Apple In Perspective
Apple has been taking a real beating on Wall Street and in the press lately. But are we losing our long-term perspective by focusing so intently on quarterly results?
The Stock Market is a predictor of future growth, but it is hardly infallible. Seven months ago the market was predicting spectacular growth for Apple. Today it’s predicting almost no growth at all, worse than Dell and HP. Was the market wrong seven months ago or is it wrong today? Or both?
Take a broader look at the computing markets. We are transitioning from notebook and desktop computers to mobile phones and tablets. No one is in a better position to benefit from this changeover than Apple. They were first-movers in both phones and tablets and they continue to devour the bulk of those sector’s profits. Apple’s path is not unimpeded, but they still have the inside track.
iPhone & iPad Sales
Last quarter, Apple sold 37.4 million iPhones for 7% growth and 19.5 million iPads for 65% growth.
Remember all that talk about suppliers cutting orders and how it meant that Apple wasn’t selling as many phones and tablets as before? Yeah, not so very much.
“iPad experienced very strong year-over-year growth in every operating segment, particularly in Greater China and Japan where sales more than doubled year over year.”
The highlights for the quarter in China were that iPads grew 138% year-on-year, and we set new records for sell-through both for iPhone and iPad during the quarter.” ~ Peter Oppenheimer
Remember all that talk about Apple not doing well in China? Yeah, not so very much.
“…the Good Technology’s data that says that iOS accounted for 77% of all their activations by their corporate customers. Now that would not include BlackBerry, but it would include all the other guys. and so we seem to be doing really well and honestly, I don’t see the recent announcements changing that at all. I’ve seen more and more people developing more and more custom apps for their businesses on iOS to be used on iPad and we’re very, very bullish on it. As a matter of fact, just to quote you some numbers, iPad now is being used in 95% of the Fortune 500 and what’s even more impressive probably is on the global 500 companies, we’re now in 89%.” ~ Peter Oppenheimer
Remember all that talk about Apple’s iPhone and iPad not doing well in business? Yeah, not so very much.
Critics dismiss Apple as un-innovative, passé and niche. But Apple retains distinctive differences that give it unique advantages in the the newly emerging mobile markets:
– App Stores in 155 countries
– iTunes in 119 countries
“Today, our iTunes store offer the broadest combination of geographic reach in content depth in the industry, and they surpassed quarterly billings of $4 billion for the first time ever in the March quarter, that’s a $16 billion annual run rate making our digital content stores the largest in the world. The quarter’s iTunes billings translated to record quarterly iTunes revenue of $2.4 billion, up 28% from the year ago March quarter with new quarterly revenue records for music, movies, and apps. ~ Peter Oppenheimer
– 300 million iCloud users
– Highest loyalty and customers satisfaction rates in the business
“A recent study by Kantar measured 95% loyalty rate among iPhone owners, substantially higher than the competition, and iPhone remains top in customer experience. Last month, we were very pleased to receive the number one ranking in smartphone customer satisfaction from J.D. Power and Associates for the ninth consecutive time.” ~ Peter Oppenheimer
“The most recent survey published by ChangeWave indicated a 96% satisfaction rate among iPad customers.” ~ Peter Oppenheimer
…(W)ith App Stores in 155 countries that encompass almost 90% of the world’s population, our developers have created more than 850,000 iOS apps, including 350,000 apps made for iPad.”
“Cumulative app downloads have surpassed 45 billion and app developers have made over $9 billion for their sales through the App Store, including $4.5 billion in the most recent four quarters alone. Canalys estimate the sales from our App Store accounted for 74% of all app sales worldwide in the March quarter.”
“…(W)e are now paying very happily our developers more than $1 billion every quarter.” ~ Peter Oppenheimer
Revenues, Profits And Margins
Apple had $43.6 billion in revenue. What other company had comparable revenues?
Apple had $9.5 billion in profits. What other company had comparable profits?
Apple had 37.5% margins which is astonishing for a hardware company and compares quite favorably to the margins of both Google and Microsoft, which are primarily software shops.
Courtesy of Asymco
It seems that Apple compares favorably to every other company in the world other than the Apple of 12 months ago.
“Now, that said, we see an enormous number of first time smartphone buyers coming to market, particularly, in certain countries around the world. And so what we’ve done with that is and we started last quarter is we’ve made the iPhone 4 even more affordable and which has made it more attractive to first time buyers and we caught up on the – our supply – demand towards the late in the quarter last quarter and we are continuing to do that in other markets. And we believe that the phone or the price point that we are offering is an incredible value for people, that allows them to get into the ecosystem with a really, really, phenomenal product.”
One thing that hasn’t been getting enough attention, or rather hasn’t been getting the right kind of attention, is the continued sales of the iPhone 4. The iPhone 4 is now over two and a half years old but it continues to sell well in developed markets like the United States and Europe and in developing markets like China, India and Brazil. How can this be? Is there any other phone manufacturer who could successfully sell a phone that is two generations and two years out of vogue?
The iPhone 4 is proof that buyers are buying Apple’s ecosystem, not just their hardware. So long as Apple maintains a lead in integrating hardware, software and services, they will maintain an edge in mobile computing.
And as an added bonus, while the iPhone 4 may be bring the iPhone’s average sale price down, the sale of this older technology should be bringing the iPhone’s margins up.
Apple’s Long-Term Outlook
“We are managing the business for the long-term and are willing to trade off short-term profit where we see long-term potential. The iPod is a great example of this. When we launched it in 2001, its margins were significantly below the margins of Apple at that time.
Four years later, the iPod and the iTunes Music Store comprised half of Apple’s revenues and inspired us to build the iPhone. The iPad mini is another great example. We have priced it aggressively and its margins are significantly below the corporate average. However, we believe deeply in the long-term potential of the tablet market and think that we’ve made a great strategic decision. We’ll only make great products and this precludes us from making cheap products that don’t deliver a great experience.”
If you look at Apple’s numbers for this quarter and the next, you might think you see a company in decline. But if you look at Apple’s numbers over the fiscal or annual year, you see anything but decline. Let’s put this in perspective: Would you rather have Apple’s profits or those of Google, Amazon, Microsoft or Samsung? Once you put it that way, the answer as to how Apple is doing becomes clear.
Apple dominates the most dominant tech sectors of our times. And unless I’m gravely mistaken, that’s a good thing. A very good thing.