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by Jason Snell & Dan Moren

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By Jason Snell

Hedging the headwinds

hedge-jeff-lange
I joked on Twitter about needing a picture of an Apple logo shaped like a hedge, and look what Jeff Lange did.

I’m kind of fascinated about the fact that during Apple’s quarterly conference call with financial analysts, the company’s massive profits and solid growth took a backseat to discussions of… foreign currency exchange.

I went into this a bit for my piece on Macworld this week, but the current strength of the dollar can make Apple’s life difficult.1

Basically, the stronger the dollar gets after a product launch, the more foreign sales eat into Apple’s product margins. Apple could respond by raising prices, but that would probably not make consumers in those countries very happy.

In general, Apple doesn’t want to re-price existing products. But as Apple CFO Luca Maestri said on the conference call, Apple does realign prices “particularly when we launch new products.” An American could cross over into Canada and buy a MacBook and save 132 American dollars. But the new Apple TV is priced dead-on with the current exchange rate, at CA$199.

More interesting is that Apple also hedges in the currency markets to protect itself from risk. If you know as much about complex financial instruments as I do, you may be wondering why Apple is using ornamental bushes to protect itself from fiscal harm. But in this context, Apple essentially has an ongoing program in which it invests in currency markets in ways that will profit the company if the dollar grows stronger. These investments allow Apple to have “some level of protection to foreign-exchange movements,” as Maestri said.

I think it’s sort of fascinating, but mostly in the sense that things are going so well for Apple right now that the biggest concern the analysts seem to have about their business is how global economic conditions will affect it. To appropriate the metaphor used a half-dozen times on the analyst call, the good ship Apple is in peak condition and there’s no other vessel on the oceans like her. Her only threat at the moment appears to be foreign-exchange “headwinds.”

And that’s this quarter’s report from the land of international topiaries and financial sailing ships.


  1. Here’s a nice piece by Myles Udland about it from earlier this year. ↩

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