Last Updated Oct 19, 2010 5:27 PM EDT
Unmet expectations, no matter how unreasonable, drove the drop in stock price. And yet, morning after perspective suggests that some investor reaction might be justified. Not because of the iPad -- good gravy, how grasping can you get? There remains a more significant problem. Apple is scared of Google Android, and for good reasons. There are signs in guidance for next quarter, and in a Steve Jobs appearance on the earnings call, acting like Microsoft (MSFT) CEO Steve Ballmer as he indulged in FUD -- fear, uncertainty, and doubt -- to try and blunt the impact of a scary competitor.
Clearly investors and analysts bayed at the moon, disappointed by not getting everything they wanted. Aside from the supposedly inadequate iPad sales, gross margin, better than Apple's guidance, was still lower than expected:
"I think expectations got a little out of hand," Kaufman Bros. analyst Shaw Wu said in an interview.You think?
Many have called the guidance for next quarter conservative, even though it is $4.80 a share in earnings and $23 billion in revenue. You can understand why anyone following the market might automatically call any guidance from Apple conservative. The company constantly tries to set expectations downward so it can swagger in as the conquering hero. It's a practice rampant in high tech and Apple is expert at it. Analysts immediately looked for $5.06 per share and $22.3 billion in revenue. Wait, Apple is predicting lower earnings but higher revenue?
Part of this, I suspect, is seeing the effects of Apple moving far beyond the exclusivity deal with AT&T (T), which presumably paid dearly for the privilege. Even though the arrangement is still in place in the U.S., it isn't necessarily in other countries and it is unlikely that Apple can get the same margin-stoking subsidies.
Then again, with the higher resolution screen, the iPhone 4 isn't cheap to build, so why aren't prices higher? It's a tacit acknowledgment that Apple might no longer be able to maintain the same level of profit and can't be nonchalant toward sales because it is no longer a would-be contender and it also faces stiff competition from Android and others.
Apple has been brilliant in getting premium prices for its products in the past. As other phones get slick and capable, that becomes much more difficult. The company can't demand significantly more and still maintain the growth rate necessary to keep the iOS operating system ahead of Android.
Actually, strike that, because Android is probably already ahead of iOS in terms of product units shipping. A good chunk of proof is in the earnings call (thanks, Seeking Alpha, for making a transcript available) and remarks by CEO Steve Jobs. But Jobs first started on RIM (RIMM):
We sold 14.1 million iPhones in the quarter which represents a 91% unit growth over the year-ago quarter and was well ahead of IDC's latest published estimate of 64% growth for the global smartphone market in the September quarter. And it handily beat RIM's 12.1 million Blackberry's sold in their most recent quarter ending in August. We've now passed RIM, and I don't seem them catching up with us in the foreseeable future. They must move beyond their area of strength and comfort into the unfamiliar territory of trying to become a software platform company.Sure, iOS is ahead of RIM's Blackberry. So is Google. And yet, "the unfamiliar territory of becoming a software platform company"? What Jobs clearly didn't want to acknowledge was RIM's recent acquisition of QNX, a long-standing and well-respected platform widely used in embedded systems and soon to power RIM's new tablet. There's reason to be nervous, because many developers already know QNX and use it regularly.
Next he turned his sites on Google. I'll leave the whole discussion of open versus closed to my BNET colleague Ben Popper. Instead, I'll look at the question of units:
Last week, Eric Schmidt reiterated that they are activating 200,000 Android devices per day. And have around 90,000 apps in their App Store. For comparison, Apple has activated around 275,000 iOS devices per day on average for the past 30 days with a peak of almost 300,000 iOS devices per day on a few of those days. And Apple has 300,000 apps on its App Store.Yup, right now there are more iOS apps. But 200,000 activations a day? Let's put that in perspective. First, Google noted that first in early August, not last week. In February, the company was activating 60,000 a day. By June, four months later, it was 160,000. Two months after it was 200,000. Google is tearing through market growth that it took Apple two or three times longer to achieve.
Unfortunately, there is no solid data on how many Android phones are shipped each quarter. We hope that manufacturers will soon start reporting the number of Android handsets they ship each quarter. But today that just isn't the case. Gartner reported that around 10 million Android phones were shipped in the June quarter and we await to see if iPhone or Android was the winner in this most recent quarter.
No wonder Jobs is doing his Ballmer imitation. For a competitor, that's one scary pattern. You can also see how Jobs tried to manipulate reality by misdirection. For example, he compared Apple's currently claimed 275,000 units a day -- including iPads and iPod touches -- to what is likely almost all phones on Android's side. And the number is already two months old, which could well mean that Google is close to 250,000 activations a day. Possibly more. Given how low key Google has been about mobile ad sales up until recently, I suspect the company keeps quite a bit quiet.
Then there was the remark Jobs made about TweetDeck, a client for Twitter:
Twitter client, Twitter Deck, recently launched their app for Android. They reported that they had to contend with more than 100 different versions of Android software on 244 different handsets. The multiple hardware and software iterations present developers with a daunting challenge.Jobs didn't even get the company name correct. Why? Plausible deniability, because that's not what TweetDeck says, according to CEO Iain Dodsworth:
Did we at any point say it was a nightmare developing on Android? Errr nope, no we didn't. It wasn't.If you're going to quote a company's experience, it pays to make sure in advance that someone will back up your story -- or to be in a position to say that you meant another company. As for the "mess" of having multiple places to buy an app, I notice that Apple doesn't think it's a mess if people have multiple places to buy an iPhone. Why would it be any more confusing than purchasing software from any one of thousands of different retailers?
No, this was pure fear-driven reactive marketing, and a poor example, at that. But for consumers and the industry, the news is good. If it weren't for Android, the iPhone might not now have multitasking, let alone its high resolution display. In his autobiography, basketball great Bill Russell talked of wanting opposing players to be the best they could, because only that could drive him and the entire game to the heights possible. Trying to belittle the competition may not prevent huge revenue -- look at Microsoft -- but it can make the difference between mere success and greatness.
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