Apple: Three Battles Won, Nicely Positioned for the Fourth 21 comments
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Apple Inc (AAPL) is among the rare breed of companies which has three hugely successful product lines and continues to consolidate its position on all these fronts. At the same time, Apple is well set to exploit the next billion-dollar opportunity. But before the opportunity, a note on the consolidation. Let’s start with the flavor of the season - iPhones.
iPhone
While Research in Motion (RIMM) still continues to outsell Apple in terms of volumes, bear in mind that Apple is yet to enter all international markets (ex. China). In fact, in the third quarter of 08, Apple exceeded RIMM in shipments thanks to the 3G launch and customers postponing purchases from 2Q08 for the 3G phone.
Apple set to catch-up with RIMM
(All figures above are in #M)
Source: Gridstone Research
Cumulatively, since the iPhone launch in late June 2007, Apple has sold ~21.2M units, while RIMM has sold 37.4M units (source: Gridstone Research), this despite Apple having an international presence for less than a year. Since RIMM derived 40% revenue from outside the US in the latest fiscal, the unit volumes seem comparable and Apple looks set to outdo RIMM as it expands its geographic reach.
Macs
Apple didn’t lose steam on the PC front either. Apple outgrew Dell (DELL) and HP (HPQ) in unit volumes in 2007 and 2008 and that trend is expected to continue in 2009 as well. In the latest quarter, Apple volumes have dropped by ~3% against an expected drop of 7%( source: Gartner estimates) for the overall PC market. Apple has successfully grown volumes and yet resisted price competition keeping the ‘premium’ for Macs intact.
(All figures above are yoy shipment growth percentages)
Source: Gridstone Research
iPod
Apple has dominated this market for well over five years with a >70% market share. While iPod revenue growth has slowed down, Apple has managed to arrest the decline through its high-value offering – iPod Touch. In fact in the recent quarter, Apple managed a surprising 3% yoy increase in iPod unit sales. In comparison to another such mp3 product maker, SanDisk (SNDK), Apple has performed much better in the last 2-3 quarters. Clearly while most other mp3 players are cateogorized by 'capacity'-32,64 GB players etc, iPod has a clear differentiation in terms of both product portfolio and brand appeal- Shuffle, Touch, Classic etc
(All figures above are yoy revenue growth percentages)
Source: Gridstone Research
The next frontier: iTunes
Apple will hit the one billionth download in its Appstore just as I write. It’s taken just nine months for Apple to reach this figure and the opportunities for Apple in this space are limitless considering that the installed base of iPod/iPhones (sort of a captive and exclusive market) continues to increase rapidly.
(All figures above are yoy revenue growth percentages)
Source: Gridstone Research
We are probably just a few quarters away before the iTunes revenue line starts snaking up like the iPhone revenue growth did in the recent quarters.
A billion downloads is a great milestone, but more than that, a multi-billion dollar opportunity beckons.
Disclosure: No positions in any of the stocks discussed above: AAPL, HPQ, RIMM, DELL, SNDK
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All I'm saying is that Apple is among the select few companies which can claim that all their major business lines are successful and more profitable than peers at that. I feel that iTunes will shortly become their fourth.
I disagree that its one sided stock hyping for there was never a argument to buy Apple stock but the argument was to admire Apple for the way it has built its businesses. And when they look set to build another business into significant size, why not highlight that?
If you actually wanted to disagree that Apple doesn't have all that great business lines, then the cost-cutting and other arguments that you put forth are not relevant. Can I see Apple making profits in all these product/business lines even after 3-4 years? Yes I do. Will they make more money that they do now? I don't know and I never wanted to answer that in the article.
On Apr 24 03:53 AM Moon Kil Woong wrote:
> My take. According to filings Apple dropped its employees 10% from
> 15,600 to 14,000 and is currently under consolidation. It's margins
> rose due to cost cutting and a revenue mix shifting from hardware
> sales to software which means less market share gains.
>
> Looking at Apple to total PC shipments make more sense than comparing
> them with HP and Dell which they are loosing market share. This makes
> sense since Apple sells at a premium and we are in a recession.<br/>
>
> One can see positives as well as negatives in this filing. Cost cutting
> is not bad if management is honest about it. Expanding into China
> this year is a positive if Apple is honest about it combating expected
> domestic sales. Choosing not to get into Net books is fine if you
> think it undermines your value proposition with 13" Macbooks and
> iPhones around that price and functionality area. Dissing netbooks
> for no good reason isn't so intelligent. Apple should be happy it's
> computers sell for a premium and commit to those price points even
> if it looses market share. Jobs was always clear it was not his intention
> to try to become 20 or 30% of marketshare.
>
> The fact that Apple sells its iPods in Wal-Mart is unsettling for
> a few reasons 1) it doesn't fit their demographic niche, 2) it doesn't
> ring brand value, 3) it sounds like a good place to dump, and 4)
> shows Jobs is utterly absent in making corporate decisions there
> anymore.
>
> So yes, Apple had a nice quarter but it doesn't smell like victory
> to me.
>
> I don't own or short Apple. I'm a fan of their products but don't
> like one sided stock hyping.
All I'm saying is that Apple is among the select few companies which can claim that all their major business lines are successful and more profitable than peers at that. I feel that iTunes will shortly become their fourth.
I disagree that its one sided stock hyping for there was never a argument to buy Apple stock but the argument was to admire Apple for the way it has built its businesses. And when they look set to build another business into significant size, why not highlight that?
If you actually wanted to disagree that Apple doesn't have all that great business lines, then the cost-cutting and other arguments that you put forth are not relevant. Can I see Apple making profits in all these product/business lines even after 3-4 years? Yes I do. Will they make more money that they do now? I don't know and I never wanted to answer that in the article.
On Apr 24 03:53 AM Moon Kil Woong wrote:
> My take. According to filings Apple dropped its employees 10% from
> 15,600 to 14,000 and is currently under consolidation. It's margins
> rose due to cost cutting and a revenue mix shifting from hardware
> sales to software which means less market share gains.
>
> Looking at Apple to total PC shipments make more sense than comparing
> them with HP and Dell which they are loosing market share. This makes
> sense since Apple sells at a premium and we are in a recession.<br/>
>
> One can see positives as well as negatives in this filing. Cost cutting
> is not bad if management is honest about it. Expanding into China
> this year is a positive if Apple is honest about it combating expected
> domestic sales. Choosing not to get into Net books is fine if you
> think it undermines your value proposition with 13" Macbooks and
> iPhones around that price and functionality area. Dissing netbooks
> for no good reason isn't so intelligent. Apple should be happy it's
> computers sell for a premium and commit to those price points even
> if it looses market share. Jobs was always clear it was not his intention
> to try to become 20 or 30% of marketshare.
>
> The fact that Apple sells its iPods in Wal-Mart is unsettling for
> a few reasons 1) it doesn't fit their demographic niche, 2) it doesn't
> ring brand value, 3) it sounds like a good place to dump, and 4)
> shows Jobs is utterly absent in making corporate decisions there
> anymore.
>
> So yes, Apple had a nice quarter but it doesn't smell like victory
> to me.
>
> I don't own or short Apple. I'm a fan of their products but don't
> like one sided stock hyping.
The market does like premium products eg: Omega, Merc' Benz......
In its market sectors no one offers products of comparable quality.
In computing, no one offers a quality tri-OS capable device.
The iPod Touch is a new class of product-the true HHC/Surfer
The rise of the iPhone cannot be stopped. It's the Apps stupid!
iTunes is still in its infancy. It is a model that can be expanded beyond media sales.
In its markets, Apple software is without competition.
I could say more but you get the idea
He meant iPhones, not iPods. iPods are a mass market item appropriate to Walmart.
......but maybe in June, if/when Apple introduces a FAMILY of iPhones, to Target (pun intended) all economic segments, then the decision to sell at WalMart might not seem so inappropriate.
Steve Jobs said himself that there are three good legs on stool right now, and the fourth is just a hobby. Can you guess what it is Naveen??? No probably not and I won't tell you either cause a little bit of research might do you some good.
iTunes already ~80% of the market. Thats about as consolidated as it gets!
Sour grapes, sir. Your bias is showing. Your comments would carry more weight if you exercised a tad more disinterest and you dropped the references to who is or is not "honest.".
Can a cut of 1600 personnel from their retail division can have such an impact on gross margin so if they cut another 2000 will the gross margin go up by another 20%?
Get real, retail staff do not have that great an impact on gross margin especially when some of them are on a part time basis. The real impact will come from labour costs and components for their hardware and R&D and labour costs for their software.
In addition their cash hoard enable them to get their components at the best price.
To the author, thanks for your comment. Apple is profitable and it's quarter did look good overall although it was vary much baked into the stock price beforehand. The real question always is can it keep its momentum going forwards. Although it seems so, if you dig deep enough there are also worrying signs momentum is slowing.
Staff cuts are just a symptom of expected slowing, if they grow they are a big warning sign for slowing even if it isn't immediately showing up on a balance sheet. Leading indicators mean a whole lot more than lagging.
As stated, I think gross margin growth is a percentage shift towards more software and apps. I expect hardware and box sales to continue to sag. This boosts GM but not a good long term sign if it accelerates.
We will see how it all pans out this year. I just wanted to balance out the pros with the cons since posts were so gung ho Apple.
Apple is taking back the computer market it pioneered and I believe that will continue. There is plenty of room for growth. Microsoft is and will continue to founder and flounder on almost every front, but especially losing computer marketshare. The entire windows market is scared to death that Windows 'Seven' (wow, how original) will fall flat just as (talk about hyped) 'Vista' did.
Everyone knows Microsoft fought against the internet until they decided to push Netscape (a true pioneer) out of business (illegally using it's monopoly against them). Lately, all the whining about an internet division and Yahoo purchase shows how devoid Microsoft is of any true ability to compete not only with Apple but with Google. Microsoft already has an internet division, but are unable to compete, and Ballmer's best idea is to buy another beleagured company in order to out muscle Google? It won't happen.
Finally, MKW's pathetic carping about a few retail positions (mostly layoffs after Christmas, totally misleading argument) pales in comparison to Microsoft, who let 1500 engineers go for a cost savings of over 200 MILLION. Very disingenuous. The fact that this clown is a top ten commenter on seeking alpha speaks volumes about how utterly brain dead most investors are about tech.
Finally MKW's assertion that Wall Mart iPhone sales show that Jobs is no longer influencing Apple is a bald-faced lie. I hate to be blunt about it, but I don't believe in propping up a liar. He was there when this decision was made. Is Apple supposed to stay away from the Wall Mart/Windows/Trailer park demographic? Why, don't all people deserve a quality computer/MP3 (let's just call it an iPod like everyone else does)/Smartphone? It's not as if they cost more than a quality version from another manufacturer.
Why all the talk about Microsoft? It's where Apple's growth has come from, and it will continue, despite the protestations of fanboys like MWK.
there is no evidence that apple sacked 1600 retail employees ... if you ACTUALLY read the Q1 report you will see that they refer to Full Time Equivalent jobs. For starters, it is normal for staff to work more hours in the prior holiday quarter and in a recession staff can be asked to work less hours without losing their jobs, plus there is natural attrition that may not be replaced by new hires.
stop trying to make something out of nothing
Here are the numbers:
March 2008 = ~12,000 FTEs
March 2009 = ~14,000 FTEs
Both figures were preceded by the word “approximately”, so they are clearly + or - 500 FTEs. Around 17% more FTEs this year than last, HOWEVER…, you have to factor in the number of stores open.
March 2008 = 205 stores
March 2009 = 251 stores
So, number of stores increased by 22%, and FTEs increased roughly 17%, but given the vagueness, the range would be from, 8% to 26%.
In other words, the increase is in the margin of error. Much ado about very little.
Clearly you did NOT read the filings you are citing, so everything you say afterward is SUSPECT. And, what are you going on about iPods in WalMart, that has been going on for a LONG time now. Jobs was there, when that decision was made.
No one likes one-sided stock hyping, but one-sided stock bashing with no basis in fact is worse.
How did you become a Top 3 Commenter? Did you game the system, because you are clearly out of your depth in commenting on Apple. Have you even read any of the filings that you are commenting on?
On Apr 24 03:53 AM Moon Kil Woong wrote:
> My take. According to filings Apple dropped its employees 10% from
> 15,600 to 14,000 and is currently under consolidation. It's margins
> rose due to cost cutting and a revenue mix shifting from hardware
> sales to software which means less market share gains.
>
> Looking at Apple to total PC shipments make more sense than comparing
> them with HP and Dell which they are loosing market share. This makes
> sense since Apple sells at a premium and we are in a recession.<br/>
>
> One can see positives as well as negatives in this filing. Cost cutting
> is not bad if management is honest about it. Expanding into China
> this year is a positive if Apple is honest about it combating expected
> domestic sales. Choosing not to get into Net books is fine if you
> think it undermines your value proposition with 13" Macbooks and
> iPhones around that price and functionality area. Dissing netbooks
> for no good reason isn't so intelligent. Apple should be happy it's
> computers sell for a premium and commit to those price points even
> if it looses market share. Jobs was always clear it was not his intention
> to try to become 20 or 30% of marketshare.
>
> The fact that Apple sells its iPods in Wal-Mart is unsettling for
> a few reasons 1) it doesn't fit their demographic niche, 2) it doesn't
> ring brand value, 3) it sounds like a good place to dump, and 4)
> shows Jobs is utterly absent in making corporate decisions there
> anymore.
>
> So yes, Apple had a nice quarter but it doesn't smell like victory
> to me.
>
> I don't own or short Apple. I'm a fan of their products but don't
> like one sided stock hyping.
Apple has not been sacking anyone en masse. Those 15,600 positions are FTE (full-time-equivalent) positions. Apple just sensibly trimmed the hours of some of their retail staff during this economic downturn. Enough with the Chicken Little "sky is falling" nonsense.
mediamemo.allthingsd.c...
Also, Naveen, if you consider Apple vs RIM from a platform perspective, you need to count the iPod Touch in with the iPhone as both run the iPhone OS and both run Apps. From that perspective Apple has been beating RIM for the previous 2 quarters and is neck and neck this last quarter. It's not all about phones anymore but mobile OS platform.
-Mart
On top of Apple posting a great quarter, they are preparing for a great year of product releases.
First comes new iPhone hardware and software, then comes Snow Leopard, then comes the mystery touch screen device, then at the end of the year we might see new laptops when Intel updates their CPU line. All in all a busy year.
I believe, whoever makes a good traditional game controller pad for the iPhone/iPod Touch is going to make a killing. This fits quite well in stores like Walmart and Target.
I also recall the decision to distribute via Walmart appeared around Christmas 2008. There was a lot of rumor articles about the $99 iPhone all over the net. Steve was still around during that round of rumors.
As for netbooks, it's an interesting call from Apple. There definitely something new brewing at Cupertino for this product category. Some patents file in 2007 revealed something strange like a 2-sided touch screen for a tablet size device. I guess they will release it when it's ready. In the meantime, there's iPhone and iPod Touch accounting for about 37 million total units sold. Together, this is currently a greater base of users than netbook users. And if GM reported by Apple is true, more profitable too.
Last point. With cloud computing being a buzzword these days, it seems to me someone should develop a cloud service app that allows you to access the power of your desktop or laptop from your iPhone. The idea is, you don't need to run Excel or Word on your iPhone, you just need to view its content being served from your PC - maybe with limited editing. Given several VNC apps running on the iPhone already (which allows you to control a PC remotely via its native GUI), I see an app directly addressing this. View proxy version of a doc on your PC and even editing it via iPhone. Of course, a lot of things would need to be worked out for it to work well and securely. But given where we're going with cloud computing, this is a good solution to make up for those features laptops would have that an iPhone does not have.