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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10 Responses to “So is Apple Under a Cloud?”

  1. dfs says:

    The most interesting feature is that, although the iPad is selling so well, the sales figures for the Kindle remain good too. This means that the iPad isn’t doing well at the expense of the Kindle, but rather that the buying public is endorsing the idea of the tablet-type device.

  2. Hairy Goomer says:

    As I’ve pointed out numerous times, ‘Antennagate’ has been a well-coördinated smear campaign orchestrated by those forces wanting to hurt Apple’s sales momentum. Apple’s success in recent years has made MS, Google, et al, fearful, and they are using the corporate “news” media to spread their FUD campaign.

    Sometime around the middle of last week, my wife, while watching CNN in the early morning, heard one of its “reporters,” a brunette female, say something along the lines of “Well, if this is how Apple treats its customers of iPhone 4, it makes you wonder about all their products.” If that isn’t an example of spreading malicious propaganda, I don’t know what is. Sadly, this is what passes for “reporting” in the corporate media. My attitude now is to disbelieve everything they tell me and then do my best to verify/debunk their FUD.

  3. Jase says:

    “”We’re really pleased to have generated over $4 billion of cash during the quarter,” added Peter Oppenheimer, Apple’s CFO.”

    Well, that’s some serious cash flow for a single quarter.

    “Apple’s chief operations officer Tim Cook said Apple’s “international numbers are absolutely killer,” citing particularly strong growth in Asia, Europe and Japan. Cook noted 144% growth in China and near double growth in Hong Kong sales.

    Even in Spain, where the economy has been in the doldrums of recession, Cook noted 59% growth in Mac sales. Apple will also be expanding its Spanish iPhone mobile partner from a single exclusive provider to three alternative carriers.”

    To me, this means that Mac sales are being propelled by a phenomenon that used to be called the “iPod halo effect.” except now it is the iPhone, iPad and iPod Touch halo effect. People like their iPhones and iPads, so they want to get a Mac as well. It’s the only explanation for such a dramatic growth in Mac sales, especially in overseas markets which have traditionally been very weak for Mac PCs. You would think that Mac sales would be declining, if anything, because of the economic slowdown favoring less expensive PCs, and with Windows 7 being a more attractive OS than Vista. Not to mention that Apple has not exactly been focusing on their PC division, to say the least.

  4. Steve W, Indialantic FL says:

    “As I’ve pointed out numerous times, ‘Antennagate’ has been a well-coördinated smear campaign orchestrated by those forces wanting to hurt Apple’s sales momentum.”

    No. This is part of the retaliation counterattack by Gizmodo, supported by free press fanatics, after what happened to Philip Chen. The smearers and the hit-whores are piling on because that is what they do (and they wonder why media is dying).

  5. dfs says:

    I think that there’s a fair amount of truth in Steve’s observation that Antennagate contains an element of backlash over the Gizmodo affair. But I also think dismissing the journalists caught up in this as “free press fanatics” is disappointingly disparaging and shortsighted. You see, the press has traditionally had a “an attack on any one of us is an attack on us all” philosophy. Papers like the NYT and the WP can and have come to the defense of trash journalism like the National Enquirer when they thought that their own interests were potentially affected. Incidents like the Gizmodo one have the potential effect of creating legal precedents and case law that later on can be put to very different purposes, and the “legitimate press”and their lawyers know this full well.

    This goes to underline a point I made inanother post a few days ago, that, although we often congratulate Apple on its “spin machine,” it really doesn’t understand the press very well or do a very good job of manipulating it. As I said, how the press treats you largely depends on how much the press likes you, and Apple has done a lot to make the press dislike it.

  6. Hairy Goomer says:

    I found out the name of the female talking head on CNN who spread anti-Apple propaganda, Kyra Chetry.

    My wife tells me Jay Leno was trashing iPhone 4 on last night’s show. It seems to me there is a concerted effort to knock Apple because they’ve gotten “too big for its britches.”

    I recently read Bill Gates, Craig Mundie (MS’s Chief Research and Strategy Officer), and Eric T. Mole attended the super secret Bilderberg meeting at Sitges, Spain, in early June. It has been reported the Bilderbergers green-lighted an Israeli/U.S. attack on Iran and an increase in oil prices come late fall (after keeping them at relatively ‘low’ levels through the summer).

  7. John says:

    “…but Apple again was never asked how they come by these numbers.”

    Why should they? It’s very easy for Apple to get these numbers, or a very close approximation.

    People start up their Mac for first time, input all their personal info, and their Mac sends it to Apple. If that personal info already exists in Apple’s database, then those people are existing Mac owners. If it doesn’t, then they are new.

    For obvious reason (people get married, change names, move, etc., etc.) Apple’s info won’t be exact, but it would be good enough for generalizations.

  8. John says:

    FYI, ‘media’ is the plural of ‘medium,’ so the verbs should reflect that… e.g. “for news media that make mountains…”

  9. Richard says:

    I don’t know about “under a cloud”, but the recend self-inflicted wounds are learning opportunities for Apple. I hope that the appropriate people take the lessons.

    As to the antenna issue of the iPhone, let’s face it, if Steve did not know about it, he should have. In either event it should be plainly obvious that the testing was not adequate and all indications are that the industrial design aspects of the iPhone either ignored or simply overruled the engineering input.

    The iPad, for example, is not really a competitor for the Kindle. Yes, the iPad is an eReader and more, but so is the price. Not only that, but, with the release of the iPhone 4 it became instantly obvious that the iPad was obsolete because of the lesser hardware. People are waiting for the release of iPad 1.5 or whatever. There are also some deficiencies in the iPad that people had wanted for the iPhone, but are really deficiencies for the iPad. For example, what about an SD card slot or a USB plug (or at least mico-USB). And then there is the matter of an HDMI output for video to be shown on something bigger.

    I would have expected the iPad, because of its internal volume, to have been a hybrid with some flash memory and a 1.8″ rotating hard drive. I would also have expected a better Bluetooth keyboard to have been released with it, one more suited to the light weight/small size of the iPad. That is the one area that a notebook still has the iPad beat on. It is one thing to use the touch screen on an iPhone and quite another on the iPad.

    More critical than the missteps on the hardware itself, Apple have had an honest to goodness train wreck in the PR aspects of handling these matters.

    Apple does need to come up with answers, and soon, about the state of affairs with the iPhone 4. Don’t drop the ball, Steve.

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