Welcome to the February issue of About This Particular Macintosh! January was an exciting month for Apple and owners of Apple’s digital lifestyle products. We begin this month’s issue with a quick review of January’s news and an overview of all things Apple.
Perhaps the most anticipated new product from Apple in recent history was officially announced on January 27th during a special event at the Yerba Buena Center for the Arts Theater in San Francisco.
The iPad will be available in a WiFi-only version to ship by the end of March and a 3G-capable version scheduled to ship in April. Offering consumers a 9.7-inch Multi-Touch display, Apple’s the newest creation is powered by an Apple-designed chip and is being marketed for a variety of uses.
Apple’s presentation of this device showcased its ability to run over 140,000 existing iPhone OS apps as well as new apps specifically designed to take advantage of the iPad’s large display and its functionality as a first-class eBook reader. Media response to the new device has been generally favorable, with much debate as to level of consumer demand for the iPad upon its release this spring.
Record Results (Again!)
On January 25th, two days before Apple’s announcement of the iPad, the company announced its financial results for the fiscal quarter ended December 26th. During the quarter, Apple shipped 3.362 million Macs, 8.737 million iPhones, and 20.97 million iPods. Total Mac shipments represented a staggering 33% year-over-year increase in unit shipments and record sales of Apple’s popular brand of personal computers. iPhone unit sales increased 100% over the prior year performance, while the iPod line experienced an 8% decline in unit sales versus unit sales in the same prior-year period. The decline in iPod unit sales has been anticipated following the success of the iPhone. Offsetting the decline in iPod unit sales is the rise in the iPod’s average selling price due to the influence of the iPod touch and its increasing percentage of all iPods sold.
The December quarter results produced Apple’s second consecutive quarter of record revenue and earnings.
The iPhone’s Deferred Revenue Extinguished
From initial release until the December quarter (Apple’s first fiscal quarter of fiscal year 2010), recognition of iPhone revenue was deferred over the two-year anticipated economic life of each handset sold. Apple deferred revenue on iPhone sales to comply with accounting rules in place at the time. Because Apple offers free OS upgrades to iPhone owners during the product’s anticipated economic life, accounting rules demanded that revenue be deferred because enhancements to functionality and uses occurred after the original sale.
The accounting rules have now been changed, and Apple adopted the changes at the start of its 2010 fiscal year. To make comparisons with prior periods accurate and consistent, Apple has filed retrospective financial reports recognizing virtually all iPhone revenue in the quarters the handsets were originally sold.
The December Quarter by Numbers
For the three-month period ended in December, Apple reported record revenue of $15.683 billion and earnings of $3.38 billion, or $3.67 per share. This compares to revenue of $11.88 billion in the prior-year period and quarterly earnings of $2.26 billion, or $2.50 per share. This represents a 32% increase in revenue and a near 47% increase in earnings versus one year ago. In a prepared statement concerning the results, Steve Jobs commented that Apple is now generating $50 billion or more in revenue on an annualized basis.
The change in accounting rules revealed that the iPhone was the largest contributor to Apple’s revenue in the quarter, generating $5.578 billion of the company’s $15.683 revenue take during the three-month period.
Apple refreshed its popular line of iMac personal computers in the December quarter. Sales of the latest iMac iteration propelled desktop Mac sales to 1.234 million units, a gain in unit sales of 70% over the prior-year period and 57% over the September quarter. This startling unit sales performance exceeded the expectations of even the most bullish Wall Street analysts. The iMac is finding success in a global market that continues a migration to portable computing devices. Strong iMac sales should continue in the March quarter (the current quarter) though not at the same sales pace experienced during the holiday season.
Despite the 100% increase in unit sales over the prior-year period, the 8.737 million iPhone units shipped in the December quarter was below the expectations of many Wall Street analysts who carefully follow the company. The iPhone faces competition not only from the iPod touch but also new Android-based smartphones now coming to market. Apple has profited handsomely from the iPhone’s exclusive carrier relationship with AT&T in the United Sates, but many expect the exclusive relationship with AT&T to end early this summer and for the iPhone to be made available on other carrier networks. It’s widely anticipated that this change will boost domestic iPhone unit sales.
The iPod has reached a mature market phase. While it remains the most popular line of specific-use digital music players in the world, competition from music-capable smartphones such as the iPhone have changed that market’s dynamics. The iPod touch has increased its percentage of all iPods sold, and the migration to iPhone OS-enabled devices (the iPhone, iPod touch, and the forthcoming iPad) represents the future for Apple’s handheld digital devices. The decline in overall iPod unit sales showcases the popularity of Apple’s iPhone OS-enabled products and portends success for similarly enabled digital products to come.
Apple as Apple’s Best Competition
Paraphrasing Andrew Grove, the legendary CEO of Intel Corp., an enterprise shouldn’t be worried about cannibalizing its own existing product sales through new product releases. His view was if a company didn’t innovate and release new products even if those products cannibalized or reduced unit sales of the company’s existing products, competitors would diminish the sales of those products instead.
Apple’s record results in the December quarter demonstrate the validity and importance of Mr. Grove’s axiom. The wildly successful iPhone and iPod touch have diminished the unit sales of Apple’s specific-use digital music players, and the iPod touch itself competes with the iPhone for some product sales. But in aggregate Apple’s product sales continue to rise, claiming more sales from competitors than Apple claims from its existing product lines through the release of new and innovative products.
The forthcoming iPad is positioned to compete directly with Windows-based netbooks, the fastest growing segment in the PC market. Although the iPad may compete for some sales with Apple’s MacBook products, there’s a much larger market for the iPad among potential netbook buyers than the market for consumers who might choose between Apple’s own products to satisfy their digital lifestyle needs. Innovation involves risk, but well designed and attractively priced products provide for far greater potential rewards.
Our February Issue
It’s an exciting time for owners of Apple’s digital lifestyle products. Each month the editors of ATPM work diligently to provide our readers with interesting product reviews and unique points of view to enhance what we call the “personal computing experience.” Please enjoy our latest issue and join us each month as we continue to explore the digital world around us.
Our February issue includes:
Mark Tennent wants a decent Apple TV box.
“When we received the news that Chrome has overtaken Safari to become the third most popular method of accessing the Web, the overwhelming urge was to yawn.”
Ed Eubanks Jr. updates his GTD Master List.
A reader shares a perspective after reading the “Back to the Beginning” segment in last month’s Welcome.
Christopher Turner shares some photos of a trip to New England in May 2006.
Matt Johnson’s new series, Out at Five, looks at the workplace and its boundaries from all angles, revolving around many of the same characters from his former series, Cortland.
A simple, solid display stand for iPhones, iPods, etc.
A nice idea in concept but nearly useless in execution.