There is a classic scene in one of my all-time favorite movies, ‘Boogie Nights,’ which chronicles the rise of the porn business in San Fernando Valley in the 70s and 80s.
In it, aspiring adult film star Dirk Diggler (Mark Wahlberg) readies for his first film, when upon disrobing, the shot cuts to Scotty J. (played decidedly fey by Philip Seymour Hoffman), who upon seeing the size of Diggler’s greatest “asset,” conveys a sense of shock, awe and bewilderment.
Flash forward to yesterday’s Apple Earnings Call, and the 'Diggler on Display' moment was when Apple announced that 14.1M iPhones sold in the quarter (40M for the Financial Year), and the only gate on the company’s ability to grow that number is increasing supply, not growing demand.
Of course, this is funny because over the next few days, you’ll probably hear a wave of stories about the market being disappointed in iPad sales and the contraction of Apple’s margins. Psychologically, the market needs the stock to move, even if briefly, down 5-15% , so it can feel like it’s being appropriately measured, but this is all nonsense.
Why? I heard nothing that gave me cause for pause in the call. Quite the opposite. Consider these freaky good ‘year-over-year’ numbers, which equates to finally comparing the company’s performance relative to a true peer – itself!
Shock, Awe and Bewilderment: Law of Big Numbers
- 67% sales growth, year-over-year (now $20.34B of sales for this September quarter);
- 70% growth of net income, year over year (now $4.3B);
- Grew cash $5.2B in the quarter to $51B (not a bad rainy-day fund);
- 27% growth of Mac unit sales, more than double IDC’s 11% average PC industry growth;
- 91% growth of iPhone sales, year-over-year (14.1M, up from 7.4M a year ago) @$610 ASP
- Since 2005, revenue has grown 5X, and earnings has grown 10X
In other words, somebody should be b-slapped for even speaking ‘disappointment’ about a wholly new category, like iPad, that Apple has seeded and grown to 4.2M devices sold this quarter, only two quarters after launch.
Calling it a case of catching a tiger by the tail, Jobs laid out plainly why there is nothing really credible on the horizon. He called the non-iOS tablet segment DOA, noting that Google’s Android will not even be ready for the Tablet market for another three quarters.
Cost, form-factor, lack of a software surround and absence of a subsidized channel are all reasons that Gen 1 of non-iOS based tablet maker's entrants will lay an egg, in Jobs' view.
Meanwhile, there are now 30K apps built from the ground up for iPad, and a company in full sprint from an innovation and market penetration perspective.
A note aside is that in the corporate market, it is easy to see how both iPhone and iPad are becoming the status devices, usurping RIM’s BlackBerry device. The company named a bunch of pilots and ‘approved device‘ lists at GE, Pfizer, NBC-Universal, P&G and significant chunks of the Fortune 100 and F500. Needless to say, the Mac has benefitted greatly from this trend as well.
By the Numbers: Apple Retail Rocks
- Year-over-year sales for the quarter have grown 75% to $3.57B
- Average store sales have grown 52% to $11.8M
- 62% increase in number of visitors served (74.5M)
- Now in 11 countries, 317 stores
In other words, the biggest gamble in its integrated value chain for consumers (i.e., bricks and mortar Retail Stores), is another unfair advantage that they’ve seeded and cultivated.
Game Over, Game On
So here’s my theory: Jobs doesn’t usually attend Apple Earnings Calls, unless he feels that he needs to convey a message.
Well, the message he had to convey is this. It’s game over, in terms of market sway, for RIM. They just aren’t going to catch up to Apple in their current domain, and they’ve shown no competency in other domains, especially software platforms
At the same time, Jobs basically gave Google its props, acknowledging that Android has a proposition with carriers and handset makers, and adoption numbers that are material and real.
But, here’s where he laid down the gauntlet, telling the story of how TweetDeck wanted to roll out a version of their software for Android, and found that there were 100 different Android variants on 244 different handsets, all having shipped in the past twelve months.
By contrast, noted Jobs, there were only two variants of iOS out there. His assertion: that developers and consumers don’t want to have to be the systems integrator.
They want devices, systems and experiences that just work, and more innovation will come (via software) from Apple’s Integration relative to Google’s Fragmentation.
There was Steve, attacking the goodness of open, daring to say that “open systems don’t always win,” and framing the battle ahead as Fragmented v. Integrated.
It’s Game On.
- Analysis of Apple’s Third Quarter 2010 Results: A Gorilla Climbs to the Top!
- Apple's segmentation strategy, and the folly of conventional wisdom
- Horizontal, Vertical and the Google Path to Riches: Ruminations on Today's $GOOG Earnings Call