Apple's sexiest feature
It's undeniably interesting to talk about the health of Steve Jobs. And whether Apple plays nice with the competition. Oh, and the multiple conflicts of interest between the boards of Apple (AAPL) and Google (GOOG), even after Eric Schmidt removed himself as an Apple director. (Genentech Chairman Art Levinson remains on both boards, and unless something has changed recently, Apple lead director and Steve Jobs confidante Bill Campbell is still Eric Schmidt's executive coach and a heavily involved advisor to Google's senior managers.)
This is all true, and truly worth jabber-jawing about. It also explains why there hasn't been all that much chit-chat about an astounding if unexciting report released earlier this week by the respected Sanford Bernstein analyst Toni Sacconaghi that details just how freaking profitable Apple is. The once-beaten company's ability to spew out cash may indeed be its neatest trick of all.
Some of Sacconaghi's points to consider:
* In the first half of 2009 Apple's iPhone accounted for only 8% of the cell-phone industry's handset revenues but 32% of its profits, Sacconaghi estimates. Its profitability blew everyone else away, 40% operating margins versus a 7.5% industry average.
* Similarly in PCs, Apple's meager 6% share of revenues translated into a quarter of all the industry's profits. Apple does this, the analyst surmises, by only going after the high end, designing gorgeous products and benefiting from the integration of hardware and software.
* All by itself, Apple accounts for as much as 20% of worldwide purchase of NAND memory, the type of chips that go into the iPhone. Such dominance gives Apple a tremendous cost advantage.
For years Apple was a yes-but story. Yes, its Macintoshes were pretty and well loved by hipsters. But its market share was minuscule and therefore it was irrelevant. All of a sudden we see in the financial data that revenue market share is the wrong way to consider Apple. Its share is high where it counts, profitability, which translates into a market value of $148 billion.
Sacconaghi, by the way, used his report as an opportunity to up his price target on Apple's shares to $185. At $165, the stock price had reached his previous target.
It seems Apple's various battles with competitors, the Federal Trade Commission, and even would-be partners will keep the company busy for months. None of these issues, however, will put a dent in the company's profitability in the near term. For financial types, at least, that's a pretty sexy story.
@Cynik,
Really? After reading that little rant I'd think that the anger issues don't reside as much in the PC world as they do in your fingertips… Slaves? Seriously? Go for a walk or something and breath a little. It will all be okay AND the whole thing isn't important enough to ruin your day as it looks like it may have. Priorities.
"PC users are not "cheap" people who are just trying to save a few "lousy dollars"."
Jay has this point correct, but for the wrong reasons.
Let's all be brutally honest about the modern societies we live in, for a moment.
Most computers are bought by government departments and by large corporations. Most of the rest are bought by small corporations. Ergo, the vast majority of computers are bought FOR the people who use them, and not BY the people who use them.
So it true, PC users are not cheap fools who can't tell a good computer from a pile of rubbish. PC users are people who use computers because they are told to do so by others, and it is these "others" who are cheap and lousy about dollars.
Now some will make the argument that if PC's really sucked so bad, then the market would reject them, and government departments would never buy them.
That argument relies on premises which also predict that children will not be used to work in coal mines because it isn't profitable for business, because it is morally wrong and bad for the children.
The fact is, using children as slaves in your coal mines is hugely profitable, regardless of the suffering of the children. As long as the law allows you to use other peoples children as your slaves, the market will rejoice. Because the market doesn't care if slaves suffer.
And that, friends and neighbours, is precisely why the PC and microsoft have such massive market share with total junk.
PC's frustrate the corporate drones and they waste their time, but they get the job done. They allow the data to be entered, stored, and then retrieved.
The user experience doesn't matter, because the user doesn't matter. they are just some corporate drone or government fatbody who sits around being told what to do everyday for enough pesos to feed the children and pay the mortgage to the bank.
Who cares if their user experience sucks? Those people do not matter, and it is wrong to speak of them as if they affect the market.
Just because a tool is useful and profitable, that doesn't mean it is nice to use and respectful of human dignity. Apple have a niche market: free people with self respect and the luxury of dignity.
Microsoft have the corporate drones and the government fatbodies: the sweltering unwashed mass.
Hence all the anger and resentment from the PC crowd.
It's political, not economic.
I think the most significant factor in Apple's margins on the computer side is that everybody else is commoditized. Each PC maker has minor specifics to differentiate, but they have almost no opportunity to create a strong brand identity. They all have essentially the same hardware and software guts inside, and design can only do so much to draw people in. Also, because the software (OS) is not owned by any of the other manufacturers, it is incredibly difficult to give the kind of blanket support Apple provides on their equipment. They can't support all of the quirks of a third party software company (Microsoft).
Ultimately, I love the peace of mind that Apple is uniquely able to sell. It has much less to do with making a better product than with the ownership of so many components to that product. It is less about Apple vs. PC than it is about Apple vs. a hodgepodge of options. How does one choose between HP, Dell, Toshiba, IBM, etc. except for price? Now how does one choose between any of those and Apple – different question.
The flip side of this is that Apple's market share will continue to be small and grow slowly, since they're not even trying to get into the 90% of the market which is cost-conscious.
The comment below is a perfect example of an ignorant apple (or pc) user that clearly does not know what they are talking about. PC users are not "cheap" people who are just trying to save a few "lousy dollars". Yes, apple designs sleek and sexy products, but your comment provides no insight into the discussion of this article. It also fails to mention the lack of customization in Apple products. I can overclock my windows mobile phone, yet it is so difficult to install even a video card in a Mac. So before you go and point fingers at windows users for being cheap, look at the entire situation. Additionally, stupid people are not the only people that use Macs. People switch to apple for more reasons than for simply the sake of not having to deal with "usual security updates". Last time I checked, even iTunes has regular updates. Quit implying that people who use Macs have such little knowledge.
Windows 7 is going to change everything:
http://www.loopinsight.com/2009/08/06/windows-7-upgrade-a-nightmare-glad-im-a-mac-user/
By the time that Apple gets it's desktop market share up to 15%, they should be making 40 to 50% of industry profits and that is good enough. Screw the majority market share. Tailor itself for people who are willing to spend a little extra cash to get a decent product and good customer service. Those that enjoy spending time in Apple stores and becoming faithful Apple brand followers. Forget those disloyal, cheap PC users who'd switch brands for the sake of a few lousy dollars.
A number of my relatives have switched to Macs and they say they are very happy about it because they have far less problems now than they did before with their Windows machines. They know they can always head to a Genius bar and get help. They don't feel they been cast adrift once they've made their purchase. They say it's definitely worth paying the extra cash for peace of mind.
You watch what happens when non-tech PC users start trying to upgrade their Windows XP machines using Clean Install to Windows 7. I'll bet Apple will get a hell of a lot of switchers in short period of time.
Sure, I can do Windows clean installs with my eyes closed (I love a fresh install), but people I know with Windows start to freak out even over the usual security updates or the latest Explorer upgrade because they're scared something might go wrong and lose their critical data.
Apple needs those retail stores to pamper customers so they don't get alienated like many Windows users feel they are.
I have been using windows 7 for several months. From xp, to vista, back to xp and finally to windows 7 i can tell you that I have experience the greatness of their newest version and the hell of vista itself. I will have to say that the transfer to windows 7 was exellent. The graphics superb the switch between active windows is a marvel all in itself.Its amazing that you can move your mouse over multiple windows to see whats in them without having to go into alt-tab hell.
As far as mac and their many fans i can ask one question. Lets you want to upgrade your graphics card or your processor or maybe add a new motherboard. How many choices do you have to choose from? Is there any competitive pricing out there or do you have to rely on Apple to tell you which ones are acceptable. I bouth a nvidia 9800 with 512 ddr3 for $80 online. Lets see you buy the same graphics card anywhere near the $150 range for a mac. There is no competition within the mac community. So there is always higher pricing.
Now yes i know…no known viruses…a more stable system…yada…yada….yada. I challenge anyone to install windows 7 for a few days and see if they have problems. The way people get viruses is because they arent educated about how not to get them. They download anything there explorer bar tells them to. Or they get on limewire and download anything that looks close to the name of the song they want.
If you know what your doing and you understand truely how a computer works…then you can make your pc experience everything a mac is. People like mac because its dummy proof. And so dummys flock to it like fly's to S#$t.