9 Cheap and Healthy Filler Foods

soup featuring cannelini beans, haricots verts...

soup featuring cannelini beans, haricots verts, savoy cabbage sweet potatoes and butternut squash (Photo credit: Wikipedia)

English: Butternut Squash pumpkins

English: Butternut Squash pumpkins (Photo credit: Wikipedia)

English: Ipomoea batatas (Sweet Potato)

English: Ipomoea batatas (Sweet Potato) (Photo credit: Wikipedia)

Cucurbita moschata 'Butternut'. Original descr...

Cucurbita moschata ‘Butternut’. Original description: Courges butternut (Cucurbita moschata) Photo JH Mora, septembre 2005 (Photo credit: Wikipedia)

9 Cheap and Healthy Filler Foods

If you are like my family, you keep crackers or chips in your pantry to use as casserole toppings, serve with salsa, or add to soups. Though these foods are filling, their nutritional value is limited.

However, there are other commonly available foods that can serve as fillers, helping to keep you satisfied while increasing the nutritional value of your breakfast, lunch, dinner, or snack. These items are elegant additions to dishes that can stretch their number of servings without overdoing the calorie count. (See also: Canned Foods That Go the Distance)

Here are some cheap and healthy filler foods I keep in my kitchen.

1. Chickpeas

Canned chickpeas are often available for a dollar if you purchase the house brand. They are easily stored in your pantry and ready at a moment’s notice: open the can, rinse the beans, and drain.

For a healthy addition to a snack or side dish:

Chickpeas (aka garbanzo beans) are a great source of protein, fiber, and iron.

2. Pasta

A 16-ounce package of pasta costs less than $2 and can keep for months in your pantry. Add dry pastas to dishes that will cook a while or use cooked pasta for quicker meals.

To make a satisfying meal:

Pasta is a good source of B vitamins and iron. (See also: Stuff We Love: Imperia Pasta Machine)

3. Orange Vegetables

Orange vegetables, such as butternut squash and sweet potatoes, are inexpensive (they cost between 50 cents to $2 per pound, depending on the season) and last a while in your cupboard.

You can roast squash whole in the oven; cut in half when done, remove seeds and strings, scoop and reserve the flesh for additions to various recipes. Sweet potatoes can be microwaved, baked, or boiled until done; cut sweet potatoes in half and remove flesh. (See also: Sensational Sweet Potato Recipes)

To boost the flavor of your favorite foods:

  • Add butternut squash to soups
  • Substitute butternut squash for zucchini in a sweet bread recipe
  • Mix a small amount of an orange veggie (about one cup) into mixtures for bread, rolls, or pizza dough
  • Stir sweet potatoes into tomato-based sauces
  • Add squash or sweet potatoes to a dip

Orange vegetables contain beta-carotene and other nutrients.

4. Peppers

Peppers of all kinds add flavor. Green peppers are generally the least expensive, at less than a dollar each, while red peppers may cost you a couple of bucks. Wash, remove seeds, and chop before adding to dishes.

To increase the pizzazz of your meals:

  • Saute peppers in butter or olive oil, and add to omelets and frittatas
  • Toss raw on pizzas or inside tacos or tortillas, and prepare as usual.
  • Saute peppers and add to casserole dishes such as baked spaghetti or your favoritechicken casserole.

Peppers are loaded with nutrients, including vitamins A and C.

5. Black beans

Like chickpeas, house-brand canned black beans may cost about a dollar. You can also buy dried black beans in a bag for a couple of bucks or about 25 cents per serving. Open a can, rinse, and drain; or soak dried beans, rinse, and cook until done. (See also: Cheap, Delicious, and Healthy Black Bean Recipes)

To add richness to your meal while boosting its nutrition:

  • Add black beans to tacos, tortillas, and nachos
  • Toss black beans in a pot of chili or nearly any other type of soup
  • Add black beans to a chicken salad

Black beans contain protein, carbohydrates, and fiber along with vitamins and minerals.

6. Kale

A bunch of kale in the fresh produce section often sells for less than $2 and large quantities of washed-and-bagged kale may go for just a few bucks.

Kale can be bitter, so I typically add this ingredient to sweet stuff or saute in olive oil until it’s delightfully crisp. You can also steam and chop in a food processor.

To pack nutrition in your snacks and meals:

  • Blend raw kale with fruit smoothies
  • Toss sauted kale into pasta dishes made with pesto or tomato-based sauces
  • Add kale to egg dishes such as quiches, omelets, and frittatas
  • Use kale as a pizza topping

Kale is a great source of vitamins A, C, and K.

7. Vegetable Leftovers

Leftover vegetables can be considered free fillers if you would otherwise toss them out uneaten.

Increase the flavor of your favorite dishes while emptying your refrigerator:

  • Spread mushrooms, onions, spinach, tomatoes, etc. on pizza and bake
  • Throw green beans and cauliflower into your favorite soup
  • Make a frittata with those extra veggies
  • Use broccoli as a baked potato topping
  • Add vegetables to pasta, toss, and heat in olive oil
  • Mix kale, spinach, and red peppers with cheese and make a special grilled cheese sandwich

Vegetables contain various types of nutrients.

8. Bananas

Bananas typically cost less than $1 per pound. Keep a bunch on your kitchen counter.

If your bananas start to become overripe, peel and freeze them.

To add flavor and texture to breakfast and snacks:

  • Cut up and add bananas to cereal and yogurt parfaits
  • Mix mashed bananas into pancakes
  • Add sliced bananas to fruit salads such as ambrosia and desserts like ice cream
  • Add frozen pieces to fruit smoothies

Bananas are a good source of vitamin B6, potassium, and fiber.

9. Peanut Butter

Healthy, natural versions of peanut butter cost about $4 for 16 ounces or about 20 cents each time you add a spoonful to these recipes. Most peanut butter keeps a long time in your kitchen cabinet.

To increase the yumminess and creaminess of your snack or meal:

  • Spread peanut butter on apple slices, celery sticks, or crackers
  • Add a spoonful of peanut butter to smoothies
  • Use peanut butter as an ingredient in stir-fry dishes
  • Stir in peanut butter in muffin and sweet bread recipes

Peanut butter is a good source of potassium and contains protein and healthy fats.

What are your favorite cheap and healthy filler foods?

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The Stranger Beside John Kerry: Palestinian Rejectionism

October battles

October battles (Photo credit: Wikipedia)

en: Israel after the Arab-Israeli War in 1948-...

en: Israel after the Arab-Israeli War in 1948-1949 pl: Konsekwencje Pierwszej wojny izraelsko-arabskiej 1948-1949. (Photo credit: Wikipedia)

English: The Grand Mufti of Jerusalem, Haj Ami...

English: The Grand Mufti of Jerusalem, Haj Amin al-Husayni meeting with future Egyptian president Abdel Nasser. (Photo credit: Wikipedia)

Zionist mortar team outside Zafzaf

Zionist mortar team outside Zafzaf (Photo credit: Wikipedia)

The Stranger Beside John Kerry: Palestinian Rejectionism

It is now official: settlements in the West Bank are the obstacle to peace between Israel and the Palestinians. So sayeth the Obama Administration.

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Ever eluding the view of the Obama Administration, and its lately irritable and harassed Secretary of State, however, is a noisy little distraction that has made the Middle East the battle ground that it is for the last 90 years or so: Arab rejectionism of Israel.

This rejection has a long, and ferocious pedigree. These sentiments, indeed, long predated the first Arab-Israeli War of 1948. In 1937, when the British Peel Commissionrecommended that Palestine be partitioned into a state where the Jews would get some 15-20% of Palestine and the Arabs would get the rest, Haj Amin al Husseini, Mufti of Jerusalem, violently rejected the proposal out of hand, and without discussion. Like Hamas leaders today, he would not agree to the creation of any Jewish sovereign entity, no matter how microscopically small. Not only that, but all of Holy Palestine must be Arab and Muslim, and that was that.

What to do about the 400,000 Jews then living in Palestine in 1937? They would have to go, the Mufti said. Like Arafat later on, he was quite explicit and graphic about the means by which they would “have to go” before Arab audiences, but before Westerners he was always more evasive and equivocal. Benny Morris, in his most recent history of the 1948 War, cites some of his testimony before the Peel Commission in 1937:

Question: “Does his eminence think that this country can assimilate and digest the 400,000 Jews now in the country?”

Al Husseini: “No.”

Question: “Some of them would have to be removed by a process kindly or painful as the case may be?”

Al Husseini: “We must leave all this to the future.”

To which the commissioners responded: “We are not questioning the Mufti’s intentions…but we cannot forget what recently happened, despite treaty provisions and explicit assurances, to the Assyrian [Christian] minority in Iraq; nor can we forget that the hatred of the Arab politician for the [Jewish] National Home has never been concealed and that it has now permeated the Arab population as a whole.”

The process by which the Mufti, a staunch, dear friend and ally of Hitler, would remove the Jews, would not be “kindly” to say the least. To call the Mufti and other like-minded extremists of the time proponents of ethnic cleansing, would thus hardly be a slander. Their words and their actions convict them without question or ambiguity.

On March 10, 1948, the Mufti promised the Jaffa daily Al Sarih that the Arabs would not only reject the UN partition but “would continue fighting until the Zionists were annihilated and the whole of Palestine became a purely Arab state” and later added that the Arabs should “murder the Jews. Murder them all.”  He had been saying the same thing repeatedly for more than two decades, and his were not idle words.


Following the 1949 armistice agreements that ended the First Arab-Israeli War, and Israel’s admission to the UN, the Israelis, consistent with their obligations in gaining UN membership and Resolution 194, offered to resettle some 100,000 or so Palestinian  refugees in Israel at theLausanne Conference; the Arabs rejected the offer without discussion. The Arabs, as with all previous discussions, refused direct dealings with the Israelis, and demanded acceptance of the refugees’ repatriation in full as a precondition to further talks. The Israelis insisted on discussions of the refugee problem in the context of a full regional peace; the Arabs refused, and the discussions broke down.

The state of Israel in its post-armistice configuration resulted from the war and the Israelis had made clear that they were not going to negate the results of the war in which they had just sacrificed 1% of their population and return to the vulnerable partition lines of 1947 which a) the Arabs had rejected anyway, and b) while the Arabs continued a state of hostilities and a policy of non-recognition.

The full return of the refugees to Israel in 1949 with the surrounding states still in the midst of a state of hostilities would have put some 750,000 (or more) Palestinians along with some 160,000 remaining Palestinians alongside some 650,000 Jews, thus making the Jews a (41%) minority in their own state. This would seem to have blunted the Jewish people’s right to self-determination, and negated the entire reason for the creation of the Jewish state in the first place.

The Arabs, in effect, were demanding that prior to any negotiations, the Israelis must take into their state over three quarter of a million refugees, created by the war of aggression waged by them, thus making the Jews a 41% minority in their own state. Then they would negotiate, and without any assurance that even this would impel them to make peace with Israel. The Israelis, in effect, would thus flood their war-ravaged state with hostile Arab refugees in order to obtain a seat at the table with the Arabs, and then hope for the best in the negotiations to follow. Really incredible.

Jewish self-determination did not need to come at the price of the Palestinians’ exodus. The Palestinians, who also had a right to self determination that the Jews never denied, certainly would have had it if they and the surrounding Arab states had accepted the partition. Rejecting the partition and opting for war had consequences.

After the Arabs opted for war, the refugee problem caused by the war was probably never realistically going to be settled inside Israel except on a limited basis. The notion that the Israelis would have negated the results of the war of annihilation waged on them and rendered themselves a minority by those who had just attempted their annihilation was always absurd. Most of all, since when do the losers of a war dictate terms to the victors?

UN General Assembly Resolution 194 of December 11, 1948 is today regarded by the Palestinians and other Arab nations as the international legal authority upon which to implement the Palestinian “right of return.” Here is the relevant paragraph:

“Resolves that the refugees wishing to return to their homes and live at peace with their neighbors should be permitted to do so at the earliest practicable date, and that compensation should be paid for the property of those choosing not to return and for loss of or damage to property which, under principles of international law or in equity, should be made good by the Governments or authorities responsible”

The resolution is in the form of a recommendation and is hortatory. This, in fact, was one of the reasons that the Arabs rejected the resolution. The other reason was that the UN General Assembly rejected the late Count Folke Bernadotte’s original draft of the resolution:

“the right of the Arab refugees to return to their homes in Jewish-controlled territory at the earliest possible date… and their repatriation, resettlement and economic and social rehabilitation, and payment of adequate compensation for the property of those choosing not to return…”

The resolution in its final form makes no mention of a “right of return” or of “Arab” refugees. It merely recommends that all refugees “wishing to return to their homes and live at peace with their neighbors should be permitted to do so at the earliest practicable date.”

The Conciliation Commission for Palestine established by the UN was charged with the task to “take steps to assist the Governments and authorities concerned to achieve a final settlement of all questions outstanding between them,” meaning resolving the refugee issue (which was but one paragraph in Resolution 194) within the larger task of the establishing of a full regional peace among the former belligerents. It does not anywhere state that Israel is in any way obligated to allow an unlimited repatriation of Palestinian refugees independently of all the other provisions and recommendations, while the Arabs/Palestinians continue a state of hostilities and defy the provisions calling for them to live “at peace with [their] neighbors” i.e., Israel, and it most certainly never envisaged those refugees not repatriated to remain unsettled and stateless in their host countries.

Paragraph 4 of UNGA Resolution 393 of December 2, 1950, in fact, states clearly and unequivocally (and without prejudice) that

“the reintegration of the refugees into the economic life of the Near East, either by repatriation or resettlement, is essential in preparation for the time when international assistance is no longer available, and for the realization of conditions of peace and stability in the area.”

Article 5 of the same Resolution instructed UNRWA “to establish a reintegration fund which shall be utilized for projects requested by any government in the Near East … for the permanent re-establishment of refugees and their removal from relief.”

But the Arab refugees were not reintegrated in their host countries; unlike the Jewish refugees forced to flee from Arab and Muslim countries, who were assimilated into Israel and their other places of refuge, the Arabs were left to rot in squalid refugee camps as title deeds to an Arab reconquest of Palestine, yet to occur.

In 1967, when the Israelis came into possession of the occupied territories, they offered to withdraw from them in return for a full peace. Nasser answered the Israelis in August of 1967 with his famous “three no’s”: “no recognition, no negotiations, and no peace.” So that was that. The Israelis thus found themselves in possession of the territories for an unforeseen length of time. How did they manage them?

The Israeli administration of the territories would soon see thePalestinians’ quality of life and standard of living literally skyrocket in the years to come. In June of 1967 the living conditions in the territories were deplorable: low life expectancy, malnutrition, infectious diseases, high child mortality, low education, high illiteracy, and rife unemployment (83%). Access to the Israeli economy would soon account for a 40% upswing in Palestinian employment, and the establishment of some 2000 industrial plants in the territories created even more employers as well as jobs and higher productivity.

Indeed, by the mid 1970′s the Palestinians had the fourth fastest growing economy in the world, surpassing Singapore, Hong Kong, Japan, and South Korea; the GNP jumped from $165 per capita in 1968, to $1,715 in 1991, surpassing Egypt, Turkey, Jordan, Syria, Tunisia, and Yemen. Life expectancy rose from 48 in 1967, to 72 years in 2000. Thanks to Israeli medical and inoculation programs, infant mortality fell from 60 per 1000 in 1967 to 15 per 1000 in 2000, and childhood diseases like polio, whooping cough, tetanus, and measles were eliminated completely.

By 1986 93% of Palestinian homes had gas and electricity around the clock compared to 20% in 1967; 85% had running water compared to 16% in 1967, and refrigerators, televisions, and cars rapidly multiplied across the once barren territories. The number of schoolchildren grew by 102% and the number of classes grew by 99%. Seven universities sprouted up where none had existed before. Illiteracy sank like a stone. Such were the evils of Israeli “oppression.”

In 1979, in the midst of all this “oppression,” the Palestinians were offered autonomy in the West Bank and Gaza that was included in the Egypt-Israeli peace agreements. Many West Bank mayors were enthusiastic about the offer. Yasir Arafat, however, not only rejected the offer, but intimidated all West Bank politicians into silence, denouncedthe peace agreement as “treason,” celebrated Anwar al Sadat’s assassination by the Muslim Brotherhood, and lavishly praised his assassins. Over the next decade, Arafat had several West Bank mayorsmurdered for “collaborating” too closely with Israel by attempting to assist them in redeveloping the Palestinian population centers.

Under the Oslo accords brokered by President Clinton, between 1993 and 2000 the Israelis withdrew from some 98% of the occupied population centers. Arafat, during this time, pocketed numerous Israeli concessions, made none, talked peace to Western audiences, and preached endless jihad on Israel to Arab ones. Arafat’s tenure (or, rather, his dictatorship) in the occupied territories during the Oslo years was adisaster for the Palestinian people. He brought to the West Bank, Gaza and Israel in the 1990′s what he had bought to Jordan in the 1960′s and to Lebanon in the 1970′s and 80′s: a pestilence of corruption, oppression, and mass murder, as well as something hitherto unknown in Israel: the first suicide bombers.

All of this was largely ignored by the UN, as well as by Western journalists, diplomats, and policy makers. They were focused on “peace.” In 2000 Israel twice offered the return of the Golan Heights to Syria in return for a full peace; it was refused. In May of 2000 Israel unilaterally withdrew from southern Lebanon. In the next several months Arafat would be offered over 97% of the West Bank, all of Gaza, East Jerusalem as a capital, breathtaking concessions on the sovereignty of the Temple Mount, and the removal of all Jewish settlements from territory ceded to the new Palestinian state (i.e., 97% of the West Bank and 100% of Gaza). Arafat rejected all offers put to him, made not a single counter-offer, and launched a terror war that would kill thousands of Israeli and Palestinian innocents.

In 2005 the Israelis unilaterally withdrew from Gaza; the result was the creation of a Hamas-ruled terror regime that has launched thousands of rockets at Israeli civilians and committed scores of brutal atrocities against their own, to the utter indifference of the UN, and left-leaning “peace” activists. In 2008 Mahmoud Abbas was offered virtually the entire West Bank in return for a full peace with Israel; he rejected it without discussion or counter-offer, just as his predecessors had been doing for the last 60 years.


It is hard to avoid the notion that John Kerry, for all his vaunted knowledge and experience, is as fundamentally ignorant of this rejectionist history as Obama seems to have been. Or he is willfully ignoring it. Either way, it redounds to his profound discredit.

Candidate Obama, remember, came into the presidency with some starry-eyed assumptions of his own about his ability to tame the furies of the Middle East. Confident of his powers of persuasion, he was sure he had the long awaited answer to the Israel/Palestine conflict. Eager to “restart” the peace process, he willfully ignored the intransigence of the Palestinians and the compromises and concessions made by Israelis in the past decade and, consulting his friends in the pro-Palestinian left-liberal foreign policy establishment, decided to make the freezing of settlements in the West Bank a precondition for further talks.

This shocked and bewildered many. Even the Palestinians had never made this a precondition for further talks, as it was always understood since the 1993 Oslo Accords that they would be dealt with in final status negotiations. The Palestinians, who were as bewildered as anyone by Obama’s demand, nonetheless adopted it as their own, for, as Abbastold Newsweek in 2011, he could hardly afford to do anything less, lest he be seen as less pro-Palestinian than the President of the United States.

Animated by his conviction that the settlements were the obstacle to peace, the President, after a year of diplomatic harassment, finally nagged Israel into a futile 10-month settlement freeze, publicly picked a fight with Netanyahu over the construction of a Jerusalem housing project in March 2010, and then subsequently re-emphasized his displeasure on the matter by receiving the Israeli Prime Minister to the White House later that month with all the warmth and civility accorded to a Prohibition-era saloon keeper dragged to a gangster’s lair, all the while not saying so much as “boo” about Abbas’ refusal to even come to the negotiating table. The President’s peace efforts were, henceforth, indefinitely stalled.

Upon becoming Secretary of State, Kerry lunged wilfully into the peace process jungle, with confident claims of a soon-to-be settlement, this much to the bewilderment of his interlocutors. Having now reaped failure from his efforts, he has found a scapegoat in Israel, who he also now blames for the collapse of the Iran deal, telling members of Congresswith regard to Israel to “ignore what they’re telling you, stop listening to the Israelis on this.” He has also warned of a third Intifada if Israel will not buckle to his “peace” demands. As Jonathan Tobin has written:

“ Having forced both parties into talks that were clearly fated to fail due to the division among Palestinians and their obvious unwillingness to accept statehood on generous terms that they’ve already rejected three times, Kerry can’t own up to the fact that his idea never had a chance and thus prefers to blame Israel for his own errors.”


“As soon he was sworn in, he threw caution to the winds and embarked on a course that a wiser man would have understood was merely a repeat of the mistakes of the past. Better men and more skillful diplomats than Kerry have failed under more propitious circumstances than the current situation, in which Hamas rules Gaza and a weak and fearful Fatah holds onto the West Bank only with the help of Israel. But Kerry’s hubris is such that he appears to be genuinely shocked by the apparent failure of his initiative and is now lashing out wildly and going so far as to threaten Israel with more Palestinian violence if Prime Minister Netanyahu does not bend to his will.”

It is time for the Secretary of State to finally understand that Obama’s tenure as a peace-processor has been a failure because the obstacle to peace is not settlements in the West Bank, as he and National Security Advisor Susan Rice  still insist, but the corruption, violence, and dysfunction of the Palestinian political establishment, and their bitter,long-standing rejection of the legitimacy of Israel as home of the Jewish people. That is the stranger standing beside him, and it’s high time they met.

The Explanation Behind Apple’s Gross Margin Decline, And Why The Future Looks Brighter

MacWorld Conference & Expo 2007 - San Francisc...

MacWorld Conference & Expo 2007 – San Francisco Steven P. Jobs present Apple’s phone : the iPhone (Photo credit: Wikipedia)

English: Apple iPad Event

English: Apple iPad Event (Photo credit: Wikipedia)

Image representing Apple as depicted in CrunchBase

Image via CrunchBase

English: The logo for Apple Computer, now Appl...

English: The logo for Apple Computer, now Apple Inc.. The design of the logo started in 1977 designed by Rob Janoff with the rainbow color theme used until 1999 when Apple stopped using the rainbow color theme and used a few different color themes for the same design. (Photo credit: Wikipedia)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…)


One of the main reasons why Apple’s (AAPL) share price declined from $600+ to $520 over the last 1½ year is due to Apple becoming less profitable. Its gross margin declined from 47% in Q2 2012 to 37% in the most recent quarter. While we all knew that Apple’s margins eventually had to come down, I think the pace of it, surprised almost everyone.

(click to enlarge)

So why exactly has Apple become less profitable? In my opinion, it comes down to a combination of 3 factors;

  1. The iPhone selling price has declined
  2. iPhone production costs have gone up
  3. iPad profitability has declined

While some followers of Apple are aware of the above 3 explanations, I think it is generally much less understood what has caused for instance the iPhone production costs to increase. In this article I will look into that, and in the end of the article I will discuss what we should expect in the future.

1: The selling price per iPhone has declined

In the below graph, you can see that Apple today earns less revenue for each time it sells an iPhone. While its ARPU in fiscal Q4 2011 was $647, it had declined to $577 in the most recent quarter.

(click to enlarge)

So how come the ARPU of the iPhone has declined? Apple still offers its newest phone at $650, the midrange phone at $550, and its entry-level at $450. Therefore the decline may seem somewhat counterintuitive. But I believe it can be explained by a combination of 2 factors;

  1. The low-end and the mid-end phones are getting relatively more popular amongst consumers. The quality of the older phones are simply good enough that consumers no longer feel a need to always purchases the newest one. Especially in China, the low-end iPhone has been growing at a higher rate than the high-end.
  2. The iPhone is getting increasingly popular in the US relative to the rest of the world (below diagram). In the US, iPhones are being sold at a lower price than in most other countries, and therefore the ARPU is being pushed down each time a phone is sold in the US.

(click to enlarge)

Source: Apple’s financial reports. The US data is reported by carriers.

2: iPhone production costs have gone up

In order to calculate gross profit, we subtract cost of goods sold (COGS) from revenue. The COGS related to the iPhone mainly consist of the below five parts;

  1. Royalties
  2. Bills of material
  3. Warranty cost
  4. Depreciation & Amortization (D&A)
  5. Manufacturing & Shipping

Of royalties, Apple pays around $10 per device it sells to Nokia. However, this deal was implemented relatively early in 2011 and thus doesn’t explain the increase in production costs. Neither does the bills of material, which according to iSuppli has been relatively constant over the last couple of years.

But the warranty policies have changed, and that implies higher costs for Apple. In 2012 warranty expenses totaled roughly 1.4% of revenue. In 2013 the level had increased to 2.95%.

Further, D&A expenses have also increased as percentage of revenue. While it is easy to think of the iPhone as a hardware product, it is important to remember that the “iPhone package” consist of both hardware and software. When Apple spends money developing the software, the investment is being capitalized on the balance sheet. However, as time progresses it shows up as amortization costs on the income statement.

As D&A cost have increased at a much faster rate than Apple’s revenue, it seems that Apple is “giving away” more valuable software than previously. This is actually quite an important part to understand as it implies that the hardware part of the iPhone is being sold at a lower price than previously. So while Apple hasn’t directly increased the price of the hardware, it has indirectly reduced it by increasing the value of the software it gives away.

At last, it is likely that manufacturing costs have gone up as well. Due to negative press related to Foxconn’s (Apple’s iPhone and iPad supplier) bad working conditions, Foxconn found it necessary to improve them. It has since been revealed that Apple and Foxconn shared the expenses related to the better worker conditions.

Combining all of the 3 factors, I estimate that the gross margin of the high-end iPhone declined from 60.6% in 2011-2012 to 53.3% in 2012-2013 (below table).

(click to enlarge)

3: iPad has become a lot less profitable

While iPhone margins has declined by quite a bit over the last 2 years, the iPad decline has been much more severe. To be more specific, I see 4 factors which has had a negative impact on Apple’s tablet margins;

  1. The extra costs related to warranty, D&A, manufacturing costs (improved worker conditions at Foxconn) are also having an effect on iPad production costs.
  2. The iPad BOM have increased as well. The 1st generation iPad had bills of material of a mere $253, which is much less than the 3rd generation iPad of $306.
  3. Older iPad models are accounting for an increasing amount of total iPad sales. The average selling price of the 10-inch iPad declined from $654 in Q3 2011 to $535 in Q4 2012
  4. The 1st generation of the iPad Mini had a lower gross margin than the 10-inch iPad. So after the Mini was introduced, the average iPad gross margin declined even further.

By combining all of these factors, I estimate that the iPad gross margin declined from 33% in 2011 to 22% in 2013.

What should we expect in the future?

Since Apple is reducing the price of its Mac-computers and giving awaymore software for free, it is tempting to extrapolate historical growth into the future.

But I think it will be a mistake to expect declining margins for Apple – at least over the next year – as Apple’s new pricing/product strategy should benefit margins. For instance, just look at the following margin-improving strategies;

  • Apple is maintaining the iPad 2 in the lineup (instead of replacing it with the 3rd or 4th generation). From 2011 to 2012 the iPad 2 (16GB) bills of material fell from $300 to $237. Assuming the bills of material have continued to decline, this model should have a pretty high gross margin today.
  • The iPad Air also has lower BOM than the 3rd generation iPad.
  • The price of the newest version of the iPad Mini is increased from $325 to $400.
  • The iPhone 5c works as a substitute for the more expensive iPhone 5 as the mid-end phone. This is positive as the BOM of the iPhone 5c are roughly $40 less than the BOM of the iPhone 5.

So while Apple’s gross margin has suffered from a lot of headwinds over the last 2 years, the new product lineup should offset the gross margin losses we would otherwise see in the next year.

Therefore I expect that Apple will post gross margin of around 36% for fiscal 2014.