As I’ve said in past columns, some media pundits, not to mention so-called industry analysts, believe they know more about the tech market than Apple. So when there’s a product niche that’s not being filled, they will attempt to make strong cases for why Apple needs to create those products right away.
Now as the iPad’s sales began to soar, Steve Jobs said that Apple had experimented with different display sizes, and decided that seven inches was just too small for most of you. That statement came at the time when other companies resorted to the smaller screens in an effect to somehow match Apple’s price.
The apparent success of the $200 Amazon Kindle Fire is being cited as a requiem for smaller tablets. If Amazon succeeded, Apple is not only missing the boat, but losing loads of potential sales to tablets with the smaller form factor. Therefore, they must be planning one, if not now, in the very near future.
- Apple’s Record Quarter: But Don’t Count the… Predictably many of the stories about Apple's record fourth fiscal quarter concentrated on diminishing iPad sales. It wasn't so bad this time, some 12.3 million sales. Consider what the competition is doing, and it's not pretty. But compared to last year's results of 14.08 million, it didn't look so well. During the quarterly call with the financial community, Tim Cook boasted of sales conquests in education and the enterprise, claiming sales were what they expected. He also said that channel inventory was drawn down in the September quarter ahead of the launch of new models. That puts a positive spin on the matter. Certainly Apple delivered a credible iPad update last week. I expect the critics will find it insufficient, but Apple plays the long game. The new deal with IBM is clearly intended to move both iPhones and iPads, but it'll take time before the impact is known. Meantime, Apple is clearly not panicking over short-term sales shortfalls. Indeed, Cook calls the current sales slump a "speed bump," promising that things will get better moving forward. In response to claims that the tablet market is saturated, Cook said, "we don't see that." He pointed to high first time buyer sales rates, but added that people hold onto tablets longer than smartphones. So Apple doesn't know what the upgrade pace is yet. The tablet market for them is just too young to have a consistent picture of the replacement cycle. He continued to emphasize attempts to sell to the enterprise. There's also cannibalization, as Cook said that some of those who might have considered an iPad bought a Mac or an iPhone instead. I expect the latter is more true with the arrival of the iPhone 6 Plus phablet, the perfect all-in-one mobile gadget for some. In short, he remains bullish on future success of the iPad. The rest of the quarterly numbers were off the charts. Revenue for Apple's fourth quarter was $42.1 billion with a net profit of $8.5 billon, or $1.42 per diluted share. Revenue for the year-ago quarter was $37.5 billon, with a net profit of $7.5 billion, or $1.18 per diluted hare. Gross margins increased from 37 percent to 38 percent. So Apple returned to the "beat the street" mode, beating financial analysts, who predicted $39.85 billion revenue with $1.30 earnings per share, by a substantial and surprising margin. After Cook announced that iPhone sales were off the charts last week, one might have expected the new smartphones to be the main stars of the lineup. But not quite. So sales were 39.3 million, compared to 33.8 million last year. Analysts expected 37.5 million. But Cook reminded the assembled financial analysts that Apple remains way behind in supplying enough product, that Apple is working to boost supplies and meet demand. Right now, he remarked, "We're not even on the same planet." This leads one to wonder just what iPhone sales might have been if Apple had a few million more to sell before the quarter ended. Moving on, Mac sales really shined as Apple's personal computers again continued to grow ahead of the PC market. So, some 5.5 million were sold, with the most success reported in the portable line. Last year's Mac sales were 4.57 million for the comparable quarter, and analysts estimated 4.8 million. All this despite very modest refreshes for Macs this year aside from the brand new 5K Retina iMac. Meanwhile, PC sales continue to suffer, and it's a big question mark whether Windows 10, expected in the second half of 2015, will help. But Mac sales seem to be growing especially fast, reportedly achieving the highest industry market share since 1995. I do wonder, in passing, whether the Windows 8 debacle is making it easier for Apple to persuade people to switch to the Mac. As to the Apple Watch, it appears that sales numbers will be merged with the iPod, Apple TV and accessory sales, such as Beats headphones, in a new category that will be called "Other," when the company reports sales for the first quarter of 2015. So don't expect that Apple Watch sales will be reported separately unless they are high. Meantime, Cook declined to estimate potential sales for Apple Watch, which goes on sale next year, saying he didn't want to offer competitors any meat and potatoes to consider. But I wonder if Apple is emphasizing low expectations right now because nobody really knows the potential for a smartwatch. Clearly the current products haven't done terribly well beyond a core clientele of geeks and so-called power users. The Apple Watch may seem superficially similar to the others, but Apple clearly wants them to become not just smart gadgets but fashion statements. That's the reasoning behind persuading fashion magazines to cover Apple, and why journalists from the fashion industry were present at the September media event where the Apple Watch was demonstrated. For the December quarter, Apple is estimating revenue of between $63.5 billion and $66.5 billion. The Wall Street analyst community expected $63.5 billion, which means the stock price should be just soaring in the days to come. You can find more of Apple's numbers posted online. In any case, the attending financial people, as usual, shied away from the hard questions. Nobody asked, as a key example, about Apple's reaction to a bankruptcy filing by GT Advanced Technologies, the company that built a sapphire production plant in Mesa with Apple funding. As it stands, hundreds of employees will end up unemployed as the plant winds down operations. It's not known if GT ever produced a usable supply of sapphire for Apple's needs. Now when you look at lower-than-expected revenue reported by Google and Samsung of late, and Microsoft's ongoing troubles staying relevant, it almost seems as if Apple has a pretty clear path for growth. Maybe some third-party company will have products and solutions that Apple can't match. I'd be surprised if there wasn't a startup somewhere with the potential to build the true killer products to compete with some of Apple's offerings. But they won't be the phantom iPad and iPhone killers that the media fantasizes about year after year. Meantime, Apple is again firing on all cylinders.
- The Apple “Must” Report Did you hear that Apple may descend into irrelevance real soon now if they don't make some big changes? But how could that be? After all, wasn't Apple just named, for the seventh year in a row the "World's Most Admired Company" company in a Fortune magazine survey? What a disconnect. But that doesn't stop some tech pundits from assuming they know more than the "World's Most Admired Company" when it comes to products, product strategy, and product pricing. Forget for the moment the faux controversy over the alleged delay in producing a fix for the SSL bug. We don't know there was any delay other than the normal time it takes to make even a simple update, and test it before being deployed around the world. It's not as if there are reports that millions of iPhones, iPads and Macs are suddenly self-destructing as a result, so the updates appear to be successful. And it's not been disclosed that people were actually compromised by what was clearly a very serious security leak. So let's move on. There's a report this week that repeats an oft-repeated meme, that Apple has lost the ability to innovate. One alleged reason is that Google is buying more companies than Apple, or at least more high-profile companies, as if you cannot innovate without a checkbook. I wondered, in passing, whether the writer in question ever heard of Motorola Mobility, and how Google had to sell it at fire sale prices — some $3 billion — to Lenovo — thus leaving a company with a long pedigree in the mobile handset industry in the hands of yet another owner. This came after quarter after quarter of red ink, but you wonder why the media hasn't made a huge deal about this abject failure. Instead they quote the promise by Lenovo that Motorola handset sales are going to exceed those of Apple and Samsung. Right, sure! Well, there's always the next company. So, among Google's recent acquisitions, curiously for $3 billion, is Nest, a company co-founded by former Apple iPod executive Tony Fadell. Aha! He worked for Apple and was instrumental in the iPod's unexpected success, so why doesn't Apple want to make intelligent thermostats and smoke detectors? Besides, how would Apple magically become innovative from buying Nest, unless they rejiggered the product in some major way so it took on new markets? What's more, how many companies did Google acquire that never resulted in some trend-setting product, or set the tech world afire? There is Android, of course, and nobody denies the success of the number one mobile platform on the planet, but was it innovation that convinced Google to build an OS in the image of Apple's iOS, and for licensees to build cheaper and cheaper gear to spread smartphone joy to the masses? Profits? Well, Google earns money from the targeted ads, which is what they've always done. Is that innovation? As far as the handset makers are concerned, only Samsung, among all Android licenses, is making good profits. When Apple acquires a company, it's primarily to bring new technology in-house that will later appear in an Apple product or service. We all know about Siri, and PA Semi is one of the developers of Apple's A-series mobile chips. The Touch ID fingerprint sensor came as the result of buying yet another company, AuthenTec. So you can see honest-to-goodness advantages in these acquisitions. But you may not see the fruits of other acquisitions until some time in the future. But to some, they just aren't flashy, as if flash equates with innovation. Maybe Apple should buy out the Tesla electric car company and build $70,000 battery-powered motor cars. Sure, a Tesla is a well-reviewed product, with high safety ratings, and there will be cheaper models in the next few years. But is Apple's next success the car business? Besides, how innovative would it be to buy out Tesla, which Apple could do quite easily if CEO Elon Musk was amenable? To be fair, Apple has reportedly had conversations with Tesla, though some suggest it's about making deals about future battery technology, which would benefit both companies. Beyond making flashy acquisitions for some purpose or other, there is the constant demand that Apple build cheaper gear, or at least cut the prices of exciting products. The argument goes that Apple will make up the difference in high sales, not realizing that the stock market will freak if Apple sacrifices profits. And if sales don't increase enough to make up for the difference, where does that leave Apple? It's not as if it would be convenient to just restore prices back to where they were without any potential customer impact. If you think some might be upset Apple's prices are too high, what if they cut those prices and then changed them back to what they were? Talk about destroying customer goodwill. Today, you know where Apple stands. Well, many do, if not some members of the tech and business media who believe that Apple is losing credibility because of not buying as many companies as Google, or because there are no $200 unlocked iPhones to be had. Yes, if Apple sales really and truly suffered, rather than flatten, you can bet the company would find it necessary to take appropriate measures. But record sales and continued high profits don't define a company that's in trouble, except for those who wish otherwise.
- A Long History of Foolish Apple Demands Despite the drubbing Apple's stock price has taken in recent months, the company remains one of the most profitable on the planet. But Apple didn't get there paying attention to the critics. When they did listen on one occasion, they ended up almost going out of business. Consider the endless requests to license the Mac OS. That request continues to this day from some, but Apple only listened once. Before that, however, other companies made what are best called "unofficial" clones, by installing the hardware-based ROMs from another Mac. Literally. This was the basis of the Outbound, an attempt to build a viable portable Macintosh in the days before the PowerBook. Up till then, Apple sold the famously oversized and expensive Macintosh Portable. The thing weighed 16 pounds, so it hardly felt portable, and sold for a starting price of $6,500. But when the $2,300 PowerBook 100 arrived in 1991, the handwriting was on the wall. Those unofficial clones were on the way out. In 1995, however, Apple decided to jump into the cloning game with both feet. They licensed the Mac ROMs and the OS to several third party companies, which allowed those companies to build genuine, Apple-approved clones. Apple hoped to expand the market, but one of those companies, Power Computing, went right after Apple's core market of creative professionals with cheaper, more powerful gear. When new PowerPC chips arrived, Power would often introduce them first. As a result, they ended up cannibalizing sales of "genuine" Apple Macs. Apple hemorrhaged cash, and was in a bad way when Steve Jobs took over leadership of the company in 1997. One of Jobs' first acts was to find a way to kill the cloning program, realizing it was a bad decision. The clever solution was to introduce Mac OS 8, since the cloners were only licensed to use Mac OS 7. Well Umax did license Mac OS 8, but they stopped building Mac clones a short time later. Jobs also agreed to buy out the largest cloner, Power Computing, for $100 million, and it is said that Apple's online ordering system descended from the one used by Power. So there was a big benefit, other than killing the competition. Unfortunately, the people who demanded Apple license the OS conveniently forgot that the company made the lion's share of profits from hardware. Any move that allowed other companies to cannibalize the sale of new Macs hurt the company. Sure, the iPad cannibalizes sales of Macs, but the sales and profits are kept within the company, which is a good thing. These days, it is possible to install OS X on a white box PC with a little software skullduggery. It's not actually legal, and any company that would mass produce such a computer would face the legal wrath of Apple, and that has occurred. But Apple hasn't gone after individuals who build their personal FrankenMac or Hackintosh. While I'm not going to point you to a site that tells you how, let me assure you that such instructions aren't difficult to find. Indeed, Macworld once did a story about building a Hackintosh, and Apple didn't go after them. The other demand is for Apple to build cheap stuff. The theory has it that the company will prosper substantially with the higher sales volumes. They fail to realize that the sales aren't pure gains. Some customers are certain to buy cheaper products instead of more expensive gear. The end result is fewer sales of Apple's high margin products, which is not such a good thing. This doesn't mean Apple cannot strategically enter lower priced market segments. Consider the $49 iPod, or the $599 Mac mini. Both products yield proper margins to Apple, while the same time serving customers who want less expensive gear. These days, Apple is being strongly urged to introduce a cheap iPhone to serve parts of the world where people cannot afford $450 smartphones, or where subsidized contracts are unavailable. While this seems to make sense in theory, Apple has said many times that they will not produce junk. They aren't going to build an iPhone to meet a price point. But that doesn't mean there isn't the possibility of a less expensive model, if Apple can provide the full user experience and sell it at a decent profit. Again, Apple would would have to do it in a way that doesn't severely cannibalize sales of high-end iPhones, and actually expands the market. When it comes to demands that Apple build a smartwatch or a connected TV, I suppose it's possible that one or both products will arrive. But Apple doesn't enter markets just because there are profits to be made. They look to markets that are not being fully served for one reason or another, and try to create revolutions. Perhaps that makes sense with watches, but it makes less sense with TVs. So, how does Apple upend the TV market? That Tim Cook says that he feels he's going back 20 or 30 years when he enters his living room, that doesn't mean that Apple's solution is to replace the TV. As I've suggested before, the problems with the TV can largely be addressed with an Apple TV on steroids. I think about my recent struggles to make a Logitech Harmony universal remote mate with a new TV and I can see where integration of devices is one area that cries out for a solution. Can Apple provide it? Does Apple need to establish a fully enabled TV streaming service to compete with Netflix, DirecTV, and Comcast, among others? Or can they revolutionize the business simply by striking partnerships with existing providers and deliver the goods in a smarter way?
- 2014 — The Year the Sky Didn’t Fall for Apple At the start of 2014, even the most diehard Apple fanatic might have wondered about the future prospects of their favorite fruit company. Sales didn't always meet Wall Street projections, and profits were flattening. The stock price was way down from historic highs. To no surprise, some members of the mainstream media were calling for CEO Tim Cook to take a hike. Could it be that Steve Jobs' handpicked successor was a monumental screw up, or was there a long-term plan in place that would set things right before long? Questions, questions. Many of the particulars are ably recorded in a no-holds barred editorial from Daniel Eran Dilger, a frequent guest on The Tech Night Owl LIVE, over at AppleInsider. So I will be brief about some of the details. Now understand that the perception that Apple was on the rocks was largely manufactured. When Steve Jobs introduced iterative upgrades to Apple gear, that was part of the standard upgrade cycle. When Tim Cook did the same, there must be something terribly wrong with Apple's mojo, and the company clearly lost its power to innovate. After all, Cook was the supply chain expert. What right did he have to operate a company known for its amazing innovation? You'd think that Apple was supposed to upend a market every year. The critics forget the years that passed between the first iPod, the first iPhone and the first iPad. Miracles don't come every day, but where were the trendsetting products from Tim Cook's Apple? This didn't stop iPhone sales from climbing, at a time when Samsung's sales began to falter. The claim that Samsung had it all over Apple when it came to high sales and meeting the needs of a variety of customers was shown to be shaky. Yes, Samsung still sold loads of mobile handsets, but far too many were cheap, with little profit. While Apple continued to make huge profits from iPhones, Samsung's margins continued to shrink. Tepid response to the latest Galaxy series didn't help. Apple moved far more iPhones. Amid rising sales, Apple's first maneuvers for 2014 were financial. Stock buybacks and the seven-to-one stock split pleased Wall Street. But was Apple just stalling, avoiding the question of what innovative products were in the pipeline? Yes, Apple made promises, but when were they going to deliver? WWDC came, as usual, in June. The critics said it was all about the software, but Apple added an amazing number of new features to iOS and OS X. The bill of particulars was far larger than what Google and Microsoft were promising. True, some suggested Apple bit off a little too much this time, but the bugs are being vanquished, and the end result presents many new opportunities for developers to make a profit and to benefit customers. For regular people, the real significant event came in September, with the introduction of the iPhone 6 and the iPhone 6 Plus, a phablet with a 5.5-inch display. The critics had been long clamoring for Apple to enter the larger smartphone space, but Apple, as usual, took its sweet time about developing the right product. Certainly the public embraced the new gear, with record sales the very first weekend and chronic shortages through most of the holiday season. But some people realized that the romantic ideal of the larger smartphone wasn't quite so compelling after you spent a little time with one. One-handed operation meant something, and the larger handsets could be difficult to fit in a smaller pocket or purse. And don't forget Apple Watch. An early production model was demonstrated, and delivery was promised in early 2015. October brought new iPads, but the flagship model, the iPad Air 2, thinner than its predecessor, was the lone compelling upgrade. The iPad mini 3 was little different from its predecessor aside from Touch ID, and it still cost $100 more. It wasn't such a great deal, and the jury is out how well tablets sold this holiday season. But the iPad Air 2 is, as my friends across the Atlantic are apt to say, a marvelous piece of kit. It will be hard for my wife to give up the one she is using when the Apple editorial loan expires in February. The other product intro in October, the iMac 5K, was simply stunning, particularly the picture and the technology that makes it happen for a price that even Dell couldn't match. Last I checked, Dell's 5K display is just about the same price as the 5K iMac, but Apple gives you the computer as part of the package. None of this means everything went perfect for Apple. Don't forget the missteps — or alleged missteps — depending on your point of view. So those celebrities whose nude photos, stored in iCloud, were hacked and circulated online have only themselves to blame for poor password choices. Why did they have those pictures there in the first place? But the iOS 8.0.1 update was the worst sort of failure, fixing most iPhones, but causing some to lose their cellular connections and Touch ID capability. Apple pulled the update in little over an hour, and released a fixed version the very next day, but the publicity fallout continues. Yes, Microsoft has done worse, far worse, but this is Apple. Please don't get me started about iTunes 12. The complaints haven't been stilled, and I wonder whether Apple needs to get back to the drawing board to sort things out. Some alleged scandals were just nonsense. An iPhone 6 Plus was no more prone to bending than other large mobile handsets. No, Apple didn't suddenly out of the blue sneak a security update onto Macs with OS X Mountain Lion, Mavericks and Yosemite. That particular update came using the App Store update mechanism, the successor to Software Update. Where there's an automatic install option, as there is in Yosemite, you can switch it off. Besides, the NTP security flaw, impacting the time syncing feature of OS X, Unix and even Linux distributions, could allow a remote attacker to gain control of your computer. Even the U.S. Department of Homeland Security got in the act to report the danger, so was it wrong for Apple to protect you in a way that did no harm? For 2015, we know the Apple Watch is coming, but there is no consistency on how well it'll do. And what about the fate of Apple TV? Is there an Apple TV set on the horizon? An iPad Pro, a version with a display that's 12 inches or more? Is there something out of the blue in store? And what will Apple do to flesh out the features for iOS 9 and OS X 10.11? And I will not speculate on the code name for the next Mac OS.
- Life Isn’t the Same Without an Apple Rumor Understand that Apple hasn't held a press event since last October. After last month's quarterly conference with the financial community, Tim Cook has given speeches, met with the President and granted a few interviews to friendly reporters. But it's not that a lot of new material can be found in those statements, at least when it comes to unexpected new gadgets and services. Sure, we have heard about new datacenters powered by renewable energy. This will be a boon to the solar industry no doubt, and certainly it's nice to know that there will be more employment opportunities as a result. Being able to better cope with growing online traffic will no doubt make your iCloud experiences more reliable, and maybe give Apple enough capacity to cut the price for the optional packages, but it's not exactly a new product or service, and hence it's not worth much in the way of a rumor. Now because something is rumored doesn't mean Apple is going to deliver anything new. Take that connected TV set hinted by the pithy comments the late Steve Jobs made in a certain authorized biography from author Walter Isaacson. But having the magical interface that would revolutionize your TV experience doesn't mean that it has to be done with a TV set. After all, the TV market is old and saturated. It's not the equivalent of music players, smartphones and tablets, where the existing markets were not being well served before Apple entered the picture. That's something that the critics haven't noticed. The same is true for mobile payments, which basically went nowhere until Apple Pay came along. But financial tools aren't very sexy. But what about streaming video players? They are selling reasonably well, sometimes to so-called cord cutters, but they are all variations on a theme and the potential has yet to be realized. Even Apple TV, liberated from hobby status, hasn't changed all that much except to sport the typically flat interface derived from iOS 7 with more channels. And thus more clutter. The rumors have more or less eliminated the possibility of a TV set, and are focusing on how Apple might expand Apple TV. Would it sport a new, spiffy interface that echoes the promises, or exaggerations, from Apple's late co-founder? What it serve as a sort of TiVO, as a front end to existing cable and satellite services, or is Apple planning their own streaming service? Adding 4K support would be an afterthought, since it's just so expected. Or is anyone paying attention anymore? It seems that the focus of recent rumors, up through last week, was mostly about a MacBook Air with Retina display, with an almost 12-inch display. That display size is supposedly based on the resolution of the iPad Air 2 expanded to match the dots per inch of other Macs with Retina displays. Well, except for the iMac 5K of course. There's even talk of an iPad Pro that may or may not sport a 12.9-inch display and serve as a pro tablet of some sort. Maybe it'll be useful for content creators, or perhaps the enterprise, but surely not the mass market. I wouldn't think of buying one, at least not at this point, but if it somehow stopped the erosion of iPad sales, maybe Apple would consider taking this route. The rumors about Apple Pay are mostly about expanding the system to more stores and financial institutions, but mobile payment systems aren't sexy. At least Apple is doing better in this space than other companies, far better. Apple Watch will arrive in weeks, so maybe there's little point speculating about the final specs and pricing, although the prospect of a $20,000 top price may appeal to those who feel that spending that princely sum on some fancy electronic gizmo is a badge of honor. Clearly the Apple Watch Edition won't come cheap and that places this smartwatch in a totally different arena than the competition. The rest are just gadgets that may at times seem attractive enough, but they hardly qualify as jewelry. So in that sense, Apple Watch, despite the superficial resemblance of some of the features to other so-called smartwatches, really has no direct competitor. Well, until the premium watch makers get in on the act. There's already the promise of one from TAG Heuer. Last week, though, talk of an Apple Watch was essentially supplanted by talk of an Apple Car. No, not just the infotainment system, or full control of the dashboard, but the entire vehicle with the seats, engine, transmission, wheels, axles, transmission, sunroof — the whole Megillah. Such a vehicle, no doubt electric powered, and possibly with self-driving capability, would seem to pit Apple against Tesla. It doesn't seem as if Apple would enter the car business with an affordable model, at least for starters, though one never knows. Tesla's smaller, cheaper Model 3, expected to be sold for between $35,000 and $40,000, is not due until 2017. The rumors about Apple's automotive project, code-named Titan, speak of production by 2020, plenty of time for Apple to consider entering the higher end of the midsized and compact luxury markets. That's where annual sales expand from the tens of thousands to the hundreds of thousands. At least with an Apple Car, regulatory requirements and emissions and insurance industry testing will require that they let the cat out of the bag many months before such a product ends up in an Apple showroom somewhere. So ongoing rumors right now are going to be decidedly premature, unless Apple gives up the whole thing and the stories eventually vanish without having anything to sustain them. I mean, some industry executives have suggested Apple has no business building cars. They also said that about music players, smartphones and tablets, and some even said Apple went too far with personal computers.
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