Monday Note

As if you haven’t heard, Apple posted its Q4 earnings last week. I’ll spare you my own encomium and refer you to these links:

• Despite its title, Business Insider’s list of Facts About Apple’s Business That Will Blow Your Mind contains little or no hype.
• TechCrunch provides context for Apple’s “massive numbers”.
• Brian Hall offers his trademark combination of eloquent and factual commentary while arguing that We’re Not Talking Enough About Apple or About iPhone.
• And this list wouldn’t be complete without Horace Dediu’s keen insight: Apple’s Fourth quarter 2011 Growth Scorecard.

For complete numbers, you can go to SEC filings 8-K and 10-Q. If you have the time and inclination, I recommend a walk through the MD&A (Management Discussion & Analysis) in the 10-Q. Never boring, it’s filled with meaningful details and decently written — I couldn’t find a single instance of whereas, forthwith, or insofar.
With this out of the way, a few thoughts and questions are prompted by the earnings release fever:

What happened to the “Android Is Winning” meme?

No question, Google’s Trojan Horse has made tremendous headway, powering more than 50% of all smartphones worldwide. It’s a technically robust product (comrades of mine from a previous OS war work on Android, so I could be biased) and the “free and open” pitch works wonders with handset manufacturers.

Rev 1.0 of the meme held no hope for Apple: Android will kill iOS just like Windows crushed the Mac. (We’ll deal with the Windows vs. Mac part in a moment.) But where’s the evidence Android is in any way ‘‘killing’’ the iPhone? It’s certainly not happening in the US: The iPhone Accounted for 80 Percent of AT&T Smartphone Sales Last Quarter; for Verizon the portion was closer to 70%. Apple sold 62 million iOS devices last quarter; reports of Apple’s imminent demise are greatly exaggerated. (The actual numbers might include some statistical double dipping due to activations, but that applies equally to all brands so the picture remains the same.)

In the meantime, an ABI Research study shows that Android is losing market share. As with all such research, we’ll keep the usual caveats in mind…and wait for the next study.

Let’s not forget the usual litany: Ah, yes, this is great, but Apple’s success can’t last. Some day, they’ll ship a dud; their arrogance will blind them; the toxic waste of success will kill them.

Sure, we all die. But when?

And aren’t those supposed to defeat Apple exposed to the same hubris, creeping mediocrity and belief in their own BS?

Another question: Where are Nokia, Motorola, RIM? The short answer: They’re all hurting:

• Nokia just posted a steep loss for the quarter, its smartphone revenue declined by 38%.
• Motorola (in the Android camp and soon part of Google) posted an $80M quarterly loss, selling only 200,000 tablets and 5.3M smartphones.
• As for RIM, we know they’re in a tailspin. RIM just kicked Messrs. Lazaridis and Balsillie upstairs and got itself a new CEO (actually, a recycled co-COO). Last year, RIM’s share of the US smartphone market fell from 19.7% to 16.6%. (I don’t know how market research firms justify the digit after the decimal point…)

And there’s more: It now looks like Nokia has taken the lead in a race to the bottom. According to Forbes, Nokia’s “feature phones” (aka “dumbphones”), make more money than mid-market Androids.

Nokia‘s $40 feature phones are vastly more profitable than Sony Ericsson‘s $200 Android models. This is not how the smartphone revolution was supposed to turn out.

This would explain why Nokia acquired Smarterphone AS, a Swedish company specializing in “highly advanced functionality on very moderate hardware.” Goodbye Symbian and Meego, hello Windows Phone and Smarterphone. This is going to be interesting.

Speaking of Microsoft, the Redmond company stubbornly refuses to recognize that it’s a Post-PC world. Frank X. Shaw, Microsoft’s articulate chief propagandist, contends that we’ve entered the “PC-Plus” era: The PC still holds center stage, and is enhanced by these new “companion devices’”.

With 15 million iPads and large numbers of Kindle Fires and other tablets, Microsoft’s PC For Ever cant is wearing thin. In 2012, Apple will sell between 50M and 60M tablets; we can assume that total industry sales will be in the neighborhood of 100M units. Tim Cook, Apple’s CEO, openly admits that the iPad cannibalizes Mac sales – and quickly points out that there’s much more to cannibalize on the Windows side.

Last quarter, the Windows business declined by some 6%. Worldwide PC sales were, at best, stagnant; if we remove the nicely growing Mac business from global numbers, Windows PC units actually declined by 8.5%. One you’re over the hill, you pick up speed…

But this shouldn’t be news. Read Paul Robinson’s comment on a Fraser Speirs’ blog post:

There will still be computers and laptops but we will return to a time when they are bought by programmers, hobbyists and tinkerers. Everyone else will buy a ‘computing device’ of some sort and be all the happier for it.

This was written exactly two years ago, on January 29th, 2010. The iPad had just been announced — and criticized for [insert your favorite faults here]. Fraser’s own post, aptly titled Future Shock, deserves to be read in its entirety. I’ll quote two choice morsels:

For years we’ve all held to the belief that computing had to be made simpler for the ‘average person’. I find it difficult to come to any conclusion other than that we have totally failed in this effort.

Secretly, I suspect, we technologists quite liked the idea that Normals would be dependent on us for our technological shamanism. Those incantations that only we can perform to heal their computers, those oracular proclamations that we make over the future and the blessings we bestow on purchasing choices.

…and…

If the iPad and its successor devices free these people to focus on what they do best, it will dramatically change people’s perceptions of computing from something to fear to something to engage enthusiastically with. I find it hard to believe that the loss of background processing isn’t a price worth paying to have a computer that isn’t frightening anymore.

In the meantime, Adobe and Microsoft will continue to stamp their feet and whine.

(See also Fraser’s concise explanation of iOS multitasking here and here.)

Microsoft isn’t stupid. They’re just saying what they have to say for today’s business. We’ll see how their PC-Plus story evolves when their ARM-based Windows 8 tablets ship later this year.

Third and last for today: Macintosh.

Although it now plays third fiddle to its iPhone and iPad siblings, the “historic” Macintosh looks hale: +26% in units, +22% in revenue. That’s $6.6B with an operating margin in the 25% range. Compare this to HP, the world’s largest PC maker. In its last reported quarter, HP booked about $10B of PC revenue, with a 6% margin.

The Mac has lost the pole position before: In 2006, Apple saw $7.4B in Macintosh revenue versus $7.7B for the iPod. Right before the iPhone introduction, Apple’s halo product was its music player.

Now, Apple is the iOS company. While the Mac first donated its software DNA to iOS, in the latest OS X Lion we witness the iPadification of the elder.

So far, my experience of OS X Lion is mixed. Is it because the gene splicing is still in transition? Or maybe simply Apple committed its elite troops to the iOS front, leaving things half-done on the Mac…

I’ll leave that discussion for another Monday Note.

—JLG@mondaynote.com

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