Stock Price (January 20): $78.20
Stock Price (July 20): $152.91
Stock Price (October 20): $199.57
Okay, so let me net it out for you. Yesterday’s call was about two things. One, the iPhone Platform, continues to deliver the goods.
In fact, the high profile wins for Google Android notwithstanding – Motorola’s CLIQ and Verizon’s Droid
(rumored to be built by Motorola at Google’s direction) – the Android Platform
still feels a good 12-18 months behind where the iPhone is today. (Sidebar:
Pre just isn’t yet in the game).
And, let me assert that everything I know about devices and platform plays tells me that Android isn’t the straight line to inevitability that a lot of people think that it is.
Why? Just as people fail to appreciate the importance of the App Store and the difficulty getting the surrounding application platform (SDK) right, they are forgetting about the 'unfair advantage' of having iTunes in your arsenal.
In other words, Apple is playing a hot, and complete hand, and they remain very much on offense.
The moral to the story is that there is a cosmic and global appeal to the iPhone and the iPod Touch, and the Tablet is on its way.
By the way, did I mention that Apple is launching iPhone in China,
the largest global market, in about a month (via China Unicom)?
Now, I did say that the call was about two things. The other thing was the continued
impressive growth of the Mac, especially MacBooks.
Some backstory first. About
eighteen months ago, I had this Holy Shit moment (Read: Holy Shit! Apple’s Halo
Effect) when I realized that Apple was executing a leverage play that was right
out of the Microsoft Global Domination Handbook, circa the PC Wars.
What tipped it for me then was the fact that somehow, despite seemingly overwhelming odds, the Mac was once again relevant. (Long-term Mac owners remember all too well the dark days when Mac OS obsolescence seemed inevitable.)
The numbers don’t lie sometimes, and in this case, the year-over year Mac sales data was showing a rate of
growth that was (as of eighteen months ago) ever-solidly 3.5X better than the
PC industry.
So where are we sitting eighteen months later? In the
words of Apple CFO Peter Oppenheimer, “The Mac is showing fantastic momentum,”
outpacing the market’s rate of growth in 19 of the past 20 quarters, and in
this quarter grew 17% versus 2% for the rest of the market – 8.5X better than
the PC industry! Do you see a
trend here?
Apple generated 3.05M sales this quarter, which was their
best quarter ever by 440K Macs, a fact that I could tell they were very proud of. The $29 upgrade pricing on
Snow Leopard appears to have realized really good uptake, too.
Oh, and as before, the company is experiencing GOOD GROWTH, not just
growth for the sake of optics. The Fourth Quarter, 2009 that ended September
26, 2009 was their most profitable quarter ever (read the FULL RELEASE HERE). Gross margins got better in a difficult economy, growing
to 36.6 percent, up from 34.7 percent in the year-ago quarter. Operating
margin was its highest-ever at 22%.
International sales accounted for 46 percent of the
quarter's revenue (with 42% growth in Asia-Pacific). The company’s products are unquestionably compelling
globally, something that felt very evident when I was in Paris earlier this
year.
The company also added something REALLY special this quarter. Another $2.9 billion to top off the
$31.1B pile of cash that now constitutes a $34 billion rainy day
fund.
On the product front, Portable sales were up 35% and were 74% of Apple’s
Mac mix (starting to understand why the Tablet is an imminent add to the
product line?)
The Apple Stores have done a brilliant job of bringing first-time Mac
and iPod buyers into the Apple family, and same store sales, which had dipped
back in the March and June quarters, have rebounded back to their prior levels
of a $7.1M average per store.
At $199, the iPod Touch (20M units sold, runs same software as iPhone,
30M units sold) is the perfect gateway into iTunes, App Store, and a coveted consumer Billing Relationship, adding to the 100M credit card-activated accounts that
Apple already has secured.
RBC’s Mike Abramsky asked Apple COO, Tim Cook about “wannabe” phones and
how iPhones will maintain their lead, particularly with the looming holiday
season.
I liked Cook's answer. “We have significant momentum,” Cook says, as well
as apps, which it has “a country mile more than anyone else…we feel very good
about suiting up and competing against anyone.” Rivals are still trying to
catch up with the first iPhone, he adds, and Apple has moved beyond that.
If you appreciate what it means to have achieved such a strong level of
Platform Status, you know that this is no empty chest beating. Apple has really delivered the goods.
When you talk to iPhone/iPod Touch
owners, a simple truth bubbles to the top again and again; namely, that the
iPhone is the first truly 'personal' computer; more personal to its owners than
the PC ever was.
In terms of Outlook for the Quarter ahead, Apple as always, sandbagged
(i.e., quoting extremely conservative financial guidance so they can handily
beat the numbers in the coming quarter).
On deck, they have the Holiday Quarter, armed with a diverse Product Matrix to fit all stocking sizes, and multiple sales channels to reach their base. Plus, they have been diligent in finding the balance between maximizing operating margins, and not leaving Pricing Overhang for competitors to inculcate.Yet to come: the good tidings of a Strong Product Pipeline in the year ahead.
Could anyone seriously question the assertion, as backed by tangible results, that Apple has The Right Stuff?
Related Posts:
Q4 was huge - Non-GAAP #s are HUGE. $2.85 Billion in Net Income in 3 months is starting to get into the Microsoft end of the pool.
The 2 things I thing Apple could do better on:
1. Aggressively increase the opening of new Apple stores. The stores are such a win for Apple that investing in them seems like a really good idea. The economy is weak, so Apple should build out their stores now to get favorable locations and leases and when the economy turns - POW! Apple will benefit greatly. Investing during a downturn seems to be pretty generic advice, this seems like the right time for Apple to be re-investing in themselves (instead of some Wall Street BS move like buying back stock).
2. Fix the App store Approval process. Developers should be treated much better. Apps / the App Store / Developers are a key to being a winner in the current smartphone land grab. Not only it is the right thing to do, but it makes good sense to be a good partner (easy to communicate with, be there to help the developers succeed rather than make it harder for them, be a lot less restrictive of what Apps make it into the App store, etc.) The App store stuff is just plain stupid - Apple should fix this ASAP.
Posted by: sfmitch | October 20, 2009 at 07:41 AM
@sfmitch, thanks for the notes. Re your first point, in retail there is something called same store sales, and a retailer always has to toe the line between getting more footprint and thus, more sales, and cannibalizing the same dollar, thereby reducing same store sales. As noted in the post, for two quarters running, same store sales actually dropped, which was worrying, as the retail play is great when it works, an expensive albatross when it doesn't. Apple is trying to counter this by updating stores to its most recent model floor plan and expanding more internationally than domestically.
As to App Store approval process, you have not cited a single specific so while in the abstract, I agree that things could be better, 85K apps have gotten through, and as noted in my post re changes to the in-app upgrade model, they are listening to developers. Be specific on what you think is broken.
Thanks.
Mark
Posted by: Mark Sigal | October 20, 2009 at 01:40 PM