Four things we learned from Apple earnings
Another booming quarter, Apple products in high gear, and a surprise visit from a fired up Steve Jobs made for one heck of an earnings call Monday. “As most of you know, I don’t usually participate in Apple’s earnings calls,” Jobs says, adding, “But I couldn’t help dropping by for our first $20 billion quarter.”
Apple posted $20.34 billion in revenue in the fourth quarter, a 67 percent increase from the same quarter a year ago. Profit reached $4.3 billion compared to $2.53 billion last year.
Sure, there were a few low points, such as iPad sales missing analyst expectations, an after-hours dip in Apple stock price likely brought on by lower margins, and heavy competition from Android.
But the good far outweighed the bad for Apple. Here are four things we learned from Apple’s really big earnings call:
1. Is Apple eyeing a big acquisition?
Apple has $50 billion in cash. So what’s Apple going to do with such a massive war chest? Jobs hinted at a potentially big acquisition in the works.
“We strongly believe that one or more strategic opportunities may come along, that we’re in a unique position to take advantage of because of our strong cash position,” Jobs says. “We don’t let it burn a hole in our pocket, we don’t allow it to motivate us to do stupid acquisitions. And so I think that we’d like to continue to keep our powder keg dry, because we do feel that there are one or more strategic opportunities in the future.”
Only one acquisition would mean it would have to be huge, say, Facebook? Social networking has become a defining piece of consumer tech, and Apple has tried to get into the social networking game with Ping on its latest iTunes version. One of the most used iPhone and iPad apps is Facebook.
Such a deal is purely conjecture, of course, but Apple and Facebook—not to mention Jobs and Mark Zuckerberg—have a lot in common. Both are innovative companies with a rebellious history and, critically, are icons of their respective generations. (The LA Times is reporting that someone saw Jobs and Zuckerberg on a stroll in Palo Alto recently.)
2. iPad gains ground in the enterprise
On the closely watched iPad front, Apple sold 4.19 million iPads in the quarter, about 500,000 short of analyst expectations. All tallied, Apple has sold 7.5 million iPads so far.
Jobs took dead aim at upcoming 7-inch screen tablets (the iPad has a 10-inch screen), saying that a 7-inch screen is too small to compete with the iPad and too big to compete with the iPhone. “Given that all tablet users will already have a smartphone in their pockets, giving up precious display area to fit a tablet in their pockets is clearly the wrong trade-off,” Jobs says. “The seven-inch tablets are tweeners.”
Jobs also says that 7-inch tablets will likely cost more than the iPad. “These are among the reasons that we think that the current crop of seven-inch tablets are going to be DOA—Dead on Arrival,” he says.
But does the number of iPad sales in the quarter open doors for Android tablets? Not really, says Gartner analyst Van Baker. “The iPad numbers were still pretty impressive,” he says. “I personally agree with Jobs: I don’t think 7-inch Android tablets are going to do well at all.”
On the upside, iPads have enjoyed success in the enterprise. More than 65 percent of Fortune 500 are deploying or piloting the iPad, Apple says. “We haven’t pushed it real hard in business, and it’s being grabbed out of our hands,” Jobs says, adding, “The more time that passes, the more I am convinced that we’ve got a tiger by the tail here.”
3. iPhones and Androids: A two-horse race
The Apple iPad isn’t the only iOS device making serious inroads into the enterprise. Some 85 percent of Fortune 100 are deploying or piloting iPhones. Proctor and Gamble, GE and Pfizer are among large companies that have made iPhones available to employees.
All of which played a role in the iPhone’s blowout quarter. Apple sold a whopping 14.1 million iPhones in the quarter while still having a sizeable backlog—a 91 percent increase compared to the 7.4 million phones sold in the same quarter last year. The numbers slammed the door on any lingering iPhone 4 Antennagate concerns. For the year, Apple sold 40 million iPhones, a 93 percent increase over 2009.
Meanwhile, Android phones enjoyed similar success, outselling the iPhone last quarter. Piper Jaffray expects Android to surpass iPhone market share in the next couple of years. Android’s market share is around 15 percent this year and will grow to 23 percent in 2012, says Piper Jaffray, while iPhone’s market share is at 16 percent this year and will grow to only 17.6 percent.
“They outshipped us in the June quarter as we were transitioning to the iPhone 4 … and so we’re waiting to find out what they did in this quarter,” Jobs says, adding that Android is fragmented and closed with many Android OEMs, including HTC and Motorola, installing proprietary user interfaces to differentiate from the standard Android interface.
Jobs also took a swipe at RIM, makers of BlackBerry smartphones. RIM has been copying Apple products lately, most notably the BlackBerry PlayBook tablet and BlackBerry Torch touch smartphone, says Baker, which probably got Jobs riled up.
“We’ve now passed RIM, and I don’t see them catching up with us in the foreseeable future,” Jobs says. “They must move beyond their area of strength and comfort, into the unfamiliar territory of trying to become a software platform company. I think it’s going to be a challenge for them to create a competitive platform and to convince developers to create apps for yet a third software platform after iOS and Android.”
Even with the BlackBerry Torch and, most recently, Windows Phone 7 coming to market, Baker agrees that Android and iPhone are far out in front of everyone else. It all boils down to apps, he says, which bodes well for Android and iPhone with their impressive app stores and developer communities.
“Right now, it’s shaping up to be a two-horse race,” Baker says, adding, “It was also very clear today that Jobs’ competitive juices were flowing.”
4. Mac sales ramping up
Lastly, Apple sold 3.89 million Macs in another record-breaking quarter. More impressively, Macs had a 27 percent year over year growth, which more than doubles the growth rate of the now quite mature PC market. Mac sales set the stage for Apple’s “Back to the Mac” press event later this week.
“Apple’s big secret weapon on their Macs is their Apple Stores, which are doing extremely well,” Baker says. “Most people who are thinking about buying a Mac will check them out and learn about it at an Apple Store. They might buy it from someone else but the store still did what it needed to do, which is bring a new person into the fold.”
Apple sold 847,000 Macs through its retail arm during the quarter, an increase of 30 percent from the same quarter last year. Apple ended the quarter with 317 Apple Stores, including 84 outside the United States. Beijing and Shanghai Apple Stores opened on the last day of the quarter.
Apple plans to open some 40 to 50 stores next year, with half outside the United States. With Apple poised to open more Apple Stores internationally, Baker says, Macs and other Apple products stand to benefit greatly.
“Apple’s sweet spot has always been the U.S. and, to a lesser degree, Western Europe,” Baker says. “With their international stores, they have a lot of headroom.”
[Tom Kaneshige covers Apple and Networking for CIO.com.]