MonthOctober 2008

‘The company formerly known as a computer maker’

Apple’s latest financial results call was an interesting one on several fronts. Indeed, I think it may be looked upon years from now as a milestone in the company’s history.

Why? Mainly, because it marks a clear point in time where the company stopped being a computer company and started being a consumer device maker. As Steve Jobs pointed out in a recent keynote, Apple is a company that stands on a three-legged stool. Macs — computers — are obviously one leg; iPods are the second; and now, iPhones make up the third leg of that stool. The analogy is an apt one. Apple’s not a computer company that makes iPods and iPhones as a side business: the three-legs more or less equally support the company. As Apple reported, iPhones made up 39% of Apple’s business (using the non-GAAP figures — we’ll get into that in a minute.) That’s an astonishing statistic. In just 15 months, the iPhone has become the biggest single contributor to Apple’s bottom line, with lots of room to grow. iPods account for 31% and Macs themselves make up the smallest portion of revenue at 30%.

A brief word on GAAP
A lot of Apple-watchers are getting a quick lesson in economics over the company’s decision to use GAAP (Generally Accepted Accounting Principles) and book the revenue generated from its iPhones (and Apple TV’s) using a subscription method. That means that rather than booking the entire revenue generated from a sale in the period in which the sale was made, Apple spreads out the value of the sale over 24 months. In its interpretation of the rules, Apple believes that method allows it to provide free software updates over the course of those two years, rather than having to set a value for them. That’s why iPod touch owners have to pay for the updates that iPhone owners get for free. The company doesn’t make more of less money using either method; it just gets counted differently. So, if the revenue generated by iPhone and Apple TV sales did not have to get spread over two years, Apple’s results would be even higher. That’s why the company also reported what its results would be under non-GAAP accounting. As Jobs said in the call, the iPhone story was “too big for Apple management or investors to ignore.”

So, adjusting for non-GAAP reporting, take a look at Apple’s performance in the fourth quarter over the past three years.

Fourth Quarter Revenue (non-GAAP)

  • 2006: $4.84 billion
  • 2007: $6.22 billion
  • 2008: $11.68 billion

The growth is stunning and illustrates a truly transformation period in the company’s history.

Wither the Mac?
I think this is wonderful news for that first leg of the stool, the Macintosh. It gives Apple a lot more breathing room than if it remained primarily a computer company. The diversity brought by the iPod and iPhone is insulating. It means Apple does not have to have a huge hit with every computer product. It means it has the luxury of being innovative, of spending money on R&D (Forget not, either, that the company has no debt and cash on hand of $25 billion — an increase of almost $10 billion since just last year.) And let’s not forget that much of the innovation on the other two legs of the stool begins or is to some extent reliant on what Apple does to the Mac. It’s a symbiotic product mix that I think Apple views in a holistic way, so I don’t see the Mac going away any time soon.

A few other notes
Steve Jobs couldn’t resist delivering the news in person that Apple outsold BlackBerry maker RIM in this quarter, and that by revenue, Apple is now the third-largest mobile phone seller in the world — again, in just 15 months in the market.

Rumor mongers will point to the fact that Jobs was on the call as some sort of sign regarding his health. The truth is that Steve does occasionally take part in these calls — though not often. I think he was there primarily to crow about the success of the iPhone and the fact that the 10 million unit goal for 2008 was reached two months early; and to talk to analysts about the uncertainty of the economy over the next period and its potential impact on Apple.

I’ll be on a MacJury podcast panel later this week to talk more about the conference call and other Apple matters. Visit the MacJury webpage or check back here for a link when the show is posted.

MacJury: Apple’s new laptop announcements

I stayed up past my bedtime last night to be part of a great MacJury panel, which included Jean MacDonald of SmileOnMyMac, podcaster Adam Christianson, blogger Dan Pourhadi, RadTech’s John Grzeskowiak and, of course, host Chuck Joiner. The topic, naturally, was the Apple media event where the company unveiled updates to its laptop line and introduced new cinema displays.

On the podcast, I referred to the event as the “Snow Leopard for hardware announcement.” By that, I mean that the new offerings don’t offer a ton of new features or improvements (the processor bumps are so insignificant they weren’t even mentioned, for instance.) The only true new feature I can think of is the glass the-whole-trackpad-is-a-button trackpad. Even the “unibody” construction is a process enhancement, not a new feature, and like its software counterpart, what’s new under the hood is essentially designed to make what’s there better, not provide new capabilities.

The laptops are also remarkable for what’s not there: no more matte screens, no more Firewire on the new MacBooks (although it remains on the “remaindered” $999 white MacBook) and, as mentioned, no more button on the trackpad. For the first time in a long time, the laptops’ hard drives are easily upgradeable. The RAM is less accessible than in some recent laptops, but for a good reason: Apple’s shipping them with enough to start with (2GB on the new MacBooks, MacBook Air and lower-end MacBook Pro; 4GB on the higher-end models. The $999 MacBook still ships with an insufficient 1 Gig.)

Much has been made of the elimination of Firewire from the new MacBooks. While I may mourn its passing, the writing’s been on the wall for some time now: Firewire is considered a pro-level feature, not for consumers. The push to USB 2.0 has been going on for a while and the marketplace has chosen. My last couple external drives have been USB, in fact, because I knew it would give them a longer useful life. If you’ve got an old Firewire camcorder around, hang on to a Mac with Firewire, or choose a new MacBook Pro if it matters that much to you. Or, use it as the excuse you’ve been looking for to get a camera with USB or removable media. Go on, you know you want to.

Similarly, we fans of matte displays are going to have to just give it up, because the rest of the world (and now Apple too) seem to have decided that it’s a glossy world after all. While purists may howl, and pre-press designers may scramble for matte display shields, the out-of-the-box experience is going to be bright, saturated colors and highly reflective screens. Even the new Cinema LED Displays are going glossy. As of now, though, Power Mac users will not have to worry about the decision — the new displays are clearly and specifically intended for the new laptops only. They use the new DisplayPort connectors and are incompatible with the DVI ports on Apple’s desktop lineup. And while you can get a DisplayPort to DVI (or VGA) adapter for your laptop, you cannot (at least as of this writing) get a DVI to DisplayPort adapter for your desktop machine. You can, however, still buy a non-LED Cinema Display; the entire lineup is still available (and promoted on) Apple’s website.

The MacJury panel touched on a slew of other issues, as well, including the DRM aspects of DisplayPort, the blurring of the distinction between consumer and prosumer branding (Will that be plastic or metal?), and more. It’s a very engaging session from a podcast I’d recommend even if I wasn’t part of it. I’m a big fan of the show’s rotating panelist format and the concentration on one or two specific issues rather than the more generic “news of the week” approach.

You can listen to this episode directly from the MacJury website or subscribe to the podcast in iTunes.

Rumors, leaked photos say new laptops will be evolutionary

For once, the rumor sites seem pretty consistent with their predictions and leaked photos in advance of Apple’s laptop-centric special media event.

According to the photos, the laptops appear to be aluminum, possibly forged from a single piece of metal, which, while not a first in the laptop market, could spell benefits in terms of production efficiencies, heat dissipation, noise reduction and even price. Daringfireball’s John Gruber has added a litany of specifications for the expected new computers, calling for the hardware equivalent of “Snow Leopard-style” changes — built for overall system performance improvements rather than new features. One exception is a new trackpad, that “is bigger and supports additional multi-touch gestures.” But, writes Gruber, the MacBook Pro’s new trackpad is made of glass, and is a physical button as well. “You just press and it clicks,” he writes. “This is not like the current software option where you can enable ‘Tap to Click’ in the trackpad preferences, but instead a glass trackpad that acts as a physical button, with a click you can feel. Sounds odd, but I hear it’s very cool in practice.”

More information is obviously forthcoming at today’s special event. I will be discussing the announcements — including any possible surprises — on the MacJury podcast.

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