The News on Apple Points to Strong Future Growth

Includes: AAPL, DELL
by: Yankee Group

By Carl Howe

My Web reading this week produced three tantalizing bits of Apple (NASDAQ:AAPL) news that may have big implications for where Apple is going in the not-so-distant future. Check these out:

1. According to The Inquirer, Apple's new Mac Pros are now dramatically cheaper than comparable Dell (DELL) Precision desktops. To quote directly from the article:

This is quite incredible. Any major OEM has trouble matching pricing with Dell, considering the massive volume discount Dell gets from Intel (NASDAQ:INTC). But Apple isn't only matching them on the lower specs, they're thrashing them on the higher spec-ed systems - relatively huge margins of pricing difference.

You have to wonder what sort of discounts Apple are getting from Intel, and if this is why Dell is now holding hands with AMD (NASDAQ:AMD).

What this means: Apple is working hard on eliminating business objections to buying their gear. One of those objections was always price, and the myth that Apple's products were more expensive than PCs was always fueled by the fact that different processors and components were being compared. Well, now those days are over. And given Dell's problems in customer service, innovation, and growth lately, business customers are looking for good vendors to keep costs down. This means a bump in Apple market share may be coming -- fueled by business sales of all things.

2. Over at Macintouch, a reader notes that "VMware is good for more things than running Windows on Mac OS X -- it works the other way around as well."
Again, from the article:

Q: Will it ever be possible to run Mac OS X Server on non-Apple hardware in VMWare instances enterprises may already have set up?

A: As far as they can tell from conversations with Apple, absolutely not.

I hope it's obvious that Dave's answer is patently absurd. He's denying a commonly-known internal truth to appease Apple.

It _is_ more than "possible." Been there, done that. As a VMware employee at the time x86 Macintosh was released, I can assure you VMware Workstation 5.x could run the MacOS X in a virtual machine within days of the x86 MacOS developer release.

However, when the first intrepid technologist announced his success running MacOS on the on the company-wide internal funlist, the response was a clamoring for a copy of the Macintosh virtual machine.

Immediately the VMware legal-eagles scoured the fine print, and it was determined that running a MacOS VM on non-Apple hardware was not withing the parameters of the Apple Software License. Internal discussion was utterly squelched. Even hallway conversions were discouraged by some managers.

Thus the MacOS VM was never made available, even informally to internal VMware enthusiasts. Yet it exists. It _is_ possible to run Mac OS X Server on non-Apple hardware in VMWare.

What this means: Everyone has been assuming that the VMware beta announced at WWDC would just be to run Windows on Macs. Fine. But as this reader points out, virtualization can and has allowed Mac OS X to run on non-Apple hardware. While I don't expect this to be a mainstream application, it means there's a very interesting "try before you buy Apple" marketing opportunity to businesses. Apple could give a business considering buying XServes a VMware image of Mac OS X to try out on their existing Windows or Linux servers. They can test software and compatibility features of the system before they have to commit to lots of Apple hardware and software.

3. Finally, the Associated Press has an article saying that the DVD Copy Control Association is about to provide processes and permissions to write movies onto blank DVDs. As the article notes:

A film industry group is set to remove some of the procedural hurdles that prevented the legal recording of movies onto blank DVDs in a further sign that Hollywood studios are preparing to expand what consumers can do with downloadable movies.

Under rule changes expected to be finalized soon by the DVD Copy Control Association, retailers could create movie jukebox kiosks with which customers can select, say, an obscure title and burn it to a DVD on the spot.

Online merchants, like Apple Computer Inc.'s iTunes Music Store, could start to allow video downloads to be transferred onto DVDs.

What this means: People often forget that one of the bits that differentiated the iTunes Music Store when it launched from other online stores was that Jobs negotiated with the music studios for the rights to write CDs of purchased music. The fact that this was legal and allowed -- albeit only up to seven times for a given playlist (thanks for the correction, MacDailyNews) was a real breakthrough and certainly fueled iTunes music purchases. After all, once your music was on CD, you could enjoy it in your stereo system, in your car, and pretty much anyplace that could play CDs.

Now, we're approaching the point where the same process will be legal for movies. And you can bet that the iTunes Movie Store will be first in line to provide that capability. Oh, and by the way, some of those DVDs are going to be Blu-ray high definition ones, too.

So what do all three news stories mean? They mean that:

1. Prices aren't going to be a barrier to Apple growing market share.

2. Apple has technology that could allow it to sell both more versions of Mac OS X and more Macs to businesses.

3. Apple will soon have the ability to sell consumers real DVDs of movies that they write themselves.

With new video iPods, consumer computer and entertainment platforms, and a killer processor roadmap over the next year, Apple executives shouldn't even care what the strike prices on their options are. They're going to be in the money.

AAPL 1-yr chart:

AAPL 1-yr chart

Full disclosure: I do own some Apple stock myself.