM, Blogger PeakTrader said...

The 2010 National Association of Colleges and Employers survey showed petroleum engineers as the highest paid 2010 graduates at an average $125,220 annual salary.

For individuals with experience, salaries can go from $170,000 to $260,000 annually.

 
At 5/17/2011 1:23 PM, Blogger Mike said...

PeakTrader was right with his first comment.

Apple makes luxury brands that don't have to be purchased. Oil is regarded by the left as property of the public like food and healthcare....and, of course, nobody should profit from these in the grand utopia.

 
At 5/17/2011 3:07 PM, Blogger Rufus II said...

About that $1.9 billion: To whom did they pay it?

 
At 5/17/2011 3:44 PM, Blogger Junkyard_hawg1985 said...

"SimplyHired.com
May 17, 2011

The average salary for apple computer jobs is $49,000.

The average salary for exxon mobil jobs is $65,000." - Peak Trader

So are you saying that Apple made their excess profits by exploiting their workforce? After all, their workers did not earn as much as Exxon employees.

 
At 5/17/2011 4:19 PM, Blogger Che is dead said...

"So are you saying that Apple made their excess profits by exploiting their workforce?"

How does providing someone the opportunity for voluntary, gainful employment translate into "exploitation"? And what exactly are "excess profits"? Try to extract your head from Karl Marx's ass.

 
At 5/17/2011 4:40 PM, Blogger PeakTrader said...

Hawg, it's interesting Apple's and Exxon's profit per employee are roughly equal. Yet, Exxon's compensation per employee seems to be substantially higher.

The High Priest says the distributions aren't the same. The variance could be much greater at Apple, e.g. between janitors and top management, and with a substantially lower mean.

 
At 5/17/2011 4:53 PM, Blogger PeakTrader said...

There may not only be greater inequality in Apple's employee compensation distribution, but also employee compensation may be too low compared to profit.

 
At 5/17/2011 5:45 PM, Blogger PeakTrader said...

Apple 401k Plan is a defined contribution plan with a profit-sharing component and 401k feature. This plan has a BrightScope Rating of 72. This plan is in the top 15% of plans for Total Plan Cost. Apple 401k Plan currently has over 37,700 active participants and over $1.2B in plan assets.

ExxonMobil Savings Plan is a defined contribution plan with a profit-sharing component, stock bonus component, 401k feature, and ESOP component. This plan has a BrightScope Rating of 87, placing it in the top 15% of all plans in its peer group. This plan is also in the top 15% of plans for Account Balances, Company Generosity, Participation Rate, Salary Deferral, and Total Plan Cost. ExxonMobil Savings Plan currently has over 42,500 active participants and over $18.1B in plan assets.

 
At 5/18/2011 12:03 AM, Blogger Methinks said...

Uh...Obama doesn't tax donors. He gives them "stimulus" subsidies.

 
At 5/18/2011 12:03 AM, Blogger Methinks said...

Uh...Obama doesn't tax donors. He gives them "stimulus" subsidies.

 
At 5/18/2011 7:38 AM, Blogger Eric H said...

What is the federal income tax rate for the Federal Reserve Banks that weekly loan several BILLION FRN's to us at interest?

 
At 5/18/2011 10:30 AM, Blogger sarahrbx said...

I only know that there are broadwide brand loyalty from customer. Apple is the brandname that people wish to pay at high price and still be happy.

 
At 5/18/2011 10:31 AM, Blogger Walt G. said...

Aren't profit margins industry specific? And the profit per employee is only a few dollars different, which would be neglible in the $120 thousand range. The taxes don't seem out of line with over four times the revenue and four times the amount of taxes paid. What is there to investigate from these data?

I realize corporations pay taxes on their net profits, but that won't help the argument for an audience of taxpayers who have to pay taxes on their gross pay.

 
At 5/18/2011 11:06 AM, Blogger morganovich said...

"but that won't help the argument for an audience of taxpayers who have to pay taxes on their gross pay."

gross pay?

only if you are an idiot.

there are about a zillion tax write offs available to individuals.

mortgage interest?

health care?

virtually an computer product that you use for business?

cell phone?

internet?

vehicle used for work?

and on and on.

better still, file as a "sole proprietor" and you can write off damn near everyhting you do.

it seems a bit silly to me to claim that individuals cannot take advantage of the tax system as well.

 
At 5/18/2011 11:09 AM, Blogger morganovich said...

"but also employee compensation may be too low compared to profit."

and what metric would you use to determine "too low"?

are you claiming that apple employees are too foolish to understand what they are worth or so unskilled and easily replaceable that they have no bargaining leverage?

 
At 5/18/2011 11:18 AM, Blogger morganovich said...

"Apple produces new products with quality improvements and falling prices over time.

ExxonMobil produces the same depleting resource, i.e. oil."

this is a senseless argument as well as being factually incarcerate.

drilling IS a technology business. witness the natural gas glut we now enjoy as a result of new horizontal drilling and hyrdofracking technologies.

further, if you have a limited resource, you would expect a sane seller to sell more dear, not cheaper.

(of course, the fact that XOM pays out over 70% of net income in various taxes doesn't help the comparison)

pre taxes, XOM actually has a higher opertaing income margin than AAPL (31% vs 28%).

the only difference in net margin is purely a function of XOM paying over 70% of operating income in various taxes vs 25% for AAPL.

 
At 5/18/2011 11:35 AM, Blogger Walt G. said...

it seems a bit silly to me to claim that individuals cannot take advantage of the tax system as well.

Well, people are silly, so it is a factor.

I still don't see the numbers between Apple and ExxonMobil that much out of line if you use a higher tax bracket for higher net income, but I will agree they are both too high.

 
At 5/18/2011 12:19 PM, Blogger morganovich said...

"Well, people are silly, so it is a factor."

well, so are many business owners.

but, as you get into wealthier people or more successful businesses, there tends to be less silliness, no?

also:

how do you see the the comparison of apple and exxon as "not that out of line" when apple pays 24% taxes and XOM pays over 70%.

 
At 5/18/2011 1:29 PM, Blogger PeakTrader said...

Average compensation per employee of $20,000, for example, to generate $120,000 in profit per employee may be exploiting employees.

Of course, there's much more innovation at Apple than at Exxon.

 
At 5/18/2011 1:36 PM, Blogger Walt G. said...

"but, as you get into wealthier people or more successful businesses, there tends to be less silliness, no?"

But there are many fewer of them than the other. We have to assume bounded rationality instead of rational choice. This drives economists crazy, but politicians depend on it.

how do you see the the comparison of apple and exxon as "not that out of line" when apple pays 24% taxes and XOM pays over 70%.

I am using the data supplied in the table without analyzing it any further. From that I see an effective tax rate difference of about 18% on almost twice the net profit. My effective tax rate will go up much more than that if I double my taxable income. Although I don’t support corporate taxes, I don’t see Exxon’s effective tax rate out of line using my yearly personal tax experience.

 
At 5/18/2011 1:41 PM, Blogger Jet Beagle said...

Peak Trader: "Of course, there's much more innovation at Apple than at Exxon."

First, how do you quantify innovation?

Second, are you sure you really know very much about the businesses in which ExxonMobil operates?

 
At 5/18/2011 1:55 PM, Blogger PeakTrader said...

Jet Beagle, you should read what employees say about ExxonMobil and Apple at glassdoor.com

http://www.glassdoor.com/Reviews/Exxon-Mobil-Reviews-E237.htm

 
At 5/18/2011 2:10 PM, Blogger Jet Beagle said...

PeakTrader,

ExxonMobil employs thousands of engineers and scientists who work in very technical fields. Some of the businesses in which this integrated energy company operates are:

deepwater exploration and production

petroleum refining

chemicals production

biofuels from photosynthetic algae

lithium ion battery technology

hydrogen fuel cells

carbon capture and storage

synthetic lubricants

Your comments so far seem to show that you believe ExxonMobil to be only a simple petroleum exploration and production company. If so, you are mistaken. XOM is an extremely technology-intensive company.

 
At 5/18/2011 2:12 PM, Blogger Jet Beagle said...

Peaktrader: "Jet Beagle, you should read what employees say about ExxonMobil and Apple at glassdoor.com"

Are you serious? Is that you source for information about XOM?

 
At 5/18/2011 2:27 PM, Blogger morganovich said...

"But there are many fewer of them than the other. "

not so at all.

most businesses fail in the first 2 years. taken as a whole, businesses are handled far less well than personal finances. can you imagine 25% of americans going BK every year?

regarding XOM's tax rate, i recommend perusing their 10k.

the comparison mark listed is JUST for income tax.

XOM pays a huge raft of other taxes as well that are even more draconian than the income taxes.

2010 year:

http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=7760898-311472-315544&type=sect&dcn=0001193125-11-050134

operating income 59.2 bn.

income tax, 21.6bn, so that's a 41% income tax rate. but, that's only part of the tax picture.

they also paid 36.1bn in duties and 28.6bn in sales based taxes.

considered as a whole, taxes are 86.3bn on 123.9bn of pretax income, which is 70%.

i doubt you know anyone in America taxed so heavily.

 
At 5/18/2011 2:33 PM, Blogger morganovich said...

"Average compensation per employee of $20,000, for example, to generate $120,000 in profit per employee may be exploiting employees."

but what is the standard?

if they need to use $1million in capital equipment that depreciates over 10 years to do it, then they are dramatically overpaid as they are capturing 100% of the post capx profit.

your whole notion here seems flawed.

what standard would you propose to measure "exploitation"?

it's silly to use "profit produced" in that way. you could never, ever quantify that.

consider a movie theater. most of it's employees are semi skilled. anyone can sell candy or be taught to change reels. all the productivity comes from the capital. why should they share in the profits when they are taking none of the risk and putting up none of the money?

i doubt you can come up with any measurable standard for "exploitation".

 
At 5/18/2011 2:35 PM, Blogger morganovich said...

ps.

in a free market in which people can chose to accept a job or not, is there really even any such thing as exploitation?

so say no. work somewhere else. skills with value are paid for. if you don't have them, you are not being exploited, you are being paid little because you have little ability.

 
At 5/18/2011 3:08 PM, Blogger Walt G. said...

morganovich,

If you want to expand the argument further than what is in the original post, it could be argued that ExxonMobil does not pay any tax. All their revenue comes from their customers and is distributed to the government (us) instead of distributed to stockholders, employees, or retained earnings.

In essence, many people want to tax themselves by increasing ExxonMobil's taxes. Demonizing ExxonMobil is a pretty good strategy if you want to pull someone's money out of their pocket with their blessing.

 
At 5/18/2011 3:19 PM, Blogger PeakTrader said...

Jet Beagle, many of the the pro and con comments on that site support the data, and provide additional information.

Morganovich, exploiting can be defined as paying someone too little in exchange for much more value.

Exploit: to utilize, especially for profit; to use selfishly for one's own ends: employers who exploit their workers; to take advantage of (a person, situation, etc.).

 
At 5/18/2011 3:54 PM, Blogger Jet Beagle said...

PeakTrader: "many of the the pro and con comments on that site support the data, and provide additional information."

Support what data? My disagreement with you is your assertions that:

"ExxonMobil produces the same depleting resource"

and

"there's more innovation at Apple than at Exxon"

Your response to me was to look at some anonymous evaluations of Exxon by some people who claim to be current Exxon employees. You have provided no data to back up the two assertions you made above. You haven't even provided any arguments.

 
At 5/18/2011 4:00 PM, Blogger PeakTrader said...

Jet Beagle, if you don't believe oil is a depleting resource, then you're ignoring the data.

Exxon has been in the oil business a long time, before Apple existed. Exxon didn't invent oil, but Apple invented many products.

 
At 5/18/2011 4:48 PM, Blogger Jet Beagle said...

Peak Trader,

My disagreement is not about whether oil is a depleting resource. Rather, it is with the implication that ExxonMobil is only in the business of producing crude oil.

Further, ExxonMobil has invented many innovative products and processes - likely many times more than Apple. If you do not know this, then you probably do not understand the businesses ExxonMobil operates in.

 
At 5/18/2011 5:07 PM, Blogger morganovich said...

"Morganovich, exploiting can be defined as paying someone too little in exchange for much more value."

no, that's not a definition, that's a platitude.

how do you define "too little"?

until you can do that, you have no thesis at all.

Ferraris are very expensive, does Ferrari exploit its customers? how can you exploit someone who is making a free choice?

you can say "a ferrari is too expensive" but they sell them all every year, so apparently not.

you can say, google pays too little, but they have dozens of applicants for every job. the same is true of apple.

if people are all fighting to get a car from the allocation list or to get a job, how can the winner who buys the car our gets the job be said to be being exploited?

you seem to have some fanciful notion of how things are priced.

skills are priced by supply and demand. what does the value they create have to do with anything? you are sounding awfully command and control socialist here.

 
At 5/18/2011 5:24 PM, Blogger Walt G. said...

morganovich,

I like your logic and the way you present it even if I don't always agree with you. You make strong points and support them well.

Would workers that are exposed to asbestos that the employer knows causes painful deaths, but the workers do not know, be considered exploiting the worker? Of course, along the same line, a worker who knew he or she did not plan to be a model employee when hired could be considered to be exploiting the employer. It seems asymmetrical information could be a prevalent form of exploitation going both ways.

 
At 5/18/2011 6:20 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 5/18/2011 6:24 PM, Blogger Ron H. said...

"Average compensation per employee of $20,000, for example, to generate $120,000 in profit per employee may be exploiting employees."

And, if that were the case, I'd expect those employees to be getting calls night and day from other employers, offering to exploit them at higher wages, wouldn't you?

 
At 5/18/2011 6:31 PM, Blogger PeakTrader said...

Walt says: "I like your logic and the way you present it even if I don't always agree with you."

Looks like Morganovich has more logic to do.

However, Morganovich can't seem to grasp exploitation, because it can't be measured precisely.

 
At 5/18/2011 6:36 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 5/18/2011 6:37 PM, Blogger PeakTrader said...

Ron says: "And, if that were the case, I'd expect those employees to be getting calls night and day from other employers, offering to exploit them at higher wages, wouldn't you?"

Not if they're exploiting their own workers even more, or if there are more people wanting jobs than there are job openings.

 
At 5/18/2011 6:42 PM, Blogger PeakTrader said...

Profit growth has been rising much faster than compensation growth, and there are many unemployed and underemployed people looking for jobs that don't really exist.

 
At 5/18/2011 6:45 PM, Blogger Ron H. said...

"Not if they're exploiting their own workers even more, or if there are more people wanting jobs than there are jobs openings."

Look, if there are more applicants trhan job opennings, you just can't use the word "exploit"

I hesitate to ask what your remedy would be for eliminating that "exploitation".

It's simple supply & demand. The market clearing wage is the one that fills every job opening while accepting all applicants. If there are more applicants than job openings, the wage must be too high.

 
At 5/18/2011 6:52 PM, Blogger PeakTrader said...

Do you believe some of these people are being exploited, or wages are "too high," while profits continue to soar?:

Economic data suggests soft patch continues
May 17, 2011

PAYCHECK CYCLE STILL IN EFFECT

Wal-Mart said U.S. sales fell in the February to April quarter, adding it continued to see a paycheck cycle, where people stock up around payday and then spend less as money runs out.

 
At 5/18/2011 6:55 PM, Blogger Ron H. said...

"Not if they're exploiting their own workers even more, or if there are more people wanting jobs than there are job openings."

So, you believe I've inadvertently picked an imaginary employer, in a hypothetical case, who just happens to pay the highest imaginary wage around? How bad can my luck be?

Well, then, I would expect my imaginary employer to be calling those even-more-exploited workers with offers to exploit them at higher, but still exploitive wages.

 
At 5/18/2011 7:11 PM, Blogger Ron H. said...

"Do you believe some of these people are being exploited, or wages are "too high," while profits continue to soar?:"

Exploited =No, wages too high =yes. Those soaring profits will be used...how? Business expansion, additional jobs, dividends to stockholders? Something good.

You're scaring me, Peak, I don't recall hearing these socialist notions from you before. Are you suggesting these profits should be redistributed to workers?

 
At 5/18/2011 7:20 PM, Blogger PeakTrader said...

Ron, some top managers at Apple are billionaires, or multibillionaires, unlike top managers at Exxon.

Along with other data, it seems, Apple employees are being exploited compared to Exxon employees.

More profit sharing with employees may be needed.

 
At 5/18/2011 7:21 PM, Blogger PeakTrader said...

Yes, why not, "profits should be redistributed to workers," at least until a real economic recovery is underway.

 
At 5/18/2011 8:34 PM, Blogger VangelV said...

Comparing Apple and ExxonMobil is comparing apples and oranges.

Not really. Essentially they both sell products to people who want them in a very competitive marketplace.

Apple produces new products with quality improvements and falling prices over time.

Yes it does. It is designs products that it makes abroad by using high quality Chinese labour and sells those products all over the world. It has a great business model.

ExxonMobil produces the same depleting resource, i.e. oil.

So? Exxon has to go to remote and dangerous places in the world. It has to take huge exploration risks, and invest hundreds of billions of capital to extract oil out of the ground, deliver that oil to ports where it is loaded on ships that it leases or owns. It sails those ships thousands of miles to American refineries, converts that oil into high value product that it sells to wholesalers who sell gasoline to Americans at a lower price than the equivalent volume of mineral water, coffee, or beer. Without the product that Exxon and the industry makes Apple could not exist and neither could modern society.

 
At 5/18/2011 8:40 PM, Blogger VangelV said...

The average salary for apple computer jobs is $49,000.

Most are retail jobs. They get to work in nice climate controlled shops and talk to people all day.

The average salary for exxon mobil jobs is $65,000.

Have you ever tried to work on an oil platform, a refinery, or in the desert? Have you ever welded a broken pipe at -25C? Or had people shooting at you while you tried to do your job? It seems to me that the energy sector salaries are fine. In fact, they seem quite low to me. There must be many secretaries, clerks, and retail positions in the average.

 
At 5/18/2011 9:34 PM, Blogger Ron H. said...

"Ron, some top managers at Apple are billionaires, or multibillionaires, unlike top managers at Exxon."

And, your point? Surely you're not going to talk about the disparity between top managers and workers. I suspect that most of those billionaires started with Apple in the early days, and were willing to accept worthless stock instead of actual paychecks.


""Along with other data, it seems, Apple employees are being exploited compared to Exxon employees."

To make things fair, we should suggest that XOM exploit their employees more. inequality is not to be tolerated.

"More profit sharing with employees may be needed."

I wonder if employees feel as strongly as you do? They should be the ones to decide whether they are exploited, shouldn't they.

Other than pay, are there any good reasons Apple would be a desirable place to work?

 
At 5/19/2011 2:27 AM, Blogger PeakTrader said...

VangelV, more dangerous jobs at Exxon may be offset by a higher educated workforce at Apple.

Perhaps, a petroleum engineer degree pays much more than a computer engineer degree, in part, because as author says "we like Apple, we don't like Exxon."

 
At 5/19/2011 3:23 AM, Blogger PeakTrader said...

As a capitalist, I'd rather spend $49,000 on an employee to generate $128,000 in profit (e.g. Apple) than pay $65,000 to generate $127,000 in profit (e.g. Exxon). I'd want to maximize profit.

 
At 5/19/2011 6:22 AM, Blogger Jet Beagle said...

vange and peak trader,

ExxonMobil employs thousands of highly educated and skilled workers. Some work at at its corporate and operating offices. Some work at its research labs. Many more work at its numerous refineries and chemical plants. The average pay for ExxonMobil workers is very high because of the skills possessed by those workers.

Many of the dangerous work you have referred to is not performed by XOM employees. Rather, it is performed by specialized drilling firms operating under contract on behalf of XOM.

Unlike Apple, XOM has almost no retail employees. It owns almost none of the retail stations which bear its name.

 
At 5/19/2011 10:37 AM, Blogger morganovich said...

"Yes, why not, "profits should be redistributed to workers," at least until a real economic recovery is underway."

what kind of communist nonsense is this?

spoken like a guy who wants someone else's money.

you speak of the economy like it is some god we must all appease. this is not so. the economy is just the sum of all the individuals in it. as a whole, it does not exist.

"times are tough, i should spend more money" is not a business mantra for success.

you act as though businesses have some obligation to create a recovery.

that's fascism.

 
At 5/19/2011 12:41 PM, Blogger DL said...

No way Obama goes after AAPL merely because of profits. The "evil" industries are the HC insurers, and the oil companies. Most tech companies are not perceived as evil, and so Obama doesn't gain politically by going after them.

(There is always the possibility of anti-trust, however).

 
At 5/19/2011 3:09 PM, Blogger Ron H. said...

""times are tough, i should spend more money" is not a business mantra for success."

...but is often heard from Obama.

 

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