numbers

Inside Apple’s Q2 Numbers

This last week, Apple announced their 2011 Q2 numbers. Philip Elmer-DeWitt, whose Fortune Tech Apple 2.0 blog I enjoy and recommend, provides a crisp summary:

• Sales: $24.67 billion, up 82.8% year over year
• Profits: $5.99 billion, up 95%
• EPS: $6.40, up 92%
• iPhone: 18.65 million units, up 113% (!)
• iPhone sales up 155% in the U.S., thanks in part to Verizon, and up 250% in greater China
• iPad: 4.69 million units, compared with 7.33 million in Q1.
• iPad sell-through was 5.1 million units, given the decline in inventory
• Mac: 3.76 million units, up 28%. Asia-Pacific Mac sales up 76%.
• iPod: 9.02 million units, down 17%. More than 50% iPod touch
• iTunes store: Sales of $1.4 billion
• Gross margin: 41.4%, compared with guidance of 38.5%
• Apple stores: 71.1 million visitors, up 50%
• Store sales: $3.19 billion, up 90%
• Cash and marketable securities: $65.8 billion, up from 59.7 in Q1
• Revenue guidance for Q3: $23 billion
• EPS guidance for Q3: $5.03
• Gross margin guidance for Q3: 38%

For a more discursive and animated survey, Brian Hall’s News Wrap on $AAPL quarterly earnings is sprinkled with salty comments about other bloggers and media outlets. You needn’t agree with everything Brian writes, form or substance, but if you want to follow what he rightly calls The Destruction of Everything by the smartphone wave, his postings at The Smartphone Wars Community are required reading. Often insightful, never boring.

Another favorite with a wide readership and great comment threads: Horace Dediu’s Asymco. After Apple’s earnings release, Horace evaluated his own performance and gave himself a sober B. (He usually deserves an A, but chose to downgrade himself for his 10% overestimate of iPod shipments and for whiffing the iPad number–more on that later.)

Such honesty is remarkable. Philip Elmer-DeWitt gives Horace a tip of his hat while savaging Wall Street pros’ forecasting performance: “Most professional analysts blew it in Q2, but you wouldn’t know it from their postmortems.” Fun reading, especially if you hold cynical views of Wall Street earnings forecasts and whisper numbers games. (More exhaustively cruel and graphic details of the pros’ rout can be found in this additional Apple 2.0 post.)

Speaking of misses, Business Insider looked at preliminary comScore numbers in early April and proclaimed the iPhone Dead In Water. Even with iPod Touches thrown in, ‘‘Apple share has actually fallen.” Less than three weeks later we get fresh comScore numbers for the US:

Initial research indicates that Apple’s iOS platform, which resides on iPhones, iPads and iPod Touches, has a combined platform reach of 37.9 million among all mobile phones, tablets and other such connected media devices, outreaching the Android platform by 59 percent.

(These are the numbers Apple’s COO Tim Cook referred to in the April 20th conference call covering the company’s Q2 earnings. Seeking Alpha provides a transcript of the call as well as the animated Q&A.)

comScore has equally interesting numbers for Europe:

Initial research indicates that Apple’s iOS platform, which resides on iPhones, iPads and iPod Touches, has a combined platform reach of 28.9 million users in the five European markets, outreaching the Android platform by 116 percent.

The link above yields interesting demographics, parsing Mobile, Smartphone and iPad users by gender and six age classes:

… the heaviest skew toward 25-34 year olds (23.4 percent) in relation to the total mobile audience (17.3 percent). iPads also exhibited an above average skew in the 18-24 year old age segment.

Regard Asia. In China the iPhone is +250% year-to-year (vs. +155% in the US). The number is especially interesting because this ought to be where iOS goes to die, snuffed out by a swarm of locally produced cheap handsets running Android or its mutant cousins Tapas and Ophone. You’ll recall Stephen Elop, currently Nokia’s CEO, cautioning against aggressively priced MediaTek based Android devices in his Burning Platform memo.

Instead, Chinese customers appear to insist on The Real Thing. We now hear that the Shanghai Apple Store does more volume than the historic 5th Avenue location, with a new store, China’s largest, in the works.

(Let’s pause a moment to pay tribute to Bernard Cywinski, of Bohlin Cywinski Jackson, who recently passed away. Among his firm’s portfolio: Apple Stores and Pixar’s HQ.)

The Mac numbers are smaller but no less interesting. Sure, more than half of Apple’s revenue — and certainly more than half of its profits — come from iOS devices, but the Mac keeps growing faster than the rest of the PC industry…for the 20th quarter in a row. See this Apple Insider piece from which I extract the following tables:

A couple of observations. First, IDC and Gartner have substantial disagreements, such as – 42% vs. – 25% for Acer. Second, Mac unit sales grew by 28%, not 9.6% (IDC) or 18.9% (Gartner). Admittedly, the + 28% number is Apple’s worldwide number, but the US, which includes a majority of retail sales, represents more than 40% of total revenue. Mac sales growth in the US isn’t likely to deviate much from the overall + 28% figure. Caveat IDC vel Gartner emptor. More

Negative-sum games

As if current economic conditions weren’t dire enough, several forces conspire to push the media sector’s financial performance further downward. These factors are an obsession with market share, price wars, and first movers’ ability to set the tone, often for the worse.

Take the iPhone application market as an example. At first, publishers were elated: at last, a content distribution platform with an embedded transaction system. They saw it as the first step to make customers pay for content. Then, another idea took over: market share. Like “eyeballs”, the old Internet Bubble de rigueur metric, market share is today’s mirage: once you get it, profit is (almost) sure to follow. Never mind there are zillions of companies that have once and for all severed the connection between market share and profit (Apple for computers, BMW in the auto industry, Nucor in steel production, name but a few).

Unfortunately, the first one who shoots for market share sets the standard, sometimes with surprising twists and turns. Take the Wall Street Journal: first-rate web site, highly successful business-wise with one million paid subscriptions (about $100/yr). When it came to the iPhone opportunity, guess what: they went for a free application loaded with pathetic ads — apparently locked on the saturation mode, the same banner kept showing endlessly. Just a few weeks ago, seeing a steep drop in profits, the WSJ.com reversed itself and restricted access to its app. More

The Long Tail: Coming Up Short.

The Long Tail is a beautiful intellectual construct. Beautiful, therefore right. Who wouldn’t want to see it succeed? Chris Anderson coined the term back in 2004, in a Wired magazine article. A skillfully marketed book followed, which turned out to be a bestseller (i.e. the the Tail’s profitable head). When the concept began to gain currency, we all experienced an epiphany: visions of soon-to-be revealed bonanzas lying in our stashes of books, music, or for us journalists, news material buried deep in the bowels of our web sites.

Five years later, doubt is setting in. Fact is: very few businesses have been able to extract money from the Long Tail. Of course, as Anderson predicted, when entire inventories become accessible online, some of the lowest selling items in catalogs do get their Day in the Sun. But, when it comes to converting exposure into cash, the result is a pitiful rounding error. Last week in Oslo, friends and I were discussing the Long Tail theory’s impact on the news business. It turned out everyone around the table shared the same suspicion. One such doubter directed me to a recently released research paper by two Wharton scholars. To challenge Anderson’s theory, Professor Serguei Netessine and his student Tom F. Tan pored over Netflix data.

For Monday Note readers outside of the US, Netflix is a (some say The) DVD rental company deploying a huge physical delivery system (2 million DVD sent each day, $300m a year in postage fees). For Anderson, Netflix is the Long Tail’s poster-child: a vast inventory made easily accessible thanks to the internet, with users smartly rating forgotten gems. Three years ago, Netflix launched the Netflix Prize, a crowd-powered contest aimed at improving its user ratings recommendation algorithm by 10% (quite a leap, actually). $1 million would go to the winner. To feed the math-freaks, Netflix opened its data vault, a boon to the Wharton scholars who hungrily dug into the 200-2005 numbers. Their study is called “Is Tom Cruise Threatened? Using Netflix Prize Data to Examine the Long Tail of Electronic Commerce,” (full text here , presentation  here). The key finding:

“The Wharton researchers disagree with Anderson’s theory and its implicit challenge to the Pareto principle, or so-called 80-20 rule, which in this case would state that 20% of the movie titles generate 80% of sales. Anderson argues that as demand shifts down the tail, the effect would diminish. Using Netflix data, Netessine and Tan show the opposite — an even stronger effect, with demand for the top 20% of movies increasing from 86% in 2000 to 90% in 2005″. More

Somber Sober Energy Thoughts

This is what happens with looooong conference calls: you’re sitting in front of your speakerphone, on mute so other participants can’t hear your typing or other asocial activities; your PC displays the PowerPoint under discussion.  You get bored, distracted, or, in the best cases, antsy.

So, as I was listening to one more paean to the electric car, I decided to do a little bit of math and googling. Specifically, I wanted to get an idea of the electric power required to recharge electric cars instead of pumping gas into today’s tanks.  This because, for years, I have harbored a vague, undocumented feeling that electric cars would create interesting problems for today’s antiquated, frail electric grid. (Europeans might not realize how often we experience brownouts or outright outages, even here, in the Vatican of high-tech – I used to write Mecca but, you know…) More

Numbers to keep in mind

This article is part of an occasional serie featuring interesting raw data. Use the tag “numbers” to see the previous entries.
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No predictions for this last 2008 issue. We all know what’s ahead: a difficult year, with double-digit drop in revenue for newspapers. A year that will see many news outlets simply wiped out. There will be opportunities, though. But for different types of organizations: smaller, leaner, and more agile. Flexibility will be a key factor. It will favor small companies or business units able to focus their reduced investment on what matters and cut the rest. Big organizations will stay absorbed in navel-gazing restructuring ruminations; their old-fashioned managements will keep forgetting that, even more in hard times than in good ones, speed is essential. We’ll come back with facts and figures next year. Today, I just want to offer interesting numbers, worth keeping in mind for the rough times ahead. More

By the numbers (2)

An occasional look at industry data and miscellaneous other items. See the previous compilation here.
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Web monetization
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$100,0000 a day. This is the price tag for an advertiser to appear on Wall Street Journal’s home page. Rupert (Murdoch) smiles: WSJ.com can generate $100m just in ad revenue, in addition to its million subscribers.
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$500,000 a day, that’s the rate for MySpace, another of Rupert’s properties.
(Source for both: Dow Jones.)
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170 million web sites today. Just to bear in mind: in 1994, they were less than 4000.  Google is pending $2bn a year in datacenters to keep up with the growth of the internet.
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The financial crisis
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$20 trillion of debt. The Credit Default Swap market is seen as largely responsible of the current crisis. CDS are a form of insurance contract tied to underlying debt supposed to protect the buyer in case of default. The market has almost doubled every year for the past five years, reaching $20 trillion in notional amount outstanding. (Source: Bank of International Settlements in the Economist.)
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$200bn left in the Fed’s bank account. The US Federal Reserve System is running out of ammunition. A year ago, the Fed had $800bn in Treasury Securities. Taking all pledges and commitments of last week, the central bank lost three quarter of its reserve. (Source: Wall Street Journal)
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Half-billion dollars in salary. Between 1993 and 2007Richard Fuld former CEO of the now bankrupt Lehman Brothers took home this sum as a total compensation.  “That amounts to $17,000 an hour to obliterate a firm”, notes New York Times’ columnist Nicolas Kristof.
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3 pages to surrender. This is the length of the term-sheet laid out by Timothy Geithner the president of the Federal Reserve of New York and by Treasury staffers in Washington, to take control of the insurance conglomerate AIG. The document was hand delivered to AIG head office.  (Source: WSJ) –FF
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