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Apple Revenues: Groundhog Day

Jan 28 2014, 2:16am CST | by

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Apple Revenues: Groundhog Day
 
 

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Apple Revenues: Groundhog Day

We’re only a few days from February 2nd, so perhaps that’s why Apple’s just announced earnings feel a bit like Groundhog Day In this real-life version of the story, Apple shareholders wake up after a great holiday quarter — record iPad and iPhone sales — to learn that their stock is getting hammered because Apple thinks the next few months will show little growth over the prior year. In the middle of it, Apple management acts like the people surrounding Bill Murray in the film. All seems normal to them, things are moving along as planned. Yet somehow, you feel a nagging problem that something just isn’t quite right. But let’s be clear on something: Apple is not in trouble. The company earned $13 billion. It’s got nearly $160 billion in cash or equivalents at its disposal. It has sold more than billion  mobile devices , per Benedict Evans. The company delivered a record 51 million iPhones and 26 million iPads last quarter.

While the smartphone total was well below the 55 or so million analysts expected (and I was looking for even more ), CEO Tim Cook was mostly pleased. He cited a bunch of sales-growth figures — Latin America (+76%), Middle East/Africa (+65%), Central/Eastern Europe (+115%), Japan (+40%), China (+20%) — that read like a success story. While Cook did touch on the fact U.S. sales slipped, something he attributed mostly to carriers changing their upgrade policies and Apple getting with too few of the high-end iPhone 5s here, he didn’t talk about Western Europe, where recent Kantar data is troubling for Apple.

The simplistic analysis will say, “Apple is losing market share overall, this is a problem.” But it’s far more nuanced than that. Ideally, you want your smartphone platform to have the most users. Developers make the most money, you get the best apps, the platform is the most desirable. Apple has no problems there. CFO Peter Oppenheimer pointed to a Distmo survey that the Apple AppStore has a 63-37% advantage in revenue share over Google Play, despite Apple’s much smaller customer base. In a similar vein, Apple paid out another $2 billion to developers. Despite constant chatter from prominent venture capitalists that it was sensible or inevitable that developers should focus on Android , most apps still come out first or exclusively on iOS. (The notable exception is slick apps like Cover that are only possible on Android.)

So let’s play role reversal and put Apple in the role of Bill Murray’s weatherman Phil Connors for a second. You keep waking up in a world that’s not especially different than the day before. You can keep doing what you’re doing and nothing will change or you can subtly, slowly rewrite the rules. With regard to stock-market investors, Apple has made some progress, though the coming weeks may test how much. After last year’s January forecast, the stock went into a tailspin, falling from $514 to $392. It’s down more than 8% as I write this, which is not an especially good start.

But Murray’s character did something else important. Unbeknownst to the people around him, he became an expert piano player, sculptor, raconteur and gentleman. For Apple, the analogous skills might be: TV device seller, wearables company, mobile-payments leader and provider of less-expensive mobile phones, to boot. The evidence that those things are going on is lurking in the background: AppleTV got a lot better in the past year and is rumored to be due for an upgrade soon. Evidence of the iWatch continues to mount. Cook alluded to the payments business when asked on the call and even suggested Apple was open to less-expensive phones. “We’re wiling to make any product that’s a great product,” he said when asked. The “line in the sand” Apple wouldn’t cross is one where the product is no good, not one where the product is cheaper.

One thing clear from the report is that while Apple didn’t break out sales of the new iPhone 5c, overall it didn’t do much better than the 4s a year ago — as a percentage of total iPhone sales. We can divine this fact from the average selling price, which was down only $5 year over year to $636. What Apple does with regard to product mix in iPhones is a critical story for 2014 — and that story is as much about growth as it is about market share. (I am again promising an upcoming post about the varying ways Apple can generate  growth in sales without fundamentally altering what makes iPhones popular among those who love them.)

In the meantime, as this morning’s post discussed  with a bit too much prescience, there’s a lot Apple doesn’t do to please the market. And when it fails to deliver on something expected — in this case those all-important iPhone sales — its already somewhat inexpensive stock gets battered further. We’ve been here before. The question is when we’ll wake up someplace different.

Follow me on Twitter  and on Facebook . Find the rest of my Forbes posts here .

Source: Forbes

 

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<a href="/latest_stories/all/all/31" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

 

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