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  • So is Apple Under a Cloud?

    July 21st, 2010

    You can almost see how the 24/7 cable news talking heads are handling the situation. Apple Inc., after being at the top of the mountain several years, is now once again a beleaguered company as the result of the Antennagate scandal. Both customers and the press have lambasted the company and mercurial CEO Steve Jobs for failing to understand the known flaws in the antenna design for the iPhone 4, and Wall Street is wondering just how Apple’s bottom line might be hurt.

    Well, that’s what the critics might say, but where’s the truth and can they handle it?

    The facts are that Apple beat the street yet again with their third quarter results, reporting quarterly sales of $15.7 billion and net quarterly profits of $3.25 billion, or $3.51 per diluted share. You can compare that to last year’s numbers of $9.73 billion, with profits of $1.83 billion, or $2.01 per diluted share. All told a 78% increase in profits.

    Not too shabby!

    Total Mac sales amounted to 3.47 million, a new quarterly record and an increase of 33 percent over last year. So much for Macs going down the tubes anytime soon, or the reports that the iPad would cannibalize sales. What makes the results all the more intriguing is the fact that this is happening without any major Mac announcement in months. Recent product upgrades have been minor, mostly speed bumps, and they arrived with minimal publicity. The last MacBook upgrade didn’t even merit a press release. It just showed up.

    At the same time, some 3.27 million iPads were sold, so it didn’t quite match the Mac numbers, but give it time. Already the analysts are inflating their iPad estimates for the rest of this year and 2011, as it becomes more and more obvious that this new gadget isn’t just a flash in the pan.

    As to the infamous Antennagate controversy, it appears that the iPhone is, as yet, unaffected. Some 8.4 million were sold in the June quarter, way on the upside of analyst estimates, an increase of 61% over last year. Steve Jobs calls the introduction of the iPhone 4 “the most successful product launch in Apple’s history.

    After some time in the doldrums, Apple’s stock price had risen several percent ahead of the third quarter results, which clearly indicates Wall Street remains positive about Apple and isn’t taking the iPhone brouhaha seriously. At least not until there’s evidence that sales have slowed, and with the product still on three-week backorder, clearly most people don’t care about death grips.

    That is except for some members of the media who don’t buy Apple’s explanations and are willing to give the lame excuses from competing smartphone makers a pass. It’s highly unfortunate, but not atypical for a news operation that makes mountains out of mole hills and gives tiny stories far too much prominence.

    If you want to examine the numbers in more detail, you can check out Apple’s press release on the subject.

    During Apple’s quarterly conference call with financial analysts, COO Tim Cook put to rest any lingering concerns that the iPhone 4 antenna uproar would hurt sales. He characterized demand as “absolutely stunning,” commenting, “We are selling every unit we can make currently.” He also denied that Apple is deliberately underproducing iPhones to create shortages “for buzz,”

    As the controversy fades, unless some serious new iPhone 4 problem emerges, it does appear they’re going to ride out this one.

    As usual, financial analysts are poor journalists, and they seldom ask the hard questions or engage in extended follow-ups for clarification. It’s also true that Apple’s top executives have their key talking points well rehearsed, so they won’t be tripped up. They also know how to avoid answering a question by subtly changing the subject. Too bad Consumer Reports continues to live in denial about the whole thing.

    The rest of the session yield unsurprising news. Some 50% of new Macs bought at an Apple Store are sold to folks new to the platform, but Apple again was never asked how they come by these numbers.

    When questioned once again about alleged inconsistencies in the way App Store submissions are handled, Cook repeated the usual excuses, that they approve most submissions within seven days, and that bugs or the presence of pornography are the main reasons why apps are rejected. Nothing was mentioned about those about gray areas, where there’s still ongoing controversy over why some apps don’t pass muster.

    I had hoped for a a direct question about whether Verizon Wireless would soon get the iPhone. You’d think with the revelation that there’s are Verizon cell towers on the Apple campus, that very question would have been asked almost at the starting gate. The best the analysts could offer was a clumsy query about the state of Apple’s relationship with AT&T and whether some sort of “expansion” is planned, which is the code word for adding another U.S. carrier to the lineup.

    Cook responded they were “very happy to be partnered with AT&T,” but avoided any further illumination on the matter. He wasn’t asked about that published report that claimed Apple and AT&T had nearly parted ways several times.

    When you look over the history of Apple’s association with AT&T, it may well but that this was the only major carrier that would not only carry the iPhone, but accept Apple’s demands for tight control of their platform. That goes against the grain with other companies, particularly Verizon.

    As I said, financial analysts make for poor journalists, so the responses they get are generally prepackaged and only of interest to people who crave hard numbers above all else.



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