Apple defies gravity

October 20, 2009

Here’s how bullish Steve Jobs and his colleagues at Infinite Loop in Cupertino feel: After a blowout September quarter, the forward guidance they are offering for the December quarter is comically modest. In the tech world, people have long known that Jobs loves messing with the expectations of both competitors and his legions of Apple fanboys. He plays his games with the financial world as well.

In the middle of a global recession, Apple has reported its biggest ever quarterly net profit, $1.67 billion, on revenue of $9.87 billion, its second highest quarterly total ever. Gross margins of 36.6 percent were the highest ever.  Apple sold more than 3 million Mac computers, up 17 percent in a global market that grew just 2 percent. It also sold 7.4 million iPhones. Apple’s cash pile grew to $34 billion, which it still plans to use for preservation of capital.

After a quarter when revenue soared 25 percent from a year ago, Apple’s forward guidance calls for the brakes to be slammed in the next quarter with growth of only around 10 percent. The guidance is for margins to fall as well because of the different seasonal mix, more air freight and higher component costs. No one believes either of these forecasts.

You have to be very dark-hearted to see clouds ahead for Apple, but there are two areas where doubts might arise. Microsoft (don’t laugh) introduces Windows 7, its latest operating system, on Thursday. After the justly maligned flop of Windows Vista, independent reviews of Windows 7 have been generally positive. The Wall Street Journal’s influential Walt Mossberg declared in his assessment, “In recent years, I, like many other reviewers, have argued that Apple’s Mac OS X operating system is much better than Windows. That’s no longer true.” Microsoft and the makers of Windows-based computers will be pouring money into promoting their computers, which are generally less expensive than Apple’s offerings. That should slow some of the growth in Macs.

On the phone side of the business, more phones are coming out that use Google’s Android operating system, a smartphone rival to the iPhone. RIM’s BlackBerry continues to hold its own in the corporate market. Microsoft continues to invest in Windows Mobile, although its gains have been harder to spot. But the iPhone is overwhelmingly the standard to beat. On the earnings call, Apple chief operating officer Tim Cook said, “People are trying to catch up with the first iPhone which we launched two years ago. We’ve moved way beyond that.”

His comments weren’t just bravura. Apple’s huge advantage comes from the ecosystem they have built around the iPhone, just as previously they built an unbeatable ecosystem around the iPod. The AppStore, where iPhone users can download new applications for their phone, now lists 85,000 applications (by contrast, RIM’s BlackBerry has perhaps 2,000 applications and Android applications have just crept into five figures). There were 2 billion AppStore downloads in the last year, and a half billion of those were in the September quarter. “That’s a country mile more than anyone else,” Cook said.

The entry into China should also provide a significant boost for the iPhone business. Cook declined to quantify the China effect, but the arrangement with China Unicom calls for the iPhone to launch at 1,000 points of sale. The world’s largest mobile market isn’t yet the largest market for smart phones.


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Great read!

Posted by Philippe | Report as abusive

Best science geek headline EVER!

What the FruitPhone advocates conveniently “forget” is that Windows Mobile has had more functionality than its OS for years…three revisions to get copy and paste? Please. Cook’s lie about everyone else “catching up” is ludicrous.

“Windows Mobile has had more functionality than its OS for years”

He said nothing about catching up with iPhone’s number of functions (which everyone agrees is about at the same level as other smart phones, save for late copy/paste). It’s all about usability+useful functionality, which the iPhone blows EVERYONE out of the water with. Just like how the iPod did the MP3 player right, the iPhone does the smart phone right.

Posted by Skinny Pete | Report as abusive

Android caught up to the iPhone of this past spring and will easily pass it before x-mas. Android will not take all of the iPhones market share, but Apple is not going to have a merry x-mas.

Posted by Kristos | Report as abusive

Whether or not Android becomes “better” than the iphone OS, Apple’s ongoing subliminal ‘Macs are cool’ campaign and friendly atmosphere will probably continue to dominate into christmas and beyond. Besides, what teenager do you know who really wants an android over a shiny iphone?

Posted by usmc 2417 | Report as abusive

HEY! When you quote someone, use the complete quote, not a misleading excerpt. Mossberg wrote this:

“In recent years, I, like many other reviewers, have argued that Apple’s Mac OS X operating system is much better than Windows. That’s no longer true. I still give the Mac OS a slight edge because it has a much easier and cheaper upgrade path; more built-in software programs; and far less vulnerability to viruses and other malicious software, which are overwhelmingly built to run on Windows.

Now, however, it’s much more of a toss-up between the two rivals. Windows 7 beats the Mac OS in some areas, such as better previews and navigation right from the taskbar, easier organization of open windows on the desktop and touch-screen capabilities. So Apple will have to scramble now that the gift of aflawed Vista has been replaced with a reliable, elegant version of Windows.”

Thus, Mossberg gives Apple OS X 10.6 the winning review. He can rest assured that Apple is also not resting on its laurels, since the underpinnings of Snow Leopard are much more optimized for the wave of announced 64-bit multicore processors, while Windows forces confusing and expensive OS options that doesn’t well support both your legacy hardware and software AND the future hardware and software. People need to stop thinking of past Windows advantages and honestly evaluate Linux and Mac OS X for themselves. Windows 7 doesn’t automatically fix Vista, and it offers no true capability improvements over XP – though it fools people into thinking that 7 boots faster by pushing startup tasks into the backgrounds on startup.

Remember, too, that Mossberg inexplicably gave Vista a favorable review on January 18, 2007, stating with many caveats “After months of testing Vista on multiple computers, new and old, I believe it is the best version of Windows that Microsoft has produced.”

Customer satisfaction surveys and growth rate of Apple sales indicate otherwise, though legacy corporate policies obviously will continue to fill Microsoft’s coffers and employ IT department technicians for years to come.

Posted by Mike | Report as abusive

‘HEY! When you quote someone, use the complete quote, not a misleading excerpt. Mossberg wrote this:’

Damn neat comment Mike. Your comments were as informative as the article itself, if not more. Do you have a tech blog, if not start 1 , i am sure its gonna be a good read :-)

Posted by Karan | Report as abusive

Mac machines work for users, but can not compete in the corp. environment, they don’t have the IT infrastructure support. Until that change, Mac will never come close to Windows. Macs are just overpriced machines with limited hardware and software selections. The only people who buy them are Apple fan-boys and dumb consumers.

Posted by Real | Report as abusive

Economic Physics 101:

Gravity takes hold of Apple as unemployment deepens, people start cashing in their 401Ks and IRAs, and funds are forced to sell-off Apple shares.

We’ve seen gravity pull down other companies stronger than Apple from their lofty highs about $100/share to under $20/share today. Apple thinks its stock is invincible as Google or Berkshire, but the long-term fundamentals just aren’t there.

Posted by Alan | Report as abusive

Time to short Apple again. Thanks Apple fanboys I made money shorting Apple before and I will make a ton this time around. Ubuntu is becoming a very good operating system. Granted that Microsoft has more applications written for it, but Linux(Ubuntu) can certainly hold its own against Apple. Remember fanboys, Apple is even more proprietary than Microsoft.So for you Starbuck, Apple fanboy types that are against the “Man”, it would seem that Linux would be the place to go. Cheers.

Posted by jimbo | Report as abusive

I’m using XP. No way I’m gonna pay $199 to upgrade; least of all wipe my HD for a clean install. Even Ubuntu has a installer. Look at my mac’s. $29 for a easy, smooth upgrade.

For the time being I’m on XP. See you at service pack #1.

Posted by Hans | Report as abusive

two words: snow leopard … they rushed a bug-filled piece of junk to market; i lost a week’s work fixing it — and now i’ll ALWAYS think twice about buying anything apple.

Posted by timeoutofmind | Report as abusive