Reading between the lines of Apple's Q3 results

By Jonny Evans

While the Apple [AAPL] planet clicks refresh on the currently closed online Apple retail store and/or idly checks the App Store in hope of all-new Lion OS appearing available for download, some thoughts on Apple's record-breaking financial results last night.


[ABOVE: This is what you see when you visit the Apple online retail store at time of writing.]

What they don't ship

"The Company sold 20.34 million iPhones in the quarter, representing 142 percent unit growth over the year-ago quarter. Apple sold 9.25 million iPads during the quarter, a 183 percent unit increase over the year-ago quarter. The Company sold 3.95 million Macs during the quarter, a 14 percent unit increase over the year-ago quarter. Apple sold 7.54 million iPods, a 20 percent unit decline from the year-ago quarter." (Apple PR)

Apple execs have frequently said they're: "As proud of what they didn't ship as those things they do ship". Apple-watchers sometimes twist this into a new aphorism: "You should pay as much attention to what company executives don't say as you do to what is said." With that in mind, consider the following:

Apple eyes China

Chief Operating Officer, Tim Cook, took pains to discuss just how pleased Apple is with its business in China. The figures speak for themselves. Mac sales in the Asia Pacific are up 57 percent year-on-year. The record figures are all about China -- it perplexes me how little attention Apple followers attach to this.

[This story is from Computerworld's Apple Holic blog. Follow on Twitter or subscribe via RSS to make sure you don't miss a beat.]

While sales in Europe and America seem relatively flat, sales in Japan and the Asia Pacific are booming, up 16 percent and 57 percent respectively. This is just the tip of the iceberg. China is going to become an ever larger market for Apple and I would not be at all surprised to see the value of that market exceed that of the Americas within the next five years. Wake up, because the sleeping giant that is China is waking up, and the entire world will feel this change. China is such a big market it has even spawned a wave of fake Apple retail stores. Look.


[ABOVE: A fake Apple retail store in China, image courtesy of the Birdabroad blog, which first noted this story.]

The iPod isn't dead

Sure the share is fading and "over half" the iPods Apple does sell are iPod touch, but the company will continue to offer its market-leading music players for as long as a market exists for these devices. COO Tim Cook even alluded to the iPod shuffle as an example of the company's focus on making great products.

"Our philosophy is the same as it's always been, Toni. We will only make products that we're proud of, that are the best in the world, and if we can do that and the price is lower then we're great with that. An example of that, that happened some time ago is the iPod shuffle was created. It started at a different price point, but it's now at $49 and that's because it's a product we're very proud of. It's very innovative. A lot of people love that product. So that's always the question for us in the litmus test. We will only make products that we're very proud of, that we want to own, that are the best in the world and regardless of what the price band analysis." (Thanks to Seeking Alpha for the great Q&A transcription.)

Apple doesn't buy the Android hype

We all know about the various lawsuits between Apple and imitative Android handset makers, but it looks like the company doesn't totally "buy" Google's ever-rising "activation statistics".

Only a pithy comment was made, "I think the Android activation number is a difficult one to get our hands around, because unlike our numbers, which you can kind of go to our data sheet and you can add the iPods and the iPads and make a reasonable approximation of the iPod touch...," said Cook.

Unlike Apple's numbers you have no consistent figures by which to assess the accuracy of Google's claimed Android activations. There's no way to tell if disclosed third-party developer stats reflects sales to consumer or to channel. In other words, Apple execs would like to be convinced by more proof.

Apple now has a cumulative 222 million iOS devices, and this should reach near a billion in the next four years, if you take various market indicators (such as figures published by Juniper Research this morning) into account.

The iPhone nano: go-go, or no-no

I believe there's at least one and probably more prototype low-cost, smaller 'iPhone nano' type devices sitting behind locked doors and ninja guardians deep inside the safest recesses of the Apple r&d department.

Will Apple ship such a device? You decide.

No people might reflect: Apple's iPhone sales are up 142 per cent year-on-year. It has a new model shipping in September which will likely maintain this sales trajectory. The App Store is a global success. Recent Changewave data indicates that the iPhone is the clear market leader in customer satisfaction and the number one preference for those planning a smartphone purchase in the next 90-days. Things are working, Apple is doing well in this market and there's no need for it to dilute its brand.

The yes voters may respond: Apple needs to continuously expand marketshare, economic flatness in the US and Europe would favor a move to introduce a low cost Apple-branded device of some kind. Apple is in a constant war now with Android and could dent that platforms growth by diversifying its range. Apple is working to find a way to address the prepaid market, and low cost devices might assist in this.

Unlocked phones sold contract-free are "key" in China, Tim Cook admitted last night. These devices are very important in emerging markets in which credit systems aren't as evolved as elsewhere.

Now look at what Cook is talking about when he moves to reference the iPod shuffle (above). He notes that the unlocked phone market is "in a distinctly different price" than the iPhone 4. In other words he's conceding the notion of a low-cost unlocked contract-free device. But, "We will only make products that we're proud of, that are the best in the world, and if we can do that and the price is lower then we're great with that," he says.

In this context, this could mean that those iPhone nano prototypes just aren't good enough yet. Or does it?

You decide, and please let me know in comments below.

One more thing

"We really got it right when we went to the new Apple TV just last fall. But right now it's still a hobby status that we're continuing to invest in it, because we think that there's something there."

Read between the lines. What could that something be? A real TV set? What would Steve do?

What you think matters. Let me know what you think in comments below.

I'd also very much like to invite you to follow me on Twitter so I can let you know when I post new reports here first on Computerworld.  

Copyright © 2011 IDG Communications, Inc.

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