Tim Cook was asked the first question (on the iPhone portfolio). His answer is paraphrased here:
We haven’t so far. That doesn’t shut off the future. Why? It takes a lot of really hard work to do a phone right when you manage the hardware and software and services in it. We’ve chosen to put our energy on doing that right. We haven’t been focused on working multiple lines.
Think about the evolution of the iPod over time. The shuffle didn’t have the same functionality as other products. It was a really good product, but it played a different role — it was great for some customers it was strikingly different than other iPods. The mini played a different role than the classic did. If you remember when we brought out the mini people said we’d never sell any. It was too expensive and had too little storage. The mini proved that people want something lighter, thinner, smaller. My only point is that these products all served a different person, a different type, a different need. For the phone that is the question. Are we now at a point that we need to do that?
At a macro level, a large screen today comes with a lot of tradeoffs. When you look at the size, but they also look at things like do the photos show the proper color? The white balance, the reflectivity, battery life. The longevity of the display. There are a bunch of things that are very important. What our customers want is for us to weigh those and come out with a decision. At this point we think the Retina display is the best. In a hypothetical world where those tradeoffs didn’t exist, you could see a bigger screen as a differentiator.
Full interview here, answer begins around minute 37.
Here is how I interpret the answer:
In the US, on a sales per square foot basis, Apple retail continues to perform twice as well as Tiffany & Co., the second best retailer, and three times as well as lululemon athletica, the third best retailer.
The latest quarter showed a 7% growth in visitors and a new record revenue of $57.6 per visitor.
As a result, the average revenue per Apple store per quarter reached $13 million, the highest level for a non-holiday quarter.
Here are some additional metrics:
My estimate of last quarter’s iTunes gross revenues suggested a spending rate of $40 per iTunes account. It would make sense to consider how that figure changed over time. The following graph shows the pattern:
You can read each bar in the graph as the total “ARPU” or average revenue per iTunes user.
I overlaid a graph showing the total number of accounts as reported by Apple to the (retroactively) estimated revenue structure. Account totals are measured with the right axis and ARPU with the left. Note that I also broke down each component of iTunes as currently defined (Music, Video, Apps, Books, Software and Services.)
The time frame covered is from Q2 2007, or the quarter prior to the iPhone launch. A few patterns emerge:
In the latest quarter the iTunes top line grew by 32%. Additional newly reported items:
- Quarterly revenues topped $4 billion (a new high) and the company suggests that this rate is maintainable by stating it has a “$16 billion annual run rate”. The pattern of revenues is shown below.
- The content portion of iTunes revenues was $2.4 billion, up from $2.1 billion sequentially. Growth into Q1 is not unusual as many holiday iTunes gift cards are redeemed during January.
- Revenue growth has been surprisingly steady, averaging 29%/quarter for more than six years.
The latest comScore data shows consistent growth in US smartphone penetration. The rate is now 58.4% of adult consumers who own phones. This is up from 20% only three years ago. The rate of growth remains a remarkable 1.2% per month. That’s 700,000 new-to-smartphone users every week. The historic average over 3 years has been 1.07%/month This after having crossed over 50% on schedule in August 2012. There appears to be no slowing.
The next milestone I have pencilled in is the 80% mark which I extrapolate to be achieved by October 2014. 80% could be considered “saturation” which would signify a rapid slowing of new user addition. However, that might still not happen until 100%, depending on the availability (or lack thereof) of non-smartphones to buy.
According to Strategy Analytics 3 million Windows-based tablets shipped in Q1. That is not inconsequential. It would add 4% to the total Windows-based computers and reduce the decline in Windows PC growth to -8% (from -11%). You can see the effect of those units on share in the following graphs.
iTunes (including software and services) revenues in Q1 topped $4 billion and were 30% higher than (re-stated) 2012 Q1 revenues. Accompanying this revenue figure were additional data points from the company:
- Cumulative app downloads have surpassed 45 billion
- Payments to developers reached a cumulative total of $9 billion
- Payments to developers were $4.5 billion in most recent four quarters
- Now paying $1 billion to developers every quarter
- 800 apps are downloaded every second
- iOS app revenues doubled since year-ago quarter
- App Store accounted for 74% of all app sales in the quarter (citing Canalys)
- App stores reach customers in 155 countries (850k Apps, 350k iPad apps)
- iTunes music downloads are available in 119 countries (35 million songs)
- Movies are sold in 109 countries (60k titles)
- iBookstore is available in 155 countries (1.75 million titles)
This data allows for a few inferences:
I expected Apple’s margins to improve last quarter. They didn’t and so the question I needed to answer is why. Here is a history of Apple’s gross margin and operating margin as reported since late 2005:
For a company selling hardware these are extraordinarily high margins. They are higher than those of Google and have narrowed the gap with Microsoft, neither of which has a high proportion of hardware sales:
I repeat what I’ve mentioned before: The iPhone is primarily hired as a premium network service salesman. It receives a “commission” for selling a premium service in the form of a premium price. Because it’s so good at it, the premium is quite high.
The job the iPhone is hired to do
The original post on the hiring of the iPhone by operators was anchored in data about the revenue per unit (or price) that the product was able to obtain. The remarkable resilience in the exceptionally high average price showed that the iPhone was still getting a premium for moving users to higher levels of spending on network services.
The evidence was circumstantial however: By knowing the price and knowing it was far higher than competing products and knowing that much of it was paid by the operator and not the consumer (at least not up-front) implied that it was the iPhone, and only the iPhone, that was hired as a network service sales tool.
Now we have more evidence thanks to Ben Thompson (@monkbent). I illustrate the data here as an x-y scatterplot.
The following interview took place by email on April 15th, 2013.
1. What are the truth and false about the ‘Apple shock’ currently? In what perspective should we see this?
First, I’d point out that during Steve Jobs’ time the company suffered many such shocks. The stock fell many times far further than it just did for trivial and irrational reasons. Recently Warren Buffett himself pointed out that his own company had 50% drops in value four times in the past. Share prices are not always good indicators of potential and markets are not always efficient. I catalogued the dramatic share price declines in Apple during the last decade here.
Second, I’d point out that the number of people watching and commenting on Apple has grown almost as fast as its sales and earnings. When Apple was small the people who studied Apple were few. (You could see this today for other, modest tech companies. There aren’t 50 analysts writing reports every day and 2000 bloggers tweeting about Lenovo even though it’s a successful and growing PC company.) Because of this growth, I would guess 80% of the observers have not observed Apple’s prior painful episodes first hand. For them this is the first time a “dominant” Apple has slowed. The amplification of so many voices raising alarm makes it seem truer, but it isn’t.
Third, the failures being cited are not significant. In terms of increased competition, before Samsung there was Nokia and Motorola and the mobile Operators and Microsoft and Dell and many others long forgotten. They were all about to “defeat” Apple. As a quick example when Apple was “the iPod company,” iTunes was considered vulnerable and fragile due to DRM concerns or the Beatles not being on it. Microsoft was launching “Plays for Sure” and Zune and Creative was suing Apple over patents. These battles are long forgotten. Before those there were concerns about the viability of the Mac that go back decades. At the time those were actually very valid concerns. At the time Apple did not have half a billion users. It depended on one product. But what saved them was a process of development of new products not the products themselves. iPod faded, Mac faded. What mattered is that they created new things to replace them.
Finally, what is not commonly understood is that the mechanism for creating things at Apple is unchanged. Its functional organization is inherently unstable and chaotic, sometimes looking like it will derail. But that’s the way it was designed to be. You just have to have faith that it’s a system that works. Those who did in the past were well rewarded.
2. What possibilities out of 1~10, do you think, Apple will suffer the same downfall as Steve jobs has left the company in the past in current?