Apple’s long string of impressive quarterly earnings reports has gotten a bit repetitive. Once again, the company posted record quarterly revenue and profits, and sold more Macs, iPhones, and iPads than ever during the fourth fiscal quarter of 2010, which ended September 30th. On last week’s earnings call with analysts, however, the most exciting inclusion wasn’t earnings-per-share or the fact that iPhones outsold Macs, but the presence of CEO Steve Jobs delivering impassioned opinions about RIM, Google, and the future of the nascent tablet industry.
Jobs rarely participates in earnings calls (the last was in 2008, after Apple had hit impressive sales with the iPhone 3G; see “iPhones, Macs Give Apple a Strong Q4 2008,” 21 October 2008), but in this case he wanted to be on hand to celebrate Apple’s first $20 billion quarter.
The company posted revenue of $20.34 billion and a profit of $4.31 billion, or $4.64 per diluted share. That compares to revenue of $15.7 billion and profit of $3.25 billion from the last quarter (see “Apple Reports $3.25 Billion Profit for Q3 2010,” 20 July 2010); in the year-ago quarter, Apple posted $9.87 billion in revenue for a profit of $1.67 billion (see “Apple Reports $1.67 Billion Profit for Q4 2009,” 19 October 2009). Both of those quarters were record-breakers, too.
iPhone and Competition — Apple sold 14.1 million iPhones during the quarter, squashing any speculation that the “Antennagate” fiasco in July materially affected sales; as we noted in “Apple Responds to iPhone 4 Antenna Issue” (16 July 2010), the problem Apple faced was not one of engineering, but of perception and runaway speculation about a popular product. The sales number compares to 8.4 million iPhones sold in the previous quarter, which included only two days of iPhone 4 sales. iPhone revenue accounted for $8.82 billion in revenue.
Signifying just how competitive the smartphone market is, Jobs’s remarks initially focused on Apple’s triumph over Research in Motion (RIM), maker of BlackBerry handsets and formerly the market leader. “We’ve now passed RIM,” he said, “and I don’t see them catching up to us in the foreseeable future.” RIM posted sales of 12.1 million BlackBerry devices in the same quarter.
Jobs continued, “It will be a challenge for them to create a competitive platform and get developers to develop apps on a third platform. With 300,000 apps in the iTunes App Store, RIM has a high mountain to climb.”
But the brunt of the CEO’s fusillade was aimed at Google, or, more accurately, the developers, equipment manufacturers, and cellular service providers who are embracing Google’s Android operating system.
Jobs pointed out that, while Google has been activating 200,000 Android handsets per day, Apple has been activating a daily average of 275,000 iOS devices (which includes the iPod touch) over the last 30 days. He also took issue with the description of Android as “open,” calling it instead “fragmented” because of the different versions and different carrier interfaces (in contrast with the “integrated” iPhone ecosystem). Jobs noted that the developers of TweetDeck found themselves developing for 244 different handsets and over 100 versions of Android.
Macs and iPods — Mac sales were also particularly strong, led by the iMac, selling 3.89 million units, another record. Apple CFO Peter Oppenheimer also noted that Mac sales were more than double IDC’s projected growth for the personal computer market overall.
Also noteworthy is that roughly 50 percent of people who purchase a new Mac at the Apple retail stores are new to the Mac, a percentage that has remained consistent since Apple opened its stores. The retail outlets now number 317 around the world—84 outside the United States—with an average of $11.8 million in revenue for the 301 stores that were open during the quarter. Approximately 75 million visitors set foot in Apple stores worldwide, an increase in attendance of 62 percent over the previous year. New stores in Beijing and Shanghai posted the highest revenue ever compared to other locations.
Following a recent trend, sales of iPods continue to decline. Apple sold 9.1 million, compared to 10.2 million a year ago; as usual, Apple didn’t break out sales of particular iPod models from the larger number.
iPad Sales and Sizes — iPads, on the other hand, continue to perform strongly, racking up 4.19 million units during the quarter and accounting for $2.7 billion in revenue. 3.3 million iPads were sold during the previous quarter.
From what the Apple executives indicated, this quarter’s numbers would have been higher if the company had been able to fulfill demand. COO Tim Cook noted that Apple caught up with the initial backlog only in September and is currently expanding manufacturing to meet demand for the upcoming holiday season and international expansion. They also noted that more than 65 percent of Fortune 100 companies are currently “deploying or piloting” the iPad. Consistent with the last quarter, the average iPad selling price is $645, indicating that purchasers are not overwhelmingly choosing the entry-level $499 model.
Jobs Answers Analyst Questions — During the analysts’ Q&A session, Jobs discussed the impact of iPad sales on the computer market, and said the device was definitely going to affect notebook sales. “It’s not a matter of if, but when,” he remarked.
Describing corporate adoption of iPads, he said, “We haven’t pushed it real hard in business and it’s being grabbed out of our hands. […] We’ve got a tiger by the tail here.” He reiterated that two-thirds of the Fortune 100 were either deploying or piloting iPads, and added that Apple was seeing iPad interest picking up in the K-12 education market as well. He went on to note that an even larger percentage of the Fortune 500, about 85 percent, were deploying or piloting iPhones.
When questioned about Apple TV, Jobs pointed out that while the new version has only been available for a short period of time, the company had already sold over 250,000 units.
And what about Macs in the enterprise market segment? Jobs said that Apple believes that “the consumer is at the forefront,” and that it is the consumers who are pulling the Mac into the enterprise market rather than any specific enterprise marketing effort on Apple’s part. As Mac adoption in the enterprise accelerates, however, Jobs said that Apple “will act accordingly” as regards enterprise marketing.
When asked about the enormous amount of cash that Apple has on hand—now $51 billion—and whether any of it will be returned to shareholders in the form of dividends, Jobs stated that Apple believes that, rather than giving the money to shareholders, “one or more strategic opportunities will come along” that Apple can take advantage of with its cash hoard: “We’re in a unique position because of our cash advantage.” We expect endless speculation in the next few weeks about who Apple might buy.
No 7-inch iPad? — Jobs took aim during the call at those competitors developing smaller form-factor tablet devices. He dismissed 7-inch devices as “tweeners,” saying that the size was just too small for a satisfying user experience and that he doubted developers would downscale their iPad apps and remove features to fit into a smaller display area. In one of the most unexpected visuals to come out of the call, Jobs pointed out that even increasing resolution is meaningless unless users “sand down their fingers” to one-quarter the size.
Jobs’s scorn of the form-factor may put an end to speculation about a new 7-inch iPad, although he has, in the past, made similar scornful remarks about other product niches that Apple then proceeded to take over soon afterwards (including watching video on mobile devices, ebooks, and, yes, tablet computers).
Meanwhile, in Redmond — It says something about the future of Apple and Microsoft that at almost the same moment Apple announced its best quarter ever and the success of its latest devices, Microsoft announced that Ray Ozzie, its chief software architect, was stepping down from that role; Microsoft CEO Steve Ballmer said that he “won’t refill the role” of chief software architect after Ozzie’s departure. When Ozzie assumed Bill Gates’s chief software architect role at the company in 2006, he was a Microsoft outsider, and was described at the time as part of the future of Microsoft. Meanwhile, at Apple, Steve Jobs remains firmly in place, and Apple continues to transform itself into something that barely resembles the firm of a decade ago. Microsoft, on the other hand, seems mostly frozen in amber.