• Apple Continues to Make Money the Old Fashioned Way

    April 21st, 2006

    Depending on whose expectations you’ve followed, Apple exceeded them or didn’t quite meet them. In recording the second best financial quarter in its history, Apple reported revenues of $4.36 billion for the quarter ending in March, which is somewhat less than the analysis from Thomson First Call of $4.5 billion. However, net income was $410 million, or 47 cents per share. This was above predictions of 43 cents a share. But it was in line with what Apple had been promising, so what can you say?

    In fact, Apple’s stock rose in trading after hours, so clearly Wall Street was pleased. Looking at the numbers, Apple sold 8.5 million iPods. Although this was a 40 percent drop from the December quarter, it also represented a 61% increase over last year. What’s more, despite more and more pretenders in the music player arena, the iPod’s market share just keeps soaring, and is now 78% in the U.S., compared to 71% in the last quarter. The iTunes Music Store now has an 87 percent piece of the legal music download pie in this country. The present inventory includes 2.9 million audio tracks, 60,000 Podcasts, including two from us, 9,000 videos and 70 TV shows. So much for calls to open up the digital rights management or add a subscription-based service.

    I’ll cover more of these numbers and their impact, but if you want the raw, unvarnished specifics, check at Apple’s site. After the numbers were released, Apple’s financial people hosted a conference call with industry analysts to answer questions, more or less. While some raw numbers were well in evidence, details about new products and strategies were, as usual, kept close to the vest. Did you expect otherwise?

    The big impediment to boosting sales of new Macs is the ongoing switch to Intel processors. As older PowerPC Macs get longer in the tooth, customers are simply waiting on the sidelines for the models they want to be updated. Apple continues to maintain that it’ll finish the transition by the end of the year, but that’s a long, long time when it comes to buying a new computer. One expects the Power Macs and probably the Xserve, both likely renamed, to be the last to be updated.

    Another potential holdup is the availability of Universal applications. In the creative field, the wait for Adobe’s Creative Suite 3 seems eternal. Right now, Adobe won’t commit to having it out before 2007, but Apple is supposedly working with them to help them deliver the upgrade as soon as possible. Now this is a key admission, because Adobe appears to have a whale of a job ahead of them to move their flagship software to a new programming environment and then deliver support for MacIntels.

    Today, Photoshop, for example, suffers from a speed hit of about 50% when run in the Rosetta emulation environment. For a busy creative company, particularly those who work with large files and complicated rendering filters, this isn’t acceptable. So these companies will stick with their Power Macs for now. And, in truth, the Power Mac G5 Quad, outfitted with loads of memory, remains a world-class workstation. But a lot of buyers don’t seem to be in evidence.

    The unofficial scuttlebutt has it that you’ll see an Intel-based successor to the Power Mac, possibly rebranded as a Mac Pro, some time in the third quarter of the year. This would be shortly after new generations of Intel’s desktop chips are available. Now we all know that Apple’s WWDC in August will feature the first official preview of Mac OS 10.5 Leopard. Perhaps you’ll also see the new professional Mac desktops at the same time, with promised delivery dates in September, and perhaps as late as October for the fastest versions.

    Now, I’m not reading tea leaves. I leave that to people who guest on my “other” radio show. I’m just looking at the trends and Intel’s road map to come up with that conclusion. That, of course, would fulfill Apple’s promise to finish its Intel migration before the end of the year, but it also raises the pressure on developers to finish up Universal versions of their applications as soon as possible.

    Adobe? Well, I just wonder what sort of help Apple is providing and how many resources it is committing to speeding up development of Creative Suite. But that may not be enough. What about critical 3D applications for the film and TV industries, such as After Effects and Maya?

    Boot Camp? Well, Apple seems upbeat on the response so far, but continues to repeat the mantra about not selling or supporting Windows. So you’ll still have to buy it yourself if you want to take the dual-booting route or use a virtual machine, such as Parallels Workstation. And, by the way, I’ll have a preliminary report on the Parallels product tomorrow.

    In case you’re wondering, Apple is predicting a similar earnings outlook for the third quarter of 2006, which ends in June. Again, the sales draught that results from the Intel transition is going to keep the numbers flat for a while. Now a new iBook, by whatever name, can help goose sales for consumers and educational buyers, but it’s an open question when it’ll appear.

    I’m just waiting for a 17-inch version of the MacBook Pro.

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