"What would I do? I'd shut it (Apple) down and give the money back to the shareholders." – Michael Dell
“Amateur hour is over.” – RIM
“No one ever got fired for buying IBM.” – IT Buyer
With Apple’s stock surging towards $400 in after-hours trading, let me just say that I guess all of those 'Apple can't win' naysayers should have a cold, hard one with Michael Dell about now.
"Not open enough." "Too vertical." "It’s Windows versus Mac all over again." "The iPad is just a really big iPod touch." As if that last one is even an insult.
If anything, we are seeing the last vestiges of Apple being undervalued and under-appreciated - both as a stock and as an entrepreneurial institution - and the realization/capitulation that the company is the second coming of IBM, as in "No one ever got fired for buying IBM."
The good news in that is that the company has earned it through laser-like focus, brutally precise execution and a coordinated balance between short-term goals and tactics, and long-term planning.
There just is no other comparable in terms of this level of innovation, diversification, market penetration, corporate culture and eye on the money-making machine.
As such, like IBM in the good old days, companies big and small will want to gain access to some of the Apple magic, investors will pad their portfolios, and who knows, the next great job creation stimulus might come out of the elixir that engaging with Apple brings forth.
All that said, I like my Apple with a bit of a chip on its shoulder, surrounded by legions of skeptics, confidently, but with a bit of a bruised ego, needing to show 'em what they can't see from the highest heights.
I need good, scary competitors keeping the company hungry and lean of mind, and fear that in absence of same, sloth, arrogance and the easy path might water down true greatness.
To be clear, though, I heard zero in today's earnings call that gives me cause for pause, as these blowout numbers and jaw-dropping highlights suggest:
- The Law of Big Numbers? Yeah right: Apple posted $28.57B in revenues for the quarter, an 82% year-over-year bump. But the company has never been one to confuse market share or even raw sales with profits and cash, and this quarter was no different. In terms of profits, Apple netted $7.31B for the quarter. That means that profit growth (up 125%) outpaced revenue growth. Imagine a quarter that drops $10.4 billion in new cash reserves (up 131% year-over-year), and you have a picture of Apple, which now has a tidy hoard of $76.2 billion. Oh, and they actually grew gross margins in accomplishing this (41.7% vs. 39.1% a year ago), spotlighting the single-mindedness of their assault. Good thing the board didn’t listen to Dell when they had the chance. I jest.
- Victory over the Tyranny of the "One Right Way": One knock on Apple is that they are trying to do too much, and be too integrated, which is a false dichotomy in the same way that Apple winning doesn’t mean that Google has to lose, or even that the King of Old PC, Microsoft, will die anytime soon. Strategy that is well-planned and even better orchestrated is simply magical, and validates itself through measurable, repeated results. Were Apple to do nothing more than sell 20.34M iPhones in the quarter (representing 142% year-over-year growth, double the 67% growth rate of IDCs smartphone segment) it would warrant Lion-izing Jobs & Co (pun intended - it ships tomorrow). But it’s beyond shocking to see that on top of that performance they took the iPad, a product that did not even exist five quarters ago, a tweener device, and one for which there remains no viable competing solution, and sold 9.25M units in the quarter - a whopping 183% increase year-over year. Apple management was magnanimous in stating plainly that they literally sold every single iPad that they had to sell. Put another way, the iPad is now selling almost 2.5X the number of Macs sold quarterly in just its fifth quarter of life. Imagine the kid in diapers down the block, storming onto the court, and whupping LeBron James without breaking a sweat. It's that astounding. I am sure some analyst will find a dark cloud in Apple's "disappointing" Mac and iPod numbers, since the former is only growing 14% year-over-year and the latter actually contracted 20% year-over-year, but this is akin to a parent with a family full of prodigies lamenting that one of her kids was merely top of class, and not top of the world. Mac, after all, still sold 3.95M units to outpace the growth of the larger PC business by 5X, the 21st consecutive quarter its growth has outpaced the larger PC market. And the iPod, where Apple still commands a 70% market share, is somewhat of a hodge-podge. After all, almost half of the 7.5M devices sold were the non-iPod touch variety, and thus, a long-term dead end on the street of smart devices. Meanwhile, the other half - iPod touch - is subsuming the legacy iPods on one side, and being subsumed by the god-device iPhone and the big daddy iPad on the other.
- When You Look Like the Safe Choice, You’re IBM: One hard takeaway throughout the call is how the one-two punch of iPhone and iPad, when combined with everything else that Apple has done right (Apple Retail, iOS unity, the SDK play, iTunes) has made Apple look like the "safe choice" in Post-PC computing. Consider emerging markets, like Asia-Pac where the iPhone business quadrupled year-over-year. Even the Mac is up 57% year-over-year there. Similarly, China, Mexico, Brazil and the Middle East were cited by Apple management as the mega-drivers of iPhone growth in the quarter. And if you think that China is a bellwether, consider this. It generated $3.8B for Apple in the quarter, constituting 13% of Apple’s revenue. Moreover, in the K-12 educational segment, typically a laggard in new technology adoption, Apple sold more iPads than Macs in the most recent quarter. You wrap hard numbers like this with 'soft data' of iPhone and iPad pilots in the enterprise (91% and 86% of the Fortune 500, respectively, about half that amount in Global 500 companies), and the picture is clear. Apple looks like the safe choice, which history suggests has a way of becoming a self-fulfilling prophecy, as both IBM and Microsoft proved before them.
- Masters of their (Channel) Domain: Now what’s scary in all of this is that the company is hardly at their apex from a market penetration standpoint. First and foremost, the almighty Apple Retail halo-effect creation engine, which no other device vendor has, is a business that is humming along with 36% year-over-year revenue growth, but equally important, one where Apple is seeing 20% Y-O-Y growth at the individual store level (now at $10.8M per store). Moreover, I took note of the assertion by Apple COO Tim Cook that the company is ready to move from “pilot stage” to “adoption phase” in the enterprise, something they plan to do vis-à-vis the dual leverage of: A) Piggybacking off of carrier’s sales forces that target enterprises to sell them voice and data solutions (where RIM’s inattention to their core competency, and obsession with chasing consumers will be business school fodder for years to come); and B) Building overlay sales organizations that co-sell with other enterprise solution providers (although details were fuzzy at best, and no mention was made to their recent B2B licensing programs). When you surround this gauntlet with an additional existing 115K outlets for Apple products, another 228 carriers (in 105 countries), and of course, the 225M account strong iTunes ecosystem (all backed by credit cards), and you’ve got something that is, dare I say, borg-like.
A side observation in trying to digest all of these numbers is that for all of the puffery about Apple being a "closed" company, if you compare their metrics breakouts in earnings calls to a more "open" company like Google, it’s laughable. Google, like a lot of companies, gives the flyover view, whereas Apple allows the interested to get fairly surgical in their understanding of Apple’s business.
I could go on and one, but the key point is..."Holy Crap!" And you can quote me on that. :-)
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