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Month May 2012

Sponsor: Sudoku Touch

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5by5 | The Critical Path #40: Awaiting the Big Bang

This week, Horace follows up on his discussion of automobiles and road infrastructure by talking about how road networks were rebuilt in European countries to accommodate cycling. That leads to hints about the challenge of re-building energy infrastructure to support new power train technologies. We talk about RIM’s post-trauma life expectancy. Finally He and Dan also analyze comments made by Tim Cook at the recent D10 conference about Apple TV and disruption of the entertainment industry.

via 5by5 | The Critical Path #40: Awaiting the Big Bang.

Show links:

Beneath contempt: The Apple TV business model

Last year we sold … 2.8 million Apple TVs. This year, just in the first six months of our year we’ve sold 2.7.

Tim Cook at D10 1:45.

I note the “our” in “our year”. This implies fiscal year (that and the fact that he spoke in the past tense before six months had passed in the calendar year.)

Given the public information we have so far, it’s now possible to estimate with some confidence the sales history of Apple TV. The following chart is my estimate. It includes all the known data so far with some interpolations to fill in the gaps.

Assuming average revenues per device of $100, we can get an estimate of about $344 million in Apple TV hardware revenues for calendar 2011. This is not a large amount relative to Apple’s other lines of business. It is, for example, only 14% of the overall Peripherals revenues and only 5% of the iPod.

Post-traumatic life expectancy of phone vendors

“Clearly this stuff isn’t selling,” said Monga [an analyst at Veritas Investments Research in Toronto.]…

RIM took a $485 million pretax charge to write down the value of its PlayBook inventory in December, after shipping just 150,000 of the tablet computers in the quarter. Then in March, the company recorded a $267 million expense for BlackBerry inventory. RIM said at the time that it would stop giving sales and profit guidance because of “ongoing weakness” in the U.S.

via RIM Writedown Risked With $1 Billion Inventory: Corporate Canada – Businessweek.

RIM has just entered what I call the Post-traumatic period of a phone maker’s life. This period is defined as beginning with a loss-making quarter and ending  with the company’s exit from the business. These post-traumatic periods were visualized first here and the pattern was first discussed about a year ago here.

I’ve updated the chart with the current data and added the bar chart below to illustrated the “post-traumatic life expectancy” for the companies shown. Companies still operating are shown with bars without color while companies that have exited are shown with solid color bars.

Shipped and sold: A brief introduction

Markets are difficult to measure. Mainly because the information is not easy to obtain and that which is obtained is not made public. Collecting, analyzing and filling in the gaps is big business with many firms involved in selling it.

However, with all the analysts and companies selling and promoting their “numbers” it’s important to understand the difference between the methods used. There are for instance at least the following measurements:

  1. Units sold to end users. For example NPD or GfK data of retail transactions. Also Gartner’s estimates for phone units sold.
  2. Units sold to the channel. For example units recognized on income statements usually reported by companies. Also IDC’s estimates for phone units sold.
  3. Units in use. For example comScore and Nielsen survey data.
  4. Units “activated”. The measurement Google uses to describe Android performance.
  5. Intent to buy. For example ChangeWave surveys of early adopters.
  6. Utilization rate. For example browser statistics.

Each measurement tells a different story about the market but the best story is told when all data is analyzed in a combined integrated market review.

Before diving into that it’s important to understand the difference between the first and second measurements or the difference between shipped and sold.

What does “Sold” mean?

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5by5 | The Critical Path #39: The Locus of Power

Dan and Horace take a nostalgic trip through the automotive industry. Horace asks why should a 20 year old car (which he happens to own) be replaced? Why are cars built to be disposed of and why aren’t they meaningfully improved based on new jobs to be done? In this episode we look at the auto industry as a proxy for other “network-based” industries which reach plateaus of innovation and can go no further. Plus, Horace challenges readers to guess what car he drives.

via 5by5 | The Critical Path #39: The Locus of Power.

Show notes:

(Answer to the quiz question here).

The PC market overview for Q1

In terms of units Windows-based computers made up 78% of all PCs sold in Q1. That was an increase from the 74% in the previous quarter but a decline from 90% a year ago. OS X based computers were about 3.7%, a decline in share both q/q and y/y, something the company attributed to a transition quarter.

The following chart shows the composition of vendor volumes with tablet and traditional form factor computers included:

iOS computers (i.e iPad) were 11% of the market, declining from 13% last quarter but increasing from Q1 ’11’s 4.2% share. Apple reported that the iPad was not at supply/demand balance and thus could have sold more units.

Up to eleven

During my talk at the first Apple Investor Conference in January I said that I would pay very close attention to the Machinery, equipment and internal use software line item from its PP&E during the next quarterly report (it appears on Page 13 in the latest report).

The reason I consider this important is because capital spending has provided reliable foreshadowing of iOS device production. This is itself because Apple invests in the equipment used in the manufacturing processes for its devices. The more spending on equipment, the more production capacity is brought to bear and the more units are produced. Since iOS devices tend to be supply constrained, the more units are produced then the more are sold.

The first quarter of the fiscal year saw a very small increase in CapEx which caused me to “backload” spending later in the year. By watching this spending, we can assess approximately when and for which products is investment allocated. If the spending happens early then we can anticipate an early update to the iPhone. If it happens late then we can anticipate a late release. So has the ramp-up begun as of the second quarter (first calendar quarter)?

The following chart begins to give us the answer. It tells the story of spending by tracking the change in asset values:

Stripping out the Machinery and Equipment portion (in yellow above) and overlaying the following quarter’s iOS shipments yield the following composite graph:

Interview with Bruno Ferrari of Exame magazine Brazil

My thanks to Bruno Ferrari of Exame magazine Brazil for asking the following questions. My answers were written two weeks ago on April 2nd.

Based on financial data of the first fiscal quarter, it is possible to confirm that 2012 will be the best year in Apple’s history?

Actually, it’s possible to confirm without looking at first quarter data. Every business line Apple has except the iPod is growing and is likely to keep growing during this year. That means that sales will increase over 2011, which was Apple’s biggest year. You can see historic sales growth data here:

 What are your predictions for the second fiscal quarter?

I published my predictions here.

The iPhone number seems to be higher than consensus. It’s aggressive but I’m basing my opinion on the launch of the iPhone 4S in China and the Chinese New Year and new carrier agreement there. Also the iPad will do quite well.

Do you think Apple will hold the iPhone 5 launch to September in order to open 2013 with an extraordinary result?