OUT OF THE POD
By Robert Cyran
With customers queuing around the block for their iPod, it's
no surprise Apple's net profit rose four‐fold in the last quarter. The U.S.
computer group sold 4.6 million of its iconic digital music players in the
quarter, more than six times as many as it sold in the same period last year.
But the real importance of the quarter came from the fact that iPod sales
appear to be driving sales of its Mac computers. The group saw its first
increase in market share for computers since 2000. And this trend looks set to
run. The case against Apple's computers has always been two‐fold.
First, unless one does a lot of graphics or audio work, there's little reason
to prefer a Mac outside of their nice looks. Second, Apple charges a
substantial premium for its computers. These two objections now look a bit out
of date. Digital cameras are rapidly supplanting film, which is
increasing the number of people working with images.
And Apple's introduction of a $499 computer – albeit without
monitor, keyboard or mouse – means the group now has a computer in the sub‐$1,000
range. The majority of computers sell under this barrier. Throw in
the fact that Macs currently have few problems with viruses, and there now
appears to be a tailwind as iPod users switch to Macs. And even a small
difference in market share will have a disproportionate effect on the group.
Apple's share of the computer market is around 2 percent. Every 1 percent
increase translates into about $2 billion in revenue.
Of course, these sorts of projections are always dangerous.
Big gains in market share are rather ambitious for a company with a long
history of losing market share. And entering lower‐priced
markets has its own problems. The group currently has an operating margin of 12
percent, while the average consumer electronics firm earns less than 5 percent.
Margins are likely to fall as the group enters more competitive, cheaper
markets.
But Apple has now shown the first real sign of turning a
vicious circle into a virtuous one. And if this is the case, there could be many
more quarters like the last.
Published Jan. 13, 2005
PUSHY CALLER
By Robert Cyran
Apple may carry self‐promotion to extremes, but its
long‐awaited
cell phone looks all it's cracked up to be. The tech company's iPhone, unveiled
Tuesday by Steve Jobs at his annual MacWorld love fest, is likely to grab a
sizeable chunk of the market. It will also irritate telecom operators in the
process. The phone is certainly impressive.
It runs on Apple's easy‐to‐use operating system. In addition
to offering basic phone services, it acts as an iPod music/video player. Its
ultra‐
thin, high‐definition 3.5 inch screen can be turned sideways to
watch video. In short, it looks as stunningly fresh as the iPod did when it was
introduced. Of course, nobody can get everything right. All these
features make the device an energy hog – the battery lasts just five hours.
It's also pricy – the 8 gigabyte version runs $599, a lot of money for not much
memory. Finally, the lack of a keyboard makes it visually stunning, but its touch‐screen
may frustrate users.
But these are quibbles compared to the wow factor. Users, and especially
Apple's maniacal fan base, are likely to flock to the new phone. Apple's
willingness to go where other handset manufacturers have gone before, and failed,
suggests as much.
During the tech bubble, Nokia started Club Nokia. It let
users of its phones download games, ring‐tones and other content. This
wasn't popular with operators, who subsidise and distribute most phones. They
resented Nokia muscling into what they considered their own turf. Nokia
ultimately backed down in 2003. Like Nokia, Apple is encouraging iPhone users
to buy movies and music from iTunes. Intriguingly, the iPhone isn't
using the most advanced wireless technology, 3G. One of the big reasons
operators are rolling out 3G is to sell their own services and content.
Nonetheless, carrier Cingular is willing to play along in
exchange for an exclusive right to market the iPhone. If Apple's latest gadget
is as successful as the iPod, other operators may have no choice but to follow
its lead.
Published Jan. 10, 2007
THEY’RE IN iSUITCASES
By Robert Cyran
Where are all the iPhones? Apple sold 3.6 million of its hit
mobile phones last year, but its official partners only registered 2.3 million
new customers. Meanwhile, many of its U.S. retail stores are having trouble
keeping the hit handsets on shelves. In Manhattan, for example, daily shipments
are sold out before it’s time for a second cup of coffee. Apple is tight‐lipped,
but the two stories could be related.
The iPhone is usually tied to a single phone network in each
country. In the United States, software locks users into AT&T's network.
Similar agreements exist in France, Germany, Ireland and the UK. In exchange
for this exclusivity, Apple gets a cut of users' monthly fees. The problem, at
least from Apple’s point of view, is that the software can be relatively easily
tweaked to allow the phones to run on other operators’ GSM
networks. China Mobile, one of two mobile operators in China,
doesn't have any deal with Apple but still reckons there were 400,000 iPhones
on its network at the end of 2007. That number is probably much higher now.
Those phones must have been bought somewhere.
That's where the stories come together. The fact is that
iPhone smuggling has become a lucrative, if legally questionable, way for
travelling students and flight attendants to earn a bit of extra cash. An
iPhone costs $499 plus tax in the United States – call it $550. Unlock it, for
$50 or less, and you can sell the same phone for the equivalent of $900 or so
in Europe. The more the dollar falls, the more attractive this
arbitrage.
Perhaps it’s no coincidence that iPhones, unavailable in
Apple’s Manhattan stores, are in stock in Buffalo. Manhattan is full of
tourists armed with strong euros, roubles and Brazilian reais. Few of them
visit post‐industrial cities in upstate New York. Of course,
there could be other explanations. Apple could be clearing the decks for a more
advanced version of the iPhone. Or it could have simply misjudged demand or run
into parts shortages. Listen to the Babel of languages in Apple’s New York City
stores, though, and it’s easy to imagine the missing phones in suitcases flying
overseas.
Published April 4, 2008
BIG APPLE
By Robert Cyran
Apple’s iTunes milestone proves who’s piper. The tech giant
just sold its 10 billionth song online, and the pace of downloading from its
seven‐year‐old
digital media service continues to quicken. It took three years to get to a
billion, one year to get from 1 billion to 2 billion and now iTunes sells a
billion songs about every three months.
The more songs Apple sells, the more it entrenches itself.
It has used music to make its various gadgets, and the software linked with
them, so popular. Even though all songs purchased from iTunes have been
playable on non‐Apple devices since 2009, the formative years when this
wasn’t so helped establish the site’s dominance. The continued ease of
connecting to the online store and the volume of music available on it means
customers find themselves increasingly buying from Apple.
Growing even more dependent on Apple than consumers is the
entertainment industry. The tech company retains about two‐thirds
of the music download market, and one‐ quarter of all songs are now sold
from the iTunes store, according to research outfit NPD Group. Apple's trying
to duplicate the stranglehold on the market for TV and movies.
Content providers have found iTunes a welcome source of
revenue. Illegal downloading has gutted the music industry and is starting to
eat away at video sales. Unfortunately for the industry, it's increasingly
clear they have to dance to Apple's tune.
Published Feb. 25, 2010
HALO IN THE CLOUDS
By Robert Cyran
Apple holds its annual developers' conference on June 6. As
happened with previous new product introductions, like that of the iPad, the
tech group's objective will be to trigger a virtuous circle whereby whatever
new gadget it unveils tends to encourage consumers to buy other Apple products.
Expanding its cloud offerings, where data and programs are stored remotely,
could set off more favorable feedback loops.
The company says Chief Executive Steve Jobs – currently
still on medical leave – is addressing the crowd, and will talk about what it
calls iCloud. Characteristically, Apple is keeping its cards close to its
chest. But this appears a major effort into providing lots more music and
computing services remotely via the Web, instead of being stored locally by the
user. The company has built a 500,000 square foot data center in North Carolina
and signed deals with multiple music labels in preparation with the launch.
Putting music, movies and other programs on the cloud offers
a few obvious benefits to Apple. Its computers, tablets, and phones would
potentially need less local memory. That means devices can be cheaper – or
simply higher margin – yet slimmer and more attractive. That's important for
the design‐conscious Apple.
But the secondary effects are more important. If users store
data and programs remotely, devices blend together. Buy a song once and it can
be listened to on any gadget. Likewise, edit a spreadsheet on the cloud, and
the changes can be seen and modified on multiple platforms. That makes
customers more likely to stick with a suite of Apple products.
And there's an additional plus. Cloud services eat up
bandwidth. Telecom companies are hungry for revenue from data transmission.
That makes them more willing to subsidize iPhone sales in exchange for locking
customers into long‐term contracts. If Apple users start needing more
expensive data plans, then companies like AT&T and Verizon are more likely
to fund the purchase of Apple gadgets.
Apple revenue grew by 83 percent in the last quarter. That
must eventually slow. But its iCloud services halo affect could keep growth
humming along a while longer.
Published June 3, 2011
PLEASE SIR, NOT ANOTHER
By Robert Cyran
Apple has an astonishing ability to casually unleash
creative destruction. Its latest iPhone, the 4S, offers faster data‐processing
and downloads, as well as voice‐powered software. This may not
have lived up to the most feverish expectations of investors: Apple shares fell
while the market rallied. But it will do more than enough to create headaches
for companies ranging from Research In Motion to American Greetings.
Smartphones started by devouring the personal digital
assistant, as any former Palm Pilot aficionado can testify. They terrorized the
market for fixed‐line phones, which are now in sharp decline. Apple’s
newest gadget shows just how hungry smartphone makers, and Apple in particular,
are to eat rivals’ lunches. The new iPhone’s camera offers sharply better
video. That will further hurt sales of digital still and video cameras.
Its software allows easy and free texting to other Apple
devices. That’s bad news for telephone operators, who make fat margins on such
services. Instant messaging has also been the killer app for BlackBerry users.
Apple also unveiled a function that lets users digitally create their own
greeting cards and send them in physical form. That may not excite Apple’s most
ardent fans, but it was enough to send shares of card‐makers
American Greetings and International Greetings reeling. Oh, and the new iPod
Nano allows runners to track their performance, which will take a chunk out of
the market for personal fitness monitors and shoes with sensors. In a sense,
though, these are the easily quantifiable effects of the new iPhone.
The device also comes with voice‐powered software
allowing users to search the Internet, answer queries, take dictation or set up
phone commands. It’s hard to judge how effective this software is until it
actually hits the shelves. But investors on the lookout for Apple’s creative‐destructive
impact are surely drawing up a new list of victims.
Published Oct. 4, 2011
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