A Look at the Future of Apple’s Business
By Alex Heath (7:50 pm, Jul. 19, 2011)
Apple has held its earnings call for the third business quarter, and there’s plenty of new information and speculation to glean from what was said. The rumor mills are always churning, but rarely does the industry get as much actual hard data from Apple as it does during one of these earnings calls.
Apple’s success up to this point is phenomenal, but what’s even more interesting is the future of Apple’s business. We’ve gathered the main highlights from this last earnings call to give you a good idea of where Apple is headed in the coming months.
Business is Booming
“We’re thrilled to deliver our best quarter ever, with revenue up 82 percent and profits up 125 percent.”
Apple shows no signs of slowing down anytime soon. The Cupertino company saw its stock reach an all time high, at $400 per share, and Apple reported a staggering $28.57 billion in revenue (to the tune of $7.31 billion in profit).
Q3 of 2011 has proved to be Apple’s most successful financial quarter to date, and the iPhone and iPad have played a huge role in that success. iPhone sales saw a 142% increase, while iPad sales saw an even more impressive 183% increase. The iPod saw a 20% decline in sales, and that number echos a previous analyst report that the iPod is not surviving as part of Apple’s product line.
Mac sales were up 14% from last year, with June breaking the previous sales record.
Overall, Apple CFO Peter Oppenheimer said it best: Apple is “thrilled” with its success.
“Neat Stuff” Coming to iTunes Store
“We add more content internationally in each quarter, and look for more content coming this quarter across the various stores. We have some neat stuff coming.”
When asked about the limited amount of content provided in iTunes, Apple commented that some “neat stuff” was coming to the iTunes Store in the near future. The iTunes Movie Rental service is estimated to be only one-tenth the size of Netflix, and only until recently did Apple begin to allow customers cloud access to music through iCloud.
Now that you can download purchased content (namely apps and music) multiple times from any device, Apple is also rumored to be finalizing similar licensing deals with Hollywood studios for movies and TV shows. With the introduction of iCloud and iTunes Match this Fall, there’s also the possibility that Apple will expand its focus from just music to streaming video content across multiple devices.
Major “Product Transition” Coming in September, a.k.a the iPhone
“There is also a future product transition that we are not going to talk about today.”
Perhaps one of the more juicier tidbits from the earnings call was the “future product transition” mentioned by Oppenheimer. When asked why Apple had projected a 12% revenue decline during the month of September, the comment was made that a “future product transition” during that timeframe would have great impact on the company’s projections.
It’s of course expected that Apple will release its next iPhone this Fall, as the company diverted from its normal release schedule by not announcing new hardware at WWDC this June.
iPad Cannibalizing Desktop Sales in the Post-PC Era
“In terms of cannibalization, we do believe that some customers chose to purchase an iPad instead of a new Mac in the quarter. But we also believe that even more customers chose to purchase an iPad over Windows PC.”
Apple’s iPad sales were the most impressive numbers from this last earnings call, with an overall growth of 183%. To put that into perspective, more money was made off iPad peripherals than the entire Mac product line (about $1 billion more, to be exact).
When asked if iPad sales were cannibalizing Mac sales, Apple COO Tim Cook said that the iPad was indeed responsible for the lackluster Mac numbers, even though Mac sales were still up 14%. June was in fact a record quarter for Mac sales.
Cook took a jab at Microsoft by pointing out that the iPad is also responsible for the decline in Windows PC purchases, which makes sense in light of the iPad’s unprecedented success in the consumer market. Cook said, “We sold every iPad 2 in the quarter that we could make. There certainly was not a shortage of demand. We are also gaining traction in the enterprise.”
Sights Set on China
“We believe this is a substantial opportunity for Apple, and we’re just scratching the surface.”
Sales in China played a huge factor in Apple’s record-breaking earnings call, with 13% of the total $28+ billion in revenue coming from the Asia Pacific region. Tim Cook called China “very key” to Apple’s results this quarter, and Apple plans to pursue business more heavily in China.
Apple has already been offering the iPhone on China’s second largest carrier, China Unicom, and its speculated that an agreement is in the works with the nation’s largest network, China Mobile. This deal would allow for the iPhone to be sold to China Mobile’s customer base of 600+ million.
Because of the differences in the Chinese market, Cook admitted that Apple hadn’t “learned to play perfectly” in China yet, but Apple is working to figure out the best way to fit into a primarily prepaid phone market. Word on the street is that Apple will introduce a cheaper (possibly prepaid) iPhone this Fall to compete in markets like China Mobile’s.
“It’s great for Apple because these are markets that Apple historically has not been as strong in, we’re really beginning to see the fruits of our labor in these markets.”
Apple also plans to open more retail stores in China, with a flagship store opening in Hong Kong this quarter. There are currently only 4 stores in China, and Apple plans on opening up 30 more next year.
Apple TV Still a Hobby
“Apple TV continues to do well but I don’t want to mislead. We still call it a “hobby” and we do that because we don’t want anyone to conclude that it’s another “leg of the stool” because it’s not in the size market that the iPhone, Mac, iPad or iPod is in.”
Any rumblings of a standalone Apple TV set for the near future were put to rest by Tim Cook in this earnings call. Apple still sees the Apple TV as a hobby, and the current, $99 set-top box will have to hold customers off for awhile longer.
Steve Jobs Won’t be Leaving Anytime Soon
The Wall Street Journal reported before the earnings call that Apple’s Board was considering the replacement of Steve Jobs as CEO of the company. While Apple declined to comment on this issue during the earnings call itself, Jobs did reportedly email the WSJ this comment:
“I think it’s hogwash.”
The Journal has since noted that Jobs was most likely unaware of the Apple Board discussion behind his back. We’re going to call “hogwash” on that one, too.
In terms of products, Apple will continue to stay busy with refreshes and new announcements. Most notably, the next iPhone is expected to drop in the coming months. Rumors have it pretty much pegged as a CDMA/GSM device with a 8-megapixel camera and dual-core A5 processor. There have been hints of another iPad model getting introduced this Fall with a Retina Display, but that rumor still seems far-fetched.
Updated Macbook Airs and Mac Minis are expected to launch as soon as tomorrow with OS X Lion, and the iMac may see a incremental refresh as well before the year ends.
A huge focus for Apple next quarter will be iCloud and iOS 5. iTunes Match will also launch in the coming months, and Apple’s cloud offerings will continue to develop as the services are made available to the public. Apple’s two main focuses for the future are definitely the mobile and cloud space. And we expect an even more impressive earnings call next quarter.