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Apple CEO Steve P. Jobs holding the elusive white iPhone 4  (Source: The Star)
Company continues to put analyst estimates to shame

Another quarter has rolled around, so did a bullish Apple embarrass the Wall Street analysts yet again?  Such an event has seemingly been a quarterly tradition by now.  But this quarter's earnings reports, while sticking true to tradition in revenue and several other areas, actually fell short of analyst's typically overly conservative expectations in two areas. 

This quarter's earnings will likely be over-scrutinized in the face of much bigger questions facing the trendy gadget maker.  While there'd been a bit of optimism surround the upcoming iPad 2 and availability of a CDMA (3G) iPhone on Verizon, most Apple-related financial chatter over the past two days had centered around the company's CEO, co-founder, and creative guiding hand, Steven P. Jobs taking a medical leave of absence (the CEO has battled cancer over the last decade and is recovering currently from a liver transplant).

A strong earnings report wouldn't completely silence concerns about a possible future Apple leadership crisis, but it might offer a decent distraction.

Apple's official accounting of calendar Q4 2010 earnings trickled in at around 4:30 p.m. on January 18.

Revenue was $26.74B USD, a new record, grossly surpassing the consensus expectation of $24.4B USD and the "high" expectation of $25.5B USD.  Earnings per share (EPS) similarly whipped expectations to the tune of $6.43 USD, versus a consensus estimate of $5.38, and a "high" estimate of $6.02.

IPhone and iPad shipments beat expectations, recording 16.24 million and 7.33 million, respectively, units shipped, versus respective expectations of 15.5 million and 6.2 million.  

If there was one trouble spot in the earnings report, it was the shipments of Mac computers and iPods, which fell short of expectations.  Apple only shipped 4.1 million Macs vs. a consensus of 4.3 million, and only shipped 19.45 million iPods vs. a consensus expectation of 20.3 million.  

The iPod shortfall is perhaps expected -- sales of the portable music player have slumped as tablets and smartphones have boomed, filling many of the niches once filled by the portable music player.  The lower than expected Mac shipments are a bit more troublesome and a sign perhaps that Apple is slowing in its quest to gain ground on industry leaders Dell and HP.  The Mac shipments, while lower than expected, represented a 23 percent increase from shipments a year ago.  The iPod shipments, on the other hand, represented a 7 percent drop.

Despite the couple of weak metrics, the record revenue, strong iPad/iPhone sales, and higher than expected revenue/EPS guidance for Q1 2011 all culminated to a generally positive reception of the report.  While it is early to fully characterize the net impact, Apple stock in resumed after hours trading has swung upwards $7.23 USD/share, a 2.12 percent gain that almost erases a 2.25 percent Tuesday drop, which was driven by the aforementioned leadership concerns.

Apple CEO Steve Jobs, put in a good word, enthusing, "We had a phenomenal holiday quarter with record Mac, iPhone and iPad sales. We are firing on all cylinders and we’ve got some exciting things in the pipeline for this year including iPhone 4 on Verizon which customers can’t wait to get their hands on."

Note: We originally overstated the revenue as $27B USD.  It is actually slightly lower ($26.74B USD).  Some have questioned the analyst consensus surrounding Macs.  We have consulted several different publications, and the figure 4.3 million is consistent across them and appears correct.  Apple also fell short of its own Mac sales predictions.

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RE: Nice
By Pirks on 1/20/2011 10:06:51 AM , Rating: 2
MS has the best quarter ever, with stuff like Xbox business growing record breaking 38% and outselling everyone in the US for more than four months, and is now producing the most widely used software in the world. There really is only one conclusion you can come to - MS is doomed!


RE: Nice
By Tony Swash on 1/20/2011 12:12:01 PM , Rating: 1

MS has the best quarter ever, with stuff like Xbox business growing record breaking 38% and outselling everyone in the US for more than four months, and is now producing the most widely used software in the world. There really is only one conclusion you can come to - MS is doomed!


I don't think Microsoft is doomed. Windows/Office is not going to disappear and MS also has a third smaller but profitable business in the servers/enterprise IT area. But MS has some problems, problems that are not impacting the bottom line a lot now but problems that are not going to go away. Problems to do with the secular trends in technology.

Microsoft's main problem is that the products which prop up the whole of it's business, products that supply the vast bulk of it's profit, are all 25 years old. Of course those products have been upgraded over the years and in fact the upgrade cycle has been an important part of the ability of MS to still milk so much income from them, but nevertheless we are talking old products. Products conceived when the world of computers and technology was vastly different. Compare this to Google (whose core technology revenue source is a little over ten years old) and even more so Apple whose majority revenues now come from products that are less than four years old.

These old MS products command high margins because they are monopolies. But no monopoly lasts for ever. Does anyone really think that in a decade the world of computing (business or consumer) will be dominated (either technologically or financially) by desktop PCs and laptops running Windows? I don't that is likely and I also think that MS doesn't think that is likely. Hence the huge efforts that MS has made to diversify over the least fifteen years. All have been failures. I don't mean all have been technology failures (although most have) I mean none have built a new pillar of revenue that matches the old Windows/Office revenues in either scale or profitability. Many have not made any profit and some can only make a small notional profit if you write off the absurd amounts of capital invested in their development (Xbox).

There are various reasons why Microsoft's efforts to diversify have been failures. A big part of the failure was due to MS's unwillingness to do anything that might undercut it's old products and it's old monopolies. Thus it's disastrous "Windows Everywhere" strategy. Compare and contrast with Apple's willingness to threaten it's own products with new products (iPod-V-iPhone, Mac-V-iPad). Another important reason that MS has failed to develop new business lines and products is because the new paradigm of computing, particularly the new mobile device arena, is dominated by consumer products and MS has almost no history of selling directly to consumers. It's core monopoly products were built up selling to the enterprise and to OEMs. MS doesn't really get the consumer (hence the Windows mobile debacle). Clearly MS is trying to learn as fast as it can, as the success of Kinect demonstrates but it has still not launched any hegemonic products into the consumer market which can generate income that can come even remotely close to matching the old products.

So MS continues sucking in the old monopoly incomes - for now. But if you were CEO of Microsoft would you think it was a safe strategy to sit back and rely on that income coming in for the next decade - of the one after? And if that is not safe strategy then where will the big revenues come from tomorrow? With what new products is MS going to dominate tomorrow?

So I don't think Microsoft is doomed but I do think it will get smaller in relation to the tech market over the coming years. That it will be less important. That it will retreat more and more into being a business orientated company and get out of the consumer market. That's it's most sensible option and one I expect the CE who replaces Ballmer to follow, in about two years after he is forced out when the current scramble to best Google and Apple ends in failure

Just before he returned to Apple in February 1996 Steve Jobs said this

"If I were running Apple, I would milk the Macintosh for all it's worth -- and get busy on the next great thing. The PC wars are over. Done. Microsoft won a long time ago."?

Looks like he stuck to his word.

RE: Nice
By Pirks on 1/20/2011 3:20:26 PM , Rating: 1
Microsoft's main problem is that the products which prop up the whole of it's business, products that supply the vast bulk of it's profit, are all 25 years old
Not a problem actually as MS is slowly but steadily replacing them with new modern tech. Ancient Win32/Win64 is getting replaced by much more modern .Net, ancient Flash is getting a serious much more modern competitor for the Web domain in the form of Silverlight, decades old legacy GDI user interface is getting replaced by ultramodern WPF, ancient WinMo 6.x is retired and is replaced by modern OS called WP7, old PC gaming is augmented by mass consumer-friendly Xbox 360 which has just shown phenomenal sales growth of 38% last quarter and is outselling EVERY competitor in the US during the last four months, and so on and so forth. Only blind Apple worshipping people like you don't see this _obvious_ thing - MS is NOT standing still, _NOT AT ALL_. They DO get rid of old 25 year old tech ALL THE TIME, they just do it slower than Apple because of their insane market share. They can't just drop old x86 and jump onto Arm for example. The quick way Jobs forced it down the Apple users' throats with PPC->x86 transition is not gonna work for MS and you know it. Looks like you are whining about something you don't quite understand, at least it looks like this to me...
So I don't think Microsoft is doomed but I do think it will get smaller in relation to the tech market over the coming years
Absolutely the same could be reasonably argued about post-Jobs Apple which too is likely to see slowing growth and becoming just another stable company like today's MS, so you have no point here, it seems.

P.S. and if MS could not become the next Huge Online MegaHub like Google or next Big MegaConsumerElectronics Company like Apple, this means only that MS can't do EVERYTHING, they SPECIALIZE, so I really don't get what your whining is about then Tony? Are you saying MS lost because they could not turn into the search giant Google style? How about then if I tell you that actually Apple lost it 'cause they could not deliver anything big businesses will pay BIG bucks for, like Windows Server solutions or Windows HPC solutions or Office/Exchange/SharePoint or whatever else I see in businesses all around me in Canada (all MS, not a single iPad and just a few iPhones around that people do NOT use for business purposes)? Would you like me to dispense you your own medicine Tony? ;o)

"If they're going to pirate somebody, we want it to be us rather than somebody else." -- Microsoft Business Group President Jeff Raikes

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