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p.s. 5 signs your business needs custom software
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Amazon’s recent disputes with publishers (Hachette and Disney) shows a degree of market power that is closer to monopsony than to monopoly but this power is nevertheless real. It may not not be something that requires intervention, regulation or even scrutiny but market power is evident in both how companies operate and in how they are valued.
If you look at the following graph, it’s easy to spot those with “monopoly” power. The graph shows a short history of revenues/operating income and P/E ratios. Modest or no growth in earnings coupled with extraordinary high P/E ratios indicate that the market understands the business is not threatened by competition.
One of the paradoxes of the “post-industrial” era is the aversion to application of capital to growth opportunities. Generally speaking, capital has become trapped in bank accounts as opposed to equipment which could be used to produce value. This aversion is rooted in many dysfunctions, chief among them being the misunderstanding of the purpose of the firm.
But there are exceptions. Illustrated below are the patterns of spending in property plant and equipment (capital expenditures) by companies that still recognize that there are opportunities to be obtained by investment in the means of production.
In October 2013, at the end of its last fiscal quarter, Apple stated:
The Company’s capital expenditures were $7.0 billion during 2013, consisting of $499 million for retail store facilities and $6.5 billion for other capital expenditures, including product tooling and manufacturing process equipment, and other corporate facilities and infrastructure. The Company’s actual cash payments for capital expenditures during 2013 were $8.2 billion.
The Company anticipates utilizing approximately $11.0 billion for capital expenditures during 2014, including approximately $550 million for retail store facilities and approximately $10.5 billion for other capital expenditures, including product tooling and manufacturing process equipment, and corporate facilities and infrastructure, including information systems hardware, software and enhancements.
These 10K (fiscal year annual) forecast figures for capital expenditures are shown in the following graph. Note that they also include the fiscal years from 2006 to 2012. Note also that the graph includes the actual expenditures (in green).
From 2006 through 2013 the sum of the forecasts was $23.445 billion while the sum of the expenditures were $24.662 billion. With the exception of a carry-forward in 2012, the forecasts are broadly in-line with expenditures, with about 5% more spent than forecast.
This pattern of accuracy in spending makes a $10.5 billion expenditure during the current fiscal year believable. In other words, taking the forecast at face value, and given that three quarters of the fiscal year have already passed, what does it imply for the current and last quarter? The following graph shows what Q3 spending should be relative to previous quarters (and 2011, 2012 and 2013).
With Dash you can quickly make real-time dashboards. They have an API that allows you to share data from Dropbox or the web with custom widgets like Charts, Speedometers, and Tables. Dash also has dozens of pre-built widgets for services like Google Analytics, App Store Rankings, Twitter, appFigures, GitHub, Pingdom, Chartbeat, News, and Weather.
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This month’s featured dashboard is live website monitoring. Spider Strategies makes balanced scorecard software, and they use Dash to track all of the visitors to their website.
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ABI Research estimates that AOSP (or forked Android) is the fastest growing mobile operating system with a total share of units shipped of about 20%. This is not surprising considering that most Chinese vendors don’t include standard Android into their products. Indeed the current leader in China, Xiaomi has its own take on Android and includes a unique UI and set of services. This is also not a new pattern, Amazon’s fork of Android has been in development for many years and powers the second most used tablet in the US.
If one looks at the volumes of smartphones shipped by vendor, the most rapidly growing (Huawei, Lenovo, Xiaomi, ZTE, Coolpad and “others”) are likely to be using forked versions of Android.
The reasons for this are many: a reluctance to deal with Google’s obligations, Microsoft’s IP licensing costs , potential litigation, politics (including bans on Google services in certain markets), etc. But the most likely reason is flexibility. Vendors competing on price and localization are looking to move quickly against each other and can’t wait for blessings from above. Belonging to some “Alliance” and all that it entails is just too much to ask for companies that are, so to say, delicate.
iTunes/Software/Services revenues grew at 12%. This was the second fastest segment growth last quarter, with the Mac growing at a slightly faster 13% rate. Apple mentioned in the quarterly earnings conference call the for the first nine months of its fiscal year (i.e. since September) the line item iTunes/Software/Services has been the fastest growing part of the business. The following graph shows the growth scorecard for Apple’s line items and it shows how the iTunes store is the only line that has been consistently green (growing above 10% for at least seven years.
In addition to its revenues, iTunes can also be measured in terms of billings (or gross revenues). The billings growth rate is even higher at more than 25%. This is mostly to the more rapid growth of apps relative to a decline in music. As Apple only records the 30% it keeps as “revenue” for apps the overall growth in apps is less visible in its accounts.
The relative performance of billings vs. reported revenues is shown in the following graphs:
There are 80 million Mac users. The last 12 months saw sales of 18 million Macs.
As of the end of June there were 886,580,000 iOS devices sold. As of today the total is well over 900 million. One billion sold will happen well before this year is out. Estimates of current iOS users vary but they are probably at least 500 million and could be 600 million.
Apple claims 800 million iTunes accounts.
Therefore, in terms of revenues:
- Mac User = $289/yr
- iOS User = $262/yr
- iTunes User = $25/yr
Adding iTunes usage to either Mac or iOS yields
Gartner’s own press release has an interesting spin:
“After Two Years of Decline, Worldwide PC Shipments Experienced Flat Growth in Second Quarter of 2014, According to Gartner”
Gartner’s actual figure is 0.1% growth. Gartner and IDC measure slightly different quantities as “PC” but they don’t disagree much. IDC still shows declining PC sales at about -1.7%. However both also include the Mac in their accounting of PC. If we were to remove the Mac and measure “Windows PC” Gartner’s figures would show -0.8% drop in PC ex-Mac shipments.
The difference in growth between the Mac and non-Mac PCs is shown in the following graph.
As Apple puts it, the Mac grew faster (and hence gained share) for 31 out of the last 32 quarters. It missed on this perfect record during the fourth quarter of 2012 when the then fresh new iMac was impossible to buy due to production issues.
So as far as the Mac is concerned the slowing of the decline in PC unit shipments isn’t at its expense.
IBM did not invent personal computing but their “PC” became synonymous with the category. Having entered the market in 1981, the IBM PC quickly became the top selling brand. From 1984 to 1993 IBM sold more PCs than any other vendor, conceding the spot to Compaq which remained on top only until 2000. No PC vendor remained at the top of the sales leagues longer than IBM. HP had the second longest run but that run was broken last year as Lenovo (who acquired IBM’s PC business) surged.
As the graph above shows, the period of time when IBM was dominant was characterized by far lower volumes. In 2004, the year IBM exited, they sold about 10 million units. ((as the graph shows, if we consider Lenovo as taking over from there, they did a very good job extending the legacy.)) It was a decent performance but one that did not keep up with the Dell and HP/Compaq race to the bottom in pricing and subsequent rise in volumes.
However, throughout its position of strength, IBM was a reluctant PC maker.