Apple scores big - but everything depends on the iPhone
APPLE SLOWING DOWN
Apple shipped 1.6 million Macs and more than 21 million iPods during the quarter, representing a growth of 28% and 50% respectively from the year-ago holiday season. Earnings rocketed up 78% on sales growth of 24%. Zune went nowhere.
Hunh? Only 24% sales growth? That's mediocre. There must be some mistake, especially with the much higher unit sales growth.
Indeed, Mac sales were strong and almost 3x industry average growth – the biggest factor for me that indicates Mac is truly gaining in acceptance and market share. Prior to this quarter, Mac sales were really just pacing Dell et al. And iTunes is also growing and kicking out a solid batch of money. So why is sales growth a sickly 24%?
Answer: Apple is selling lots of $100 nanos and very few of the $400 iPods. Yikes.
In fact, even the Mac growth is illusory. Sales of the Mac are actually flat, sequentially. They aren't getting much acceleration. Last year sales were low in expectation of the new dual core iMac, so growth year over year is not meaningful. Flat flat flatter. Apple has reached a nice point where they are enjoying some better margins. Especially with the iTunes business.
But flattening sales is flattening sales. Apple can spin it anyway they want – they are slowing down. The stakes are even higher now, and the laws of big numbers are kicking in.
Into the breach comes the iPhone. And it is an amazing product.
As always - the form and interface are superior. The touch-screen is brilliant because of the enormous flexibility. Instead of Cyrillic, Japanese or Roman letters with different keypads, the same hardware can be used. Upgrades via software are possible. And more programs can be added. And a bigger screen from ditching the keypad allows for some nifty versatility in programs. This is a truly innovative product.
What about pricing? This is $500~$600. Sure, for Blackberry users, the price is the same but the phone is much more powerful. Goodbye RIM. Their days are numbered. And that’s a lot of business to steal. Apple is projecting 10 million unit sales in 2008. That is an amazing $5B~$6B in new revenue – about 40% additional annual growth. Enough to silence critics. Ok, a lot will come from cannibalizing iPod sales, but even a fraction of the $5B in net additive sales will be great.
There are problems.
TIMING The product isn’t shipping for a while, 2 quarters I think. In the meantime, I think the flattening sales growth will become more obvious. That’s a short term issue, but it is a window to competition.
COMPETITION The iPod debuted without strong entrenched players. The iPhone is coming into a very competitive market. It won’t be hard for Nokia or Motorola to mimic several of the key features: bigger screen, software based keypad, more flash memory for music/videos. The hardware is easily mimicked: LG and Nokia could roll it out in 1 month. More importantly, none of the established players will wait to let Apple succeed – they saw what happened with the iPod.
A smart competitor would release a me-too version for $200 and undermine Apple.
STEVE JOBS Clearly Jobs did a criminal act: he maneuvered for options and had them backdated. The counter argument is that h didn’t benefit – he returned them. Yes, but that’s only half the story, isn’t it. He didn’t return them, he actually swapped them for stock. Bottom line – he backdated and did benefit. At the least a criminal case is a distraction, and a bad one. I predict that he’ll get off, but will look like what he is: a greedy jackass, and one of the most successful.
The iPhone is a real disruption in the marketplace and consumers will win. Apple continues to be the Lexus in high-tech: setting the stage for a quality experience. Except that cell phone makers are not Detroit - they move fast.
Clearly, Apple has a lot of momentum. But they are picking fights with wealthier and nastier companies. So far, they are winning.
Apple shipped 1.6 million Macs and more than 21 million iPods during the quarter, representing a growth of 28% and 50% respectively from the year-ago holiday season. Earnings rocketed up 78% on sales growth of 24%. Zune went nowhere.
Hunh? Only 24% sales growth? That's mediocre. There must be some mistake, especially with the much higher unit sales growth.
Indeed, Mac sales were strong and almost 3x industry average growth – the biggest factor for me that indicates Mac is truly gaining in acceptance and market share. Prior to this quarter, Mac sales were really just pacing Dell et al. And iTunes is also growing and kicking out a solid batch of money. So why is sales growth a sickly 24%?
Answer: Apple is selling lots of $100 nanos and very few of the $400 iPods. Yikes.
In fact, even the Mac growth is illusory. Sales of the Mac are actually flat, sequentially. They aren't getting much acceleration. Last year sales were low in expectation of the new dual core iMac, so growth year over year is not meaningful. Flat flat flatter. Apple has reached a nice point where they are enjoying some better margins. Especially with the iTunes business.
But flattening sales is flattening sales. Apple can spin it anyway they want – they are slowing down. The stakes are even higher now, and the laws of big numbers are kicking in.
Into the breach comes the iPhone. And it is an amazing product.
As always - the form and interface are superior. The touch-screen is brilliant because of the enormous flexibility. Instead of Cyrillic, Japanese or Roman letters with different keypads, the same hardware can be used. Upgrades via software are possible. And more programs can be added. And a bigger screen from ditching the keypad allows for some nifty versatility in programs. This is a truly innovative product.
What about pricing? This is $500~$600. Sure, for Blackberry users, the price is the same but the phone is much more powerful. Goodbye RIM. Their days are numbered. And that’s a lot of business to steal. Apple is projecting 10 million unit sales in 2008. That is an amazing $5B~$6B in new revenue – about 40% additional annual growth. Enough to silence critics. Ok, a lot will come from cannibalizing iPod sales, but even a fraction of the $5B in net additive sales will be great.
There are problems.
TIMING The product isn’t shipping for a while, 2 quarters I think. In the meantime, I think the flattening sales growth will become more obvious. That’s a short term issue, but it is a window to competition.
COMPETITION The iPod debuted without strong entrenched players. The iPhone is coming into a very competitive market. It won’t be hard for Nokia or Motorola to mimic several of the key features: bigger screen, software based keypad, more flash memory for music/videos. The hardware is easily mimicked: LG and Nokia could roll it out in 1 month. More importantly, none of the established players will wait to let Apple succeed – they saw what happened with the iPod.
A smart competitor would release a me-too version for $200 and undermine Apple.
STEVE JOBS Clearly Jobs did a criminal act: he maneuvered for options and had them backdated. The counter argument is that h didn’t benefit – he returned them. Yes, but that’s only half the story, isn’t it. He didn’t return them, he actually swapped them for stock. Bottom line – he backdated and did benefit. At the least a criminal case is a distraction, and a bad one. I predict that he’ll get off, but will look like what he is: a greedy jackass, and one of the most successful.
The iPhone is a real disruption in the marketplace and consumers will win. Apple continues to be the Lexus in high-tech: setting the stage for a quality experience. Except that cell phone makers are not Detroit - they move fast.
Clearly, Apple has a lot of momentum. But they are picking fights with wealthier and nastier companies. So far, they are winning.
posted by Andrew at
9:23 PM
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