TIME Companies

This Might Be Apple’s New Biggest Problem

Apple Profit Margins
The exterior of the downtown Apple Store in Central Hong Kong in May 2014. George Rose—Getty Images

Analysts’ average estimate for the gross profit margin is 38.1%

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This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published at Fortune.com.

In a note to clients Monday, UBS’s Steven Milunovich raised his Apple price target to $115 from $100 on signs that the company’s gross margins — long the envy of its competitors — are once again on the upswing.

Gross margin, or GM, may be the number Apple analysts watch most closely — even more than iPhone unit sales, although the two are closely linked (the more iPhones Apple sells, the better its gross margins).

GM is a ratio calculated by the formula GM=(Rev-Cost)/Rev, and it measures how efficiently a company turns sales into profits — something Apple does better than most because it doesn’t have to cut prices to stay competitive.

Instead, Apple’s gross margins tend follow their own internal rhythms, falling when the company is tooling up to build new products and rising as efficiencies increase and component prices fall.

Gross margins peaked in Q2 2012 at an extraordinary 47.4% on the strength of sales of the iPhone 4S and dropped to 36.9% in Q3 2013 as Apple was gearing up to launch, in the same quarter, two new iPhones and pair of iPads.

For the rest of the story, go to Fortune.com.

TIME Companies

This Is the Scandal McDonald’s Is Dealing With Now

Firms cut ties to Shanghai-based supplier after allegations revive memories of 2012 scandal

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McDonald’s Corp and Yum Brands Inc are embroiled in a new scandal over food safety in China after one of its suppliers came under investigation for allegedly selling expired beef and chicken.

The episode threatens to throw a wrench in the pair’s efforts to get over a similar scandal in 2012, when they were accused of selling chicken products with excessive amounts of antibiotics.

Yum is the parent of KFC, Pizza Hut and Taco Bell and is the biggest operator of fast-food restaurants in China, having first opened KFC there in 1987, while McDonald’s has recently been lost second place, in terms of stores, to Taiwan-based Dicos.

Yum had said only last week that like-for-like sales in China had risen 15% in the second quarter, and that KFC sales had risen 21%, a badly-needed boost in view of falling sales in the U.S. at KFC and Pizza Hut.

For the rest of the story, go to Fortune.com.

TIME

That Time Steve Jobs Called Apple’s New BFF a Very Bad Name

Steve Jobs IBM Orifice
Steve Jobs, former chief executive officer of Apple Inc., unveils the iCloud storage system at the Apple Worldwide Developers Conference 2011. Bloomberg via Getty Images

Tim Cook wasn’t kidding when he said that selling into the enterprise wasn’t in Apple’s DNA

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This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published at Fortune.com.

Pat Gelsinger, then a senior vice president at Intel, now CEO of VMWare, tells the story:

“I went with (former Intel CEO Paul) Otellini to meet with [Steve] Jobs and his lieutenants. We go into this meeting and say Steve, let’s work together to make your Macs better for enterprise customers. Jobs looks at us and says ‘why would I do anything for that orifice called the CIO?’” said Gelsinger. “At Intel we’re aghast; two-thirds of our business is that orifice called the CIO.”

The anecdote, relayed by Jeff Jedras in Computer Dealer News, says a lot about why Apple needs IBM to crack the so-called “enterprise market” — those corporate and government IT departments rich and powerful enough to require a chief information officer.

Under Jobs, Apple stayed focused on the far larger consumer market. Unlike the enterprise, where CIOs decide what equipment to buy, purchase decisions in the consumer market are made by the people who actually use the devices — a dynamic that plays into Apple’s strengths in design and ease of use.

In Gelsinger’s anecdote, Jobs goes on to say: “I’m going to build devices that are irresistible for consumers, and CIOs will just have to deal with it.”

For the rest of the story, go to Fortune.com.

TIME technology

Here’s the Biggest Problem With IBM’s Supergenius Watson

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Watson has plenty of smarts, but not enough emotional intelligence, says IBM SVP Bridget van Kralingen. The head of the company’s consulting and services business (and former psychologist) spoke at Fortune Brainstorm Tech in Aspen today.

Since Watson made its debut on Jeopardy in 2011, the so-called cognitive system has learned slang and transformed into a fledgling analytics tool for doctors, insurance companies and retailers. Recently, the company has also made efforts to open up the super-smart computer and turn it into a platform for third-party developers, paving the way for what IBM IBM -0.72% hopes will be thousands of applications for all sorts of industries. That includes providing some developer tools and giving partners access to “subject matter experts” within IBM. The company also recently announced it would invest more than $1 billion into a newly-formed Watson Group, and launch a $100 million fund for investing in the Watson “ecosystem.”

“The thought is that we could have a whole cognitive network of capabilities in the world around us,” Kralinger said.

For the rest of the story, please visit Fortune.com.

TIME Brainstorm Tech

Watch Fortune Brainstorm Tech 2014 Livestream

Watch some of the biggest names in tech and business speak at Fortune's annual conference

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Fortune’s annual technology conference kicked off July 14 in Aspen, Colo.

Monday’s highlights included interviews with Ericsson CEO Hans Vestberg, Intel President Renée James, and a discussion on Big Data between Walter Isaacson and Microsoft CEO Satya Nadella.

Stay tuned to this livestream for more interviews and talks through Wednesday, July 16 with some of the biggest names in tech and business.

See Fortune.com for a full list of speakers and times.

TIME Companies

This Is How Much All That Muscle Milk Is Worth

Hormel Acquires Muscle Milk
A carton of Diet Muscle Milk at the Diet Muscle Milk Fuels NY Fashion Week at Lincoln Center on September 12, 2010 in New York City. Brian Ach—Getty Images

$450 million deal for CytoSport meant to broaden the company’s reach to younger consumers

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Hormel Foods has agreed to pay about $450 million to acquire sports-nutrition maker CytoSport, a deal meant to broaden the company’s reach to younger consumers.

The deal to acquire CytoSport, which makes Muscle Milk products, is expected to close within 30 days. CytoSport’s 2014 annual sales are expected to total about $370 million. Hormel HRL 0.61% expects the deal will add about five cents a share to earnings in fiscal 2015, with a neutral impact on fiscal 2014 results.

CytoSport first formed in 1998 by Greg and Michael Pickett, a father and son team that aimed to compete in the sports nutrition category. The company’s first protein products hit the market in 1999, though the Muscle Milk powder — which is the company’s most popular product — was released in 2000. CytoSport has also expanded abroad in recent years, in Canada and the United Kingdom.

For the rest of the story, go to Fortune.com.

TIME

This Is How Much James Bond Is Really Worth

The World Is Not Enough
Irish actor Pierce Brosnan as 007 in the James Bond film 'The World Is Not Enough', 1999. Keith Hamshere—Getty Images

90-year-old Metro-Goldwyn-Mayer film studio said it raised $100 million more than it originally sought.

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Metro-Goldwyn-Mayer (MGM) said Thursday it has raised $300 million in fixed-rate loans arranged by JP Morgan Chase and Goldman Sachs.

The 90-year-old film studio, which for years made classic films and is now home to the James Bond franchise, said it raised $100 million more than it originally sought. The loan spans six years and comes at a fixed rate of 5.125%, and it will be used for “general corporate purposes.”

For the rest of the story, go to Fortune.com.

TIME World Cup

This Is How Nike Is Totally Dominating the World Cup

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Jeff Golden—Getty Images

Nike says more World Cup players are wearing its gear than all other brands combined. It reported a 13% jump in revenues last quarter.

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Germany might have beaten the U.S. in a World Cup game on Thursday, but American sportswear maker Nike NKE 0.51% says it is beating German rival Adidas and others off the field in stores thanks to the tournament.

Nike reported that global sales of its namesake products rose 13% last quarter, including an 18% jump in Europe, where the Beaverton, Oregon-based company has been eating away at its smaller competitor’s market share in its home market.

Nike is now seriously challenging Adidas’ status as the world’s largest seller of soccer gear. (Nike had 14.1% of the global sportswear/footwear market compared to 9% for Adidas, according to Euromonitor.)

According to a Reuters report, earlier this week, Adidas CEO Herbert Hainer said that his company would reach its target of $2.72 billion in soccer gear sales in 2014 with the help of World Cup performances by the star players it sponsors, maintaining its lead over Nike’s $2 billion soccer haul.

For the rest of the story, go to Fortune.com.

TIME Apple

Pretty Much Nobody Wants to Pay a Lot for an Apple iWatch, Survey Finds

DOUNIAMAG-US-IT-INTERNET-APPLE-ITUNES RADIO
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In the first Piper Jaffray Watch & Wearables survey, 41% of respondents said they wouldn’t buy one at any price.

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This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published at Fortune.com.

The sample of 100 shoppers was hardly representative of the U.S. population — never mind today’s global market for electronics. It consisted of …

– 100 adults, 61 women, 39 men
– Average age 32, youngest 16, oldest 62
– Average income $130,000
– 75% owned a watch, 25% didn’t
– Of the owners, 59% wear a watch every day
– 22% change their watch every day
– They own an average of 2.4 watches
– They buy a new one every 3.4 years

These people may not be typical, but they are the kind of people you meet at the Mall of America, the world’s largest and busiest (40 million visitors annually) shopping emporium. This is where Minneapolis-based Piper Jaffray does much of its consumer market research, testing the waters for everything from teen fashions to smartphones.

On Tuesday PJC released the results of its first Watch & Wearables survey, using Apple’s AAPL 0.16% rumored iWatch as a hook.

Screen Shot 2014-06-24 at 1.18.54 PMKey finding:

– 14% would pay $350 for an iWatch
– 36% would pay between $100 and $200
– 41% wouldn’t buy one at any price

The 14% intention to buy a $350 iWatch fell between two earlier Piper Jaffray surveys (12% in an Oct. 2013 survey of the general population and 17% among teens in April 2014).

And on the strength of that 14%, lead author Erinn Murphy is sticking with Piper Jaffray’s earlier estimate that Apple could sell anywhere from 5 to 10 million iWatches in the first year, generating as much as $3.5 billion addition revenue.

For the rest of the story, go to Fortune.com.

TIME Transportation

JetBlue Flights Are About to Get Way More Comfortable

Mint front row, JetBlue airplane
JetBlue's new value-price business class service, dubbed Mint, is being launched on coast-to-coast flights this summer. courtesy of JetBlue

The new service, dubbed “Mint,” to be added to some New York-to-Los Angeles flights.

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Luxury travelers can start adding JetBlue to their list of airlines for cross-country flights. The carrier, famous for its all-coach set up, is already stocked with certain amenities: leather seats, satellite TV on each seat back, and high-quality snacks. Now it’s adding a first-class section with beds.

The new luxury section will include 16 lie-flat seats (four sectioned off in a suite) on some New York-to-Los Angeles flights, according to the New York Times. Flights to San Francisco will add the seats in October.

The new service will be called “Mint.”

For the rest of the story, go to Fortune.com.

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