Apple 2.0 Archives

Apple's iPad vs. the netbooks

2010-02-01T12:00:00.000-08:00

By 2011, Apple will have captured 7% of the low-end computer market, says an analyst

[Originally posted Feb. 1, 2010 on Fortune.com]

"We expect the iPad to compete very well against existing low-end notebooks and netbooks, particularly in the segment of the market where surfing, reading, game playing and emailing dominate the usage model."

So says Deutsche Bank's Chris Whitmore in a note released Sunday.

In fact, he writes, with the release of the iPad this spring, Apple (AAPL) will instantly add more than 50 million users to its addressable market.

"With this product announcement," says Whitmore, "Apple now serves every pricing point from the iPod to high-end MacBook Pro."

While not directly comparable, the $499 iPad will be, he believes, "a formidable competitor" to the netbooks and cheap notebooks that are the fastest-growing segment of the computer market.

Below the fold: Whitmore's tale of the tape comparing -- feature by feature -- the iPad with low-end machines made by Hewlett Packard (HPQ), Dell (DELL), Nokia (NOK) and Asus.

: Click to enlarge. Source: Deutsche Bank

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple's earnings: The Street's big miss

2010-01-26T04:13:00.000-08:00

The professional analysts were bested -- once again -- by the bloggers

[Originally posted Jan. 29, 2010, on Fortune.com]

There's a good reason most Wall Street analysts don't publicly review their predictions after the fact. It's called self-preservation. Who wants to advertise how badly they misunderstood the companies they follow?

Case in point: Apple (AAPL), and the quarterly report it issued Monday afternoon. Apple management gave ample warning that it wanted to change its accounting procedures under the rules revised last fall -- recognizing iPhone revenue when it comes in, rather than spreading it out over 24 months (see The day Apple released its revenue bomb).

Yet nearly half the professional analysts we polled missed the boat entirely -- never bothering to publish estimates for the so-called non-GAAP (generally accepted accounting principles) numbers that pushed Apple's revenue to a record $15.68 billion in its first fiscal quarter of 2010.

And those who did were all over the lot, getting as many calls wrong as they got right. None of the professionals hit as close to the mark as our three favorite independent analysts: Turley Muller, Andy Zaky and the blogger who calls himself deagol.

Let's look at the numbers:

This quarter's chart is simpler than usual because the GAAP numbers -- the ones most Wall Street analysts focused on -- are no longer relevant. Without those, several analysts had nothing to show; they fell off the chart entirely. Even then, there are an awful lot of blanks in the grid below.

: The best estimates are highlighted in green, the next two runners up in light green. The worst guesses are highlighted in blood red; the second and third worst in pink. Source: Apple 2.0

Adopting Stephen Colbert's system for handing out bouquets and brickbacks, we give a tip of the hat to:

Muller, with one green, two light greens and not a trace of pink
Zaky and Reiner, with one solid green and one light green each
Abramsky, with one sold green and no pink
Gardner, deagol and Moskowitz, with one light green apiece and no reds or pinks

And a wag of the finger to:

McCourt with one red and one pink
Dede, with one red and no green
Reitzes, Shope, Misek with one pink each

Finally, special mention for the analysts who were over the lot:

Marshall, who guessed high across the board and scored one green, one red and one pink
Rakesh, who scored one solid green and one pink
Huberty, who scored the most reds (two) but also one solid green
Craig, Fidacaro and Chokshi, who turned in a rainbow of reds and greens and pinks.

Turley Muller, who writes a blog called Financial Alchemist, led the pack for the fifth quarter in a row. His estimates this quarter were off, on average, by less than 2% -- a shade better than the other unaffiliated analysts, who as a group missed by an average of 2.5%.

The professionals, by contrast, missed by 6.9%. The best estimates came from BMO's Ken Bachman (off by 2.8%), Thomas Weisel's Doug Reid (3.5%) and Oppenheimer's Yair Reiner (3.6%). The worst came from Broadpoint Tech's Brian Marshall (off by 11.2%), Morgan Keegan's Travis McCourt (10.2%) and Morgan Stanley's Katy Huberty (10.1%).

To be fair, the professionals cover whole sectors, not just Apple, while the independents are free to concentrate on the peculiar complexities of Cupertino's balance sheet. With that balance sheet streamlined and simplified by the accounting change, perhaps the pros will do better next time.

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

How many Macs did Apple sell? (Q1 2010)

2010-01-05T13:06:00.000-08:00

The second in a series of previews of Apple's results for the first fiscal quarter of 2010

[Originally posted Jan. 5, 2010 on Fortune.com]

On Monday we sampled the Street's expectations for Apple's (AAPL) iPhone sales in the fiscal quarter that ended on Dec. 26. (See here).

Today we look at analysts' Q1 2010 estimates for the product that contributes more to the company's bottom line than any other: the Mac.

As with the iPhone, there is a huge range in the unit sales numbers we've collected, from a high of 3.31 million from Broadpoint AmTech's Brian Marshall to a low of 2.79 million from Technology Insights' Nehal Chokshi. (See below the fold.)

Analyst, Affiliation	Macs (millions)	Date of est.
Brian Marshall, Broadpoint AmTech	3.31	1/3/10
Mark Moskowitz, J.P. Morgan	3.29	1/4/10
Yair Reiner, Oppenheimer Equity Res.	3.21	12/8/09
Ben Reitzes, Barclay's Capital	3.20	1/7/10
Deagol, Apple Finance Board	3.18	1/3/10
Doug Reid, Thomas Weisel	3.13	12/28/09
Peter Misek, Canaccord Adams	3.10	1/3/10
Tavis McCourt, Morgan Keegan	3.10	1/13/10
Kathryn Huberty, Morgan Stanley	3.09	1/3/10
Turley Muller, Financial Alchemist	3.00	1/4/10
Chris Whitmore, Deutsche Bank	2.96	11/29/09
Shaw Wu, Kauffman Brothers	2.90	12/30/09
Gene Munster, Piper Jaffray	2.86	1/6/10
Nehal Chokshi, Technology Insights	2.85	1/4/10
Jeff Fidacaro, Susquehanna Financial	2.79	1/6/10

(Unit sales in millions.)

. . . . . .

Piper Jaffray's Gene Munster has one of the lowest estimates (2.856 million), but he remains bullish on the stock. As he pointed out in a report to clients Tuesday, comparisons to the previous year's monthly sales become a lot easier in the first half of 2010.

In the second half of 2009, Mac sales were compared with the second half of 2008, when they grew an average of 18% year over year according to data from the NPD Group. In the first half of 2010 they will be compared with the first half of 2009, when they fell an average of 1%. See Munster's chart below:

: Source: Piper Jaffray

"We see these easing comps," writes Munster, "as a buying opportunity ahead of NPD data for the final month of the Dec. quarter on 1/18."

See also:

How many iPhones did Apple sell? (Q1 2010)

[Follow Philip Elmer-DeWitt on Twitter @philiped]

How many iPhones did Apple sell? (Q1 2010)

2010-01-03T12:59:00.000-08:00

A preview of what Wall Street expects from Apple's Q1 2010

[Originally posted Jan. 3, 2010 on Fortune.com]

Apple's (AAPL) first fiscal quarter ended on Saturday, Dec. 26, front-loading the company's 2010 results with what is likely to be its biggest quarter of the year.

We won't learn the actual results until they are released later this month, but most analysts who follow the stock have already made educated guesses about how that quarter went, starting with Apple's fastest-growing product line: the iPhone.

We've gathered some of those estimates below, and will add to the list as more come in. They range from a high of 11.3 million iPhones from Broadpoint Amtech's Brian Marshall to a low of 7.6 million from Morgan Keegan's Tavis McCourt.

Even at low end, that would represent a 10.8% increase from the previous record of 7.37 million iPhones, set last September.

Below the fold: The estimates (iPhone unit sales in millions).

Analyst, Affiliation	iPhones (millions)	Date of est.
Brian Marshall, Broadpoint AmTech	11.30	1/3/10
Peter Misek, Canaccord Adams	10.30	1/3/10
Shaw Wu, Kauffman Brothers	9.50	12/30/09
Yair Reiner, Oppenheimer Equity Res.	9.50	12/8/09
Gene Munster, Piper Jaffray	9.30	1/6/10
Doug Reid, Thomas Weisel	8.89	12/28/09
Kathryn Huberty, Morgan Stanley	8.75	1/3/10
Jeff Fidacaro, Susquehanna Financial	8.70	1/6/10
Nehal Chokshi, Technology Insights	8.68	1/4/10
Deagol, Apple Finance Board	8.65	1/3/10
Chris Whitmore, Deutsche Bank	8.50	11/29/09
Ben Reitzes, Barclay's Capital	8.50	1/7/10
Turley Muller, Financial Alchemist	8.40	1/4/10
Mark Moskowitz, J.P. Morgan	8.17	1/4/10
Tavis McCourt, Morgan Keegan	7.60	1/13/10

. . . . . . .
See also:

How many Macs did Apple sell? (Q1 2010)

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Can Steve Jobs unplug cable TV?

2009-12-22T14:32:00.000-08:00

CBS and Disney may join Apple's $30 per month TV service, says the Wall St. Journal

[Originally posted Dec. 22, 2009 on Fortune.com]

This could be totally disruptive. Or it could be another "hobby" like Apple TV that never quite takes off.

In a front-page story published Tuesday, the Wall Street Journal reported that CBS (CBS) and Disney (DIS) are "considering participating" in Apple's (AAPL) plan to offer television subscriptions over the Internet.

It was the first hint of interest from TV content providers since the news broke last month -- in All Things Digital, another News Corp. (NWS) property -- that Apple was preparing to offer such a service to its 100 million-plus iTunes subscribers.

As initially described, customers would pay Apple $30 a month for streaming access to the best of TV. Cable companies charge Americans an average of more than $70 a month for huge bundles of programs, most of which their subscribers never watch and didn't ask for.

Apple's service would be more like a streaming music service that offers all the content you want for a flat monthly fee. Without a critical mass of popular TV shows, it will never get off the ground. But if Steve Jobs can broker enough deals in Hollywood, the company may be, as MG Siegler puts it in TechCrunch Monday night, "on the verge of kneecapping the cable industry."

According to the Journal, Apple is offering $2 to $4 a month per subscriber to the major networks, and $1 to $2 for per subscriber to the cable companies -- more than they get from traditional distributors for their content. "The question," as the Journal puts it, "is whether selling fewer networks at higher prices is better business."

Another issue is whether iTunes TV would be advertising-free. U.S. broadcast and cable networks sold $43.4 billion in ads in 2008, according to TNS Media Intelligence.

As one media executive told the Journal: "You don't want to shoot a hole in the bucket to create another revenue stream."

Apple already sells individual TV shows from a list of content providers that includes ABC, NBC, CBS, HBO, Fox, Showtime, MTV, Nickelodeon, Discovery, Disney, the CW and Comedy Central, but they cost $1.99 to $2.99 a pop.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Hedge funds: Riding the AAPL slingshot

2009-12-20T14:46:00.000-08:00

Jason Schwarz's "Seven Reasons the Shorts Love Apple" is an investor's must-read

[Originally posted Dec. 20, 2009 on Fortune.com]

"If you can keep a good stock down," writes Jason Schwarz, "then you are able to load up for the ride back up. It's like a slingshot -- the harder you pull, the more propulsion you generate."

Schwarz, an investment analyst with a knack for self promotion -- through a newsletter, an e-book, and a new hardcover -- has written an easy-to-follow primer on why Apple (AAPL) has become the hedge funds' favorite punching bag. It was published as a gallery last week in TheStreet by Jim Cramer, a guy who knows a thing or two about manipulating Apple's stock price. (See here.)

For investors who wonder why Apple goes down just when common sense suggests it should go up, it's a must-read.

Below fold, the highlights:

Apple is the market leader. This one stock has become so important to the market that its action is contagious. This influence makes Apple a prized possession for both the longs and the shorts. Knocking down an easier target like Research In Motion (RIMM) or Citigroup (C) doesn't generate the same snowball effect.
Apple always bounces back. Over the long run, Apple fundamentals will certainly take the stock higher, but hedge funds want to maximize the ride. Keeping a great stock down allows them to profit from quick predetermined trades rather than being fully invested all the time.
The predictability of Apple reduces a short's risk. Everyone knows when the next iPod, iPhone,and iMac refreshes will hit. This has turned into a calendar-driven catalyst stock. During the quiet time, the stock is vulnerable.
New media have changed the game. Anybody can say anything and the masses will believe it. The topic of Apple currently dominates this new media. There is no accountability or verification of sources like the old days. In such an environment, hidden agendas can be pushed endlessly without disclosure.
Apple secrecy. As the unparalleled leader in tech innovation, Apple feels that it is necessary to keep future products veiled to all competitors, consumers and investors ... Apple has yet to sell a single Tablet, yet hedge funds already have made millions from rumors surrounding the product. The lack of transparency from Apple creates a perfect storm for short-term traders.
Apple innovation. This company is so good that it causes imaginations to run wild. A hedge fund could float a story that Apple is thinking of buying Saturn in order to develop a new brand of Apple cars and people would go nuts ... The constant innovation coming out of Apple provides traders with endless material for believable speculation.
Steve Jobs is the visionary of the century. This one man is the single greatest asset in corporate America, which causes Apple stock to trade with a Steve Jobs premium, a variable that the shorts can use as well. Apple's stock is always vulnerable to losing Jobs.

You can read the rest of Schwarz's piece at TheStreet. His market timing newsletter is called Economic Weather Station.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Video: Three bullets and a MacBook

2009-12-19T05:36:00.000-08:00

Lily Sussman is back from Egypt with the laptop that got "blown up" at the Israeli border

[Originally posted Dec. 19, 2009, on Fortune.com]

Three weeks ago, an American student working in Cairo was questioned for two hours at the Israeli border before security officials confiscated her Apple (AAPL) MacBook, called in a sapper, and shot it full of holes.
Lily Sussman, 21, told the story on her blog, where it drew more than a thousand comments and a fair amount of coverage in the Mideast press.

Before she flew home for the holidays, she gave The Daily News Egypt the video interview posted below the fold.

UPDATE: By luck or careful aim, Sussman's hard drive emerged unscathed. "I've managed to recover all the data!" she writes. "Yayy...It's a survivor. I have yet to hear back from the man handling my case about when and what I will be compensated."

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Morgan Stanley drinks the Apple Kool-Aid

2009-12-16T14:41:00.000-08:00

The investment bank has seen the future and it looks a lot like the iPhone

[Originally posted Dec. 16, 2009 on Fortune.com]

Apple's (AAPL) iPhone was the hero of an hour-long conference-call seminar on The Mobile Internet presented Tuesday by Morgan Stanley.

The report was intended to be a follow-up to Mary Meeker's 1995 "The Internet Report," which became known as "the bible" of the dot-com boom.

Graphics like the one at right charting the rapid growth of the iPhone/iPod touch/iTunes ecosystem -- the fastest new-tech ramp up in history, according to Meeker's team of 27 research analysts -- dominated the 92-slide PowerPoint stack.

This particular slide shows that the rate of adoption of the iPhone and iPod touch in their first nine quarters on the market outpaced NTT's DoCoMo two-fold, Netscape five-fold and AOL eight-fold.

Based on past performance, according to Morgan Stanley, Apple is in the "pole position" in the race to dominate mobile Internet computing, which is supposed to be for the 2000s what desktop Internet computing was for the 1990s, personal computing for the 1980s, mini computing for the 1970s, and mainframe computing for the 1960s.

"Apple has a two or three-year lead" according to Katy Huberty, thanks to an installed base of 57 million handsets, 100,000 apps and 200 million iTunes subscribers with credit card numbers on file. (She will keep her eye, however, on Samsung, Nokia (NOK) and Google's (GOOG) Android.)
But much of the presentation was spent showing, in slides culled from research over the past two and a half years, that the iPhone is not like previous mobile devices, and its owners not like ordinary cell phone users.

For example, although iPhone and iPod touch owners represent only 17% of the global smartphone installed base, they account for 65% of the world's mobile Web browsing and 50% of its mobile app usage (see chart below).

: Source: Morgan Stanley

Another slide, this one a pie chart, shows that the average American cellphone user spends 40 minutes a day on a mobile phone, making calls 70% of that time. The average iPhone user, by contrast, spends 60 minutes on the device but makes calls only 45% of the time. The rest of those 60 minutes are spent texting, e-mailing, listening to music, playing games and surfing the Web.

: Source: Morgan Stanley

Finally, we have the Venn diagram below that compares Facebook's 350,000 apps and 137% year-over-year growth with the iPhone's 100,000 apps and 163% growth. The place where Mark Zuckerberg's 430 million users overlap with Steve Jobs' 57 million is the sweet spot of the mobile Internet. It's here, according to Morgan Stanley, where we find the future of computing.

: Source: Morgan Stanley

There's lots more where this came from. You can see the 92 slides presented Tuesday at Morgan Stanley's website here. But that's just an appetizer for the two main courses: a 659-slide key themes presentation and the full 424-page Mobile Internet Report.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

The Gray Lady visits the App Store

2009-12-06T09:55:00.000-08:00

Apple's controversial software emporium gets a sympathetic hearing at the New York Times

[Originally posted Dec. 6, 2009 on Fortune.com]

Apple (AAPL) only opens its doors to reporters when it needs something from them -- like glowing reviews for a glitzy new gadget.

What it needs right now, apparently, is a friendly account of what's going on at the iPhone App Store, a runaway hit galloping so fast that even Apple -- a company that knows a thing or two about control -- is having trouble holding on to the reins.

And a sympathetic ear is what it got from Jenna Wortham, a former Wired freelancer who joined the New York Times two years ago to cover Web start-ups and mobile communications for the paper's Bits blog.

Apple granted Wortham interviews with two senior vice presidents -- Phil Schiller, who supervises the App Store approval process, and Eddie Cue, who runs iTunes -- which she supplemented with material from Morgan Stanley's Katy Huberty, Flurry's Peter Farago, a handful of developers, and Apple's major competitors.

Her 3,000 word piece is the lead story on the front page of the Sunday Business section, and Apple PR should be pleased. Among the highlights:

Friendly quotes from Morgan Stanley's Huberty (a former Apple bear recently turned bullish), who calls the App Store "revolutionary" and compares it to both AOL's role in popularizing the Internet and Microsoft's domination of desktop computing.
Friendly quotes from Farago, a mobile analytics guy, who talks about Apple eliminating "friction points" in software development and distribution.
Self-serving quotes from Apple's Schiller, who is described -- bizarrely -- as "normally reserved," and who tries to reframe the complaints of frustrated developers with the message that the review process is "a necessary evil" and that Apple is doing the best it can.
Success and horror stories from the developers of Flick Fishing, Tap Tap Revenge, Trillian, Bump and FreedomVoice (still waiting for approval 396 days later).
Divergent points of view from Research in Motion (RIMM), Palm (PALM), Microsoft (MSFT), Google (GOOG) and the jailbreaking catalog Rock Your iPhone.

Wortham comes back to her Schiller notes in an accompanying sidebar in Bits that lists some of the programs on the senior VP's own iPhone. The apps he plugs: Shazam, CNN’s app, Facebook, MLB.com, NBA Game Time, ESPN ScoreCenter, Eliminate, geoDefense and Best Camera.

Wortham's piece may serve Apple's interests, but for anyone who follows the mobile app scene, it's a must-read. You can get it here.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Ad wars: Droid manly; iPhone girly

2009-12-04T09:42:00.000-08:00

Motorola targets young men with its most testosterone-heavy TV commercial yet

[Originally posted Dec. 4, 2009 on Fortune.com]

Someone had fun writing this ad copy:

Droid. Should a phone be pretty? Should it be a tiara-wearing digitally clueless beauty pageant queen? Or should it be fast? Racehorse duct-taped to a Scud missile fast. We say the latter. So we built the phone that does. Does rip through the Web like a circular saw through a ripe banana. Is it a precious porcelain figurine of a phone? In truth? No. It's not a princess. It's a robot. A phone that trades hair-do for can-do.

The new Droid commercial that debuted in prime-time Thursday night (and is pasted below the fold) opened a new front in Motorola (MOT) and Verizon's (VZ) $100 million ad campaign to take market share from Apple's (AAPL) iPhone.

Earlier commercials had appealed to the fragile male ego with icons of masculinity: stealth bombers, heavyweight fighters, rock-crushing machinery.

This one goes after the competition by painting it -- and its users -- as effeminate.

It's a strategy as old as the schoolyard, and it seems to be working -- at least on one side of the yard. A new YouGov BrandIndex survey taken Thursday shows Motorola's buzz rising relative to Apple's and Research in Motion's (RIMM) among men 18 and older. And the company seems to be on track in its stated goal of selling 1 million Droids by New Years.

It remains to be seen whether it has burned its bridges to the other half of the market in the process.

Below: The latest ad.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

The great iPhone death watch

2009-12-01T09:35:00.000-08:00

What critics were saying about Steve Jobs' smartphone in the months before it launched

[Originally posted Dec. 1, 2009 on Fortune.com]

Three years ago, when it became clear that Apple (AAPL) was about to unveil some kind of mobile phone, critics began to weigh in on its chances of success. AAPLinvestors' Terry Gregory, building on a list of skeptical quotes begun by MacDailyNews, has put together what may be the definitive collection.

A sample:

“We’ve learned and struggled for a few years here figuring out how to make a decent phone. PC guys are not going to just figure this out. They’re not going to just walk in.”
Palm CEO Ed Colligan, commenting on then-rumored Apple iPhone, 16 Nov 2006

“Apple is slated to come out with a new phone… And it will largely fail."
Michael Kanellos, CNET, 7 December 2006

"The only question remaining is if, when the iPod phone fails, it will take the iPod with it.”
Bill Ray, The Register, 26 December 2006

"Apple will likely have a tough time convincing application vendors to build specialized clients for the iPhone until the volumes are there, and the volumes could be limited by the lack of third-party applications – a Catch 22.”
Jack Gold, J. Gold Associates, 10 January 2007

“The iPhone is nothing more than a luxury bauble that will appeal to a few gadget freaks."
Matthew Lynn, Bloomberg, 15 January 2007

"Five hundred dollars? Fully subsidized, with a plan? It is the most expensive phone in the world and it doesn’t appeal to business customers because it doesn’t have a keyboard which makes it not a very good email machine… So, I, I kinda look at that and I say, well, I like our strategy. I like it a lot.”
Steve Ballmer, Microsoft CEO, 17 January 2007

I am not sure how it will stand against Sprint’s Wimax (when it successfully launches) and its phones, which I am looking forward much more than over-hyped Apple iPhone.”
Bhaskar Chitraju, Indews Broadcast, 18 January 2007

"iPhone may well become Apple’s next Newton.”
David Haskin, Computerworld, 26 February 2007

“Apple should pull the plug on the iPhone… What Apple risks here is its reputation as a hot company that can do no wrong. If it’s smart it will call the iPhone a ‘reference design’ and pass it to some suckers to build with someone else’s marketing budget. Then it can wash its hands of any marketplace failures… Otherwise I’d advise people to cover their eyes. You are not going to like what you’ll see.”
John C. Dvorak, 28 March 2007

“There’s no chance that the iPhone is going to get any significant market share. No chance. It’s a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I’d prefer to have our software in 60% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get.”
Steve Ballmer, Microsoft CEO, 30 April 2007

“How do they deal with us?”
Ed Zander, Motorola CEO/Chairman 10 May 2007

“Apple begins selling its revolutionary iPhone this summer and it will mark the end of the string of hits for the company.”
Todd Sullivan, Seeking Alpha, 15 May 2007

"What does the iPhone offer that other cell phones do not already offer, or will offer soon? The answer is not very much… Apple’s stated goal of selling 10 million iPhones by the end of 2008 seems ambitious.”
Laura Goldman, LSG Capital, 21 May 2007

“We Predict the iPhone will bomb. Which means that when the iPhone comes, Digg will likely be full of horror stories from the poor saps who camped out at their local AT&T store, only to find their purchase was buggier than a camp cabin.”
Seth Porges, The Futurist, 7 June 2007

“The forthcoming (June 29) release of the Apple iPhone is going to be a bigger marketing flop than Ishtar and Waterworld combined. Because its designers forgot Platt’s First, Last, and Only Law of User Experience Design (“Know Thy User, for He Is Not Thee”), that product is going to crash in flames. Sell your Apple stock now, while the hype’s still hot. You heard it here first.”
David S. Platt, Suckbusters!, 21 June 2007

“God himself could not design a device that could live up to all the hype that the iPhone has gotten.”
Harvard computer science professor David Platt, 25 June 2007

More than 33 million iPhones, 100,000 apps and 2 billion downloads later, the death watch continues. To see AAPLinvestors' full collection -- including comparisons to such "iPhone killers" as the Palm (PALM) Pre, Research in Motion's (RIMM) BlackBerry Storm and Motorola's (MOT) Droid -- click here.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

The smartphone wars, one year later

2009-11-24T04:38:00.000-08:00

The iPhone leads the pack, Android is gaining, everybody else is losing share

[Originally posted Nov. 24, 2009 on Fortune.com]

It's been a year since Google (GOOG) released Android OS, the open-source smartphone operating system widely perceived as the most likely to overtake Apple's (AAPL) iPhone in the long run.

As it happens, Google this month also purchased AdMob, the world's largest purveyor of mobile phone advertising. So this seemed as good a time as any to take a snapshot of the changing smartphone marketplace, as measured by ad requests to AdMob's network.

We reviewed a year's worth of AdMob data -- including the October numbers released Monday -- and charted it on the graph at right (reproduced full-size below the fold).

There's a bias in the data, since AdMob ads run better on iPhone OS and Android devices than on, say, Research in Motion (RIMM) BlackBerries. But the trends are clear.

Over the past year, Nokia's (NOK) Symbian has lost the largest raw market share, down to 25% last month from 59% the same month a year earlier. In percentage terms, Windows Mobile (MSFT) is the biggest loser, down 70% in 12 months, with Symbian, Palm's (PALM) Web OS and BlackBerry OS close behind.

These numbers are based on worldwide ad requests. Apple's lead is even greater when AdMob zeroes in on the U.S. and U.K. markets. For a look at how the iPhone's share of the U.S. and worldwide markets have grown, see the chart prepared by MacRumors' Erik Slivka here.

Below: A full-size fever chart of AdMob's worldwide data for all the major smartphone operating systems.

: Source: AdMob

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Jailbroken iPhones infected, again

2009-11-23T11:52:00.000-08:00

Security experts report that a malicious worm is tunneling its way through Dutch iPhones

[Originally posted Nov. 23, 2009 on Fortune.com]

This may be one of those "I told you so" moments that gives comfort to people on both sides of the Apple-Microsoft divide: Those who claim that Apple's (AAPL) products are no more immune to malware attacks than Microsoft's (MSFT), and those who insist that Apple's operating systems are nearly impenetrable, as long as you play by the rules.

According to the Dutch security firm XS4ALL, a software worm has been spreading through the Netherlands that can seize control of iPhones without their owners' knowledge and hand it over to a server in Lithuania.

"This worm is doing really bad things," XS4ALL's Scott McIntyre told security.nl.
Only a few hundred iPhones have been infected so far, according to the BBC. But if the worm gets into large Wi-Fi networks, thousands could be at risk.

This is the third reported iPhone malware incident in as many weeks and by far the most dangerous.

In early November, a Dutch hacker seized control of jailbroken iPhones and posted a message offering to make them secure again for 5 euros. A week later, an unemployed programmer in Australia released a worm that changed the iPhone's background image to a picture of pop singer Rick Astley, a sly reference to Rickrolling, one of the Internet's most popular pranks (some 21 million fooled).

The new worm targets customers who use their iPhone to do online banking at ING through T-Mobile. To be at risk, the phones must be jailbroken -- something Apple advises strongly against -- have SSH (secure shell) installed, and have left the original password ("alpine") unchanged.

“As we’ve said before, the vast majority of customers do not jailbreak their iPhones, and for good reason," an Apple spokesperson told The Loop's Jim Dalrymple. "These hacks not only violate the warranty, they will also cause the iPhone to become unstable and not work reliably."

Infected phones can be returned to their original condition by restoring the current Apple-supplied firmware through iTunes.

UPDATE: Sophos reports that the worm is using IP address 92.61.38.16 for command and control of jailbroken iPhones. Mobile operators you may want to block or at least monitor activity trying to communicate with this IP address.

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Does AT&T turn into a pumpkin in June?

2009-11-22T08:00:00.000-08:00

Its Cinderella contract with Apple for the iPhone runs out in seven months, says one analyst

[Originally posted Nov. 22, 2009 on Fortune.com]

Broadpoint AmTech's Brian Marshall, who has replaced Piper Jaffray's Gene Munster as the most bullish of the mainstream Apple analysts, made several assertions of fact in an Bloomberg TV interview Friday that -- if true -- struck me as newsworthy. Chief among them:

The contract that gives AT&T (T) exclusive access in the U.S. to Apple's (AAPL) iPhone expires in June 2010.
Apple is now getting a $450 subsidy from AT&T for each iPhone it sells; after June, that subsidy will be reduced to $300 for all carriers, domestic and international.
The 4% of AT&T subscribers who use the iPhone consume roughly 40% of the network's bandwidth.

Here and in a research note issued last late month, Marshall has been lobbying heavily for Apple to start selling the iPhone through Verizon (VZ). It turns out he may have personal reasons for doing so. He told Bloomberg's Pimm Fox that whenever he travels to New York or San Francisco with his iPhone he gets dropped calls "all the time."

"A very frustrating experience," he said, "but I'm not going to move away because Apple has their hooks into me"

You can hear all this, plus what Marshall has to say about the Chinese iPhone market, Windows 7's effect on Mac sales and Apple's 2010 earnings, in the interview posted below the fold.

UPDATE: Financial Alchemist's Turley Muller takes issue with virtually everything Marshall says in this interview. See here.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

See also:

Mac ads haunt Steve Ballmer

2009-11-20T06:50:00.000-08:00

Shareholders press Microsoft's CEO about Apple's marketing campaign

[Originally posted Nov. 20, 2009 on Fortune.com]

Those Get-a-Mac ads make "you all look like a buffoon," one long-time shareholder (and father of four Mac-using children) told Microsoft (MSFT) CEO Steve Ballmer at the company's annual meeting Thursday. "I'm just wondering why your marketing group can't do something to try to rein in this next generation, because you've got a real bad image out there."

"We all watch television," Ballmer responded, before quickly changing the subject to Microsoft's market share.

"The truth of the matter is, we do quite well," he said, according to TechFlash's Todd Bishop, who seems to have taken the best notes. "Even among college students, we do quite well. Do we have an opportunity for improvement? We do. Some of that is marketing, some of that is phase of life. It is important to remember that 96 times out of 100 worldwide, people choose a PC with Windows; that's a good thing. Even in the toughest market, which would be the high end of the consumer market here in the U.S., 83 times out of 100 people choose a Windows PC over a Mac."

Ballmer acknowledged that Apple (AAPL) had "picked up a couple of tenths of a percent of market share," an achievement some in the audience seemed to find laughable.

But as the Wall Street Journal's Nick Wingfield points out, citing IDC numbers, Apple's share of new PC shipments in the U.S. was 9.2% in the third quarter, up from 4.8% in the same period four years ago. (Worldwide share: 3.9% compared with 2.4% four years ago.)

Wingfield also took a crack at estimating how many copies of Window 7 Microsoft has sold, a number the company has not provided.

According to Ballmer, Microsoft sold twice as many copies of Windows 7 in its first few weeks than any previous version of the operating system. Since Vista sold 20 million copies in its first month on the market, that would put Windows 7 unit sales to date at roughly 40 million.

That number includes both boxed copies and copies sold to PC makers for pre-installation on their machines, according to a Microsoft spokesperson. Sales of PC hardware spiked sharply immediately after the Oct. 22 launch (see chart at right).

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple relents. Bobble reps rule!

2009-11-14T09:53:00.000-08:00

An iPhone app illustrated with caricatures of the 111th Congress finally gets the green light

At least someone at Apple (AAPL) has a sense of humor.

Less than a week after the iPhone Developer Program rejected as "objectionable" and "defamatory" an application illustrated with caricatures of U.S. Senators and Congressmen, the company has reversed itself and approved the app.

Bobble Rep for the iPhone and iPod touch was conceived by director Ray (Super Capers) Griggs and illustrated by Mad Magazine caricaturist Tom Richmond. The drawings serve as an entry into a data base of information about the politicians, whose oversized heads bobble when shaken or flicked with a finger. The app is now available for sale here for $0.99.

"I'm glad Apple came to their senses," says Richmond, "and realized that this app is not only not derogatory or insulting to our congressional representatives and senators, it's a beneficial program and a little fun as well."

Richmond spent months drawing the heads of all 540 members of the 111th Congress, including nonvoting members from Puerto Rico and Guam.

Fox News on Saturday was taking credit for Apple's decision to approve the app, although it was Richmond himself who drew national attention to its rejection earlier this week with a widely read entry in his blog.

See Apple bans Nancy Pelosi bobble head .

[Follow Philip Elmer-DeWitt on Twitter @philiped]

The iPhone wars: AT&T vs. Verizon

2009-11-13T14:42:00.000-08:00

Ma Bell strikes back with a letter, another lawsuit and its own coverage maps

[Originally posted Nov. 13, 2009 on Fortune.com]

Claiming "irreparable harm," AT&T (T) has filed its second lawsuit in two weeks asking a U.S. District judge to force Verizon (VZ) to pull its new TV ads -- cartoons that depict the iPhone as the latest arrival to the "island of misfit toys." The issue, once again: coverage maps that AT&T claims are "false" and "misleading."

On Thursday, AT&T followed up with a "set the record straight" letter reminding customers and the press that it, not Verizon, carries the "most popular smartphones" -- i.e. Apple's (AAPL) iPhone -- and that its customers, not Verizon's, have access to more than 100,000 applications.

The letter includes a link to the version of AT&T's coverage map -- shown above -- that the company thinks Verizon should be showing in its ads.

We're not so sure. Let's look a little closer at this map -- and some others -- below the fold.

Here are the two that triggered the lawsuits. They show Verizon's 3G coverage (red) next to AT&T's 3G coverage (blue).

AT&T takes strong and litigious objection to this comparison because, in the words of its lawyers, all that white space in the right-hand map "falsely communicates that AT&T does not have wireless data coverage throughout much of the United States." (Full text of the complaint is available here.)

According to AT&T, its wireless network actually reaches 303 million Americans -- 97% of the population -- if you include 3G, EDGE and GPRS. That's how they can justify drawing a map in which most of the country is painted blue.

But is that fair? AT&T's 3G service, when it works, is zippy enough. But EDGE (a 2.5G service) is considerably slower, and GPRS (2G) is slower still. A more accurate AT&T map would distinguish among the three services. You can get that from AT&T here, but it takes some effort (and a Photoshop session) to get one map that shows the entire lower 48 states. When the work is done, this is what it looks like:

Like Verizon's map, this one displays AT&T's 3G coverage in blue. And in fact, the correspondence between Verizon's blue splotches and AT&T's is pretty good.

But even that is somewhat misleading. If you drill down into AT&T's map of densely populated cities -- say San Francisco and New York -- you get the impression that the two metropolitan areas are swathed in 3G blue. See below:

But as anyone who relies on an iPhone in those cities can tell you, there are times of the day when an accurate map would look more like blue Swiss cheese, with big white holes in the business districts where you can't data or phone service.

If, as rumored, Verizon may be getting the iPhone in the next year or two, these maps -- and those white holes -- could mark the battle lines for a long drawn out war.

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Rumors: A Verizon iPhone in 2010

2009-11-12T06:22:00.000-08:00

Two sources say Apple is building a hybrid "worldmode" phone that Verizon could use

[Originally posted Nov. 12, 2009 on Fortune.com]

Judging from reader comments in this space, there are a lot of cellphone owners in America locked into Verizon (VZ) contracts who would buy an iPhone in a minute if they didn't have to switch carriers to get it.

Verizon has made it pretty clear that it would cut a deal with Apple (AAPL), were it not for a couple of impediments: 1) the contract that makes AT&T (T) the iPhone's exclusive U.S. carrier, and 2) the fact that Verizon's network (based on CDMA2000 technology) is incompatible with Apple's smartphone (which uses W-CDMA (UMTS)).

The first roadblock -- AT&T's contract -- is set to expire next year, according to a widely cited 2008 USA Today article that included an interview with chairman Randall Stephenson. (Stephenson declined to comment on the details of the contract.)

The second barrier could also disappear were Apple to build a new iPhone that is compatible with both AT&T and Verizon's networks.

Last week, AppleInsider reported on rumors that Apple may be doing just that. Its source was a leaked OTR Global report, based on unnamed sources in Apple's Taiwanese supply chain, that said Apple was making a "worldmode" phone using a new hybrid chip from Qualcomm (QCOM).

On Wednesday, a second source for the rumor emerged, this one with a date attached. According to GigaOm's Colin Gibbs, Northeast Securities has issued a research note, based again on supply chain sources, that says Apple will launch a W-CDMA/CDMA2000-enabled iPhone through Verizon by the summer of 2010.

This assumes that Apple and Verizon can cut a mutually satisfactory deal. But judging from the tone of bitter resignation coming from AT&T executives lately, it sounds like Steve Jobs and Randall Stephenson may have finally come to terms.

UPDATE: AppleInsider on Thursday claimed to have found additional evidence that Verizon is getting an iPhone, but offered conflicting scenarios about when and how that might happen. See here.
See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple bans Nancy Pelosi bobble head

2009-11-10T09:49:00.000-08:00

A Mad Magazine cartoonist's guide to the 111th Congress runs afoul of Cupertino's censors

UPDATE: Apple relented. App approved. See here.

- - - -

Someone at Apple (AAPL) needs to take a refresher course in American history -- and maybe a lesson in libel law.

Last summer Tom Richmond, one of Mad Magazine's top illustrators and two-time winner of the National Caricaturist Network's "Caricaturist of the Year" award, began drawing a likeness of every Senator and Representative in the 111th Congress -- 540 caricatures in all, including non-voting members from Puerto Rico, Guam, etc.

The idea, he explains, was to create an illustrated database for the iPhone and iPod touch that would allow users to find the name, party affiliation, phone number and website of their senators and congresspeople via zipcode or GPS. Each head was placed on one of 12 cartoon bodies and would bobble when shaken or flicked with a finger.

The project was the idea of Ray Griggs, director of the movie Super Capers (rated PG for mild language, rude humor and brief smoking), for which Richmond did the art. Griggs had shown the finished app around and stirred up some interest. He was booked to appear as a guest on Fox News next week with Glenn Beck and Mike Huckabee.

You can probably guess what's coming next.

Dear Mr. Griggs,

Thank you for submitting Bobble Rep – 111th Congress Edition to the App Store. We’ve reviewed Bobble Rep – 111th Congress Edition and determined that we cannot post this version of your iPhone application to the App Store because it contains content that ridicules public figures and is in violation of Section 3.3.14 from the iPhone Developer Program License Agreement which states:

“Applications may be rejected if they contain content or materials of any kind (text, graphics, images, photographs, sounds, etc.) that in Apple’s reasonable judgement may be found objectionable, for example, materials that may be considered obscene, pornographic, or defamatory.”

A screenshot of this issue has been attached for your reference.

If you believe that you can make the necessary changes so that Bobble Rep – 111th Congress Edition does not violate the iPhone Developer Program License Agreement, we encourage you to do so and resubmit it for review.

Regards,

iPhone Developer Program

What someone at the iPhone Developer Program doesn't seem to understand -- not to get too Glenn Beck about it -- is that ridiculing public figures by caricature is one of those rights honored in American history and enshrined in the Constitution.

"The really sad part," writes Richmond, "is that here is an app that might get people interested in who represents them in Washington, especially kids and young adults, and connects people to their senators and representatives via fun and PARTISAN FREE way.
"Please spread the word how stupid this rejection is. Apple of course does not care what its customers think… they consider us morons at best anyway, but it’s worth a laugh and a shake of your head."

Are you listening Phil Schiller?

To see more of Richmond's subversive bobble heads -- and links to an extensive portfolio of his cartoon work -- click here.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Inside Apple's industrial design lab

2009-11-07T07:47:00.000-08:00

A rare visit with the man who designed the iMac, the iPod and the iPhone

[Originally posted Nov. 9, 2009 on Fortune.com]

"I guess it's one of the curses of what you do," says Jonathan Ive, Apple's senior vice president for industrial design, "is that you are constantly looking at something and thinking 'Why why why is it like that? Why is it like that and not like this?'"

Ive's five-minute appearance in Objectified is one of the centerpieces of Gary Hustwit's 2009 documentary about contemporary industrial design. It's a follow-up to Hustwit's amazing Helvetica (2007), the only full-length film about a typeface. Objectified may not be as surprising or groundbreaking, but it does feature this rare inside look at Apple's (AAPL) secretive design lab, an inner sanctum on the Cupertino campus only slightly less guarded than Fort Knox.

"I remember the first time I saw an Apple product," says Ive as the camera pans across a busy Apple Store. "I remember it so clearly because it was the first time I realized when I saw this product I got a very clear sense of the people who designed it and made it."

Below fold, unless Hustwit has pulled it, a YouTube clip of that video.

See also:

A fireside chat with Jonathan Ive

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Droid vs. iPhone: The reviews are in

2009-11-05T07:41:00.000-08:00

Motorola and Verizon invited comparisons, and that's what they got

[Originally posted Nov. 5, 2009 on Fortune.com]

The Droid lands in stores Friday, and on Thursday the heavyweight reviewers -- which is to say the Wall Street Journal's Walt Mossberg and the New York Times' David Pogue -- weighed in.

Given that Motorola (MOT) and Verizon (VZ) pitched the Droid in its first TV ad as everything Apple's (AAPL) and AT&T's (T) iPhone was not, it was perhaps inevitable that every reviewer so far, including these two, treated its arrival as a grudge match.

Mossberg's review is positive but tepid -- especially the video version. He plods through the comparisons item by item like a slightly boring homework assignment. His top-line summary:

"While it has some significant drawbacks, I regard it as a success overall. It's the best super-smart phone Verizon offers, the best Motorola phone I've tested and the best hardware so far to run [Google's (GOOG)] Android. I can recommend the Droid to Verizon loyalists who have lusted for a better smart phone, but don't want to switch networks." (link)

Pogue being Pogue has more fun with the assignment, even running a Twitter contest to come up with a new term for these newfangled gizmos. (He's going with "app phones"; Mossberg calls them "super-smart phones.") Pogue's bottom line:

Since Verizon seems to want a Droid-iPhone faceoff, here it is: the Droid wins on phone network, customizability, GPS navigation, speaker, physical keyboard, removable battery and openness (free operating system, mostly uncensored app store). The iPhone wins on simplicity, refinement, thinness, design, Web browsing, music/video synching with your computer, accessory ecosystem and quality/quantity of the app store." (link)

For a more thorough comparison, written by someone who actually seems to care, check out developer Greg Kumparak's 2,500 word review in TechCrunch. His conclusion: "At this point, I honestly feel that either choice would make any sane person incredibly happy."

[Follow Philip Elmer-DeWitt on Twitter @philiped]

The man who put the 'i' in iMac

2009-11-04T08:14:00.000-08:00

Meet the creative director who named a generation of Apple products

[Originally posted Nov. 4, 2009 at Fortune.com]

The TBWA\Chiat\Day creative team was horrified in 1998 when Steve Jobs pulled back a cloth and revealed the bulbous teardrop that came to be known as the Bondi-Blue iMac.
But then Jobs wasn't so crazy at first about the name they proposed for it.

No one had ever seen anything like the new computer, veteran creative director Ken Segall tells Cult of Mac's Leander Kahney in an exclusive interview published Tuesday evening.

"We were pretty shocked but we couldn’t be frank," Segall recalls. "We were guarded. We were being polite, but we were really thinking, 'Jesus, do they know what they are doing?' It was so radical."

Segall eventually came up with "iMac," a name that connected the original 1984 Macintosh with the rapidly expanding Internet. But Jobs took some convincing.

Below the fold, excerpts from the story as Kahney tells it:

Jobs said he was betting the company on the machine and so it needed a great name. He suggested one at the meeting, Segall says, but it was terrible. It would “curdle your blood.” ...

Segall says he came back with five names. Four were ringers, sacrificial lambs for the name he loved — iMac. “It referenced the Mac, and the “i” meant internet,” Segall says. “But it also meant individual, imaginative and all the other things it came to stand for.” It “i” prefix could also be applied to whatever other internet products Apple was working on.

Jobs rejected them all, including iMac.

“He didn’t like iMac when he saw it,” Segall says. “I personally liked it, so I went back again with three or four new names, but I said we still like ‘iMac.”

He said: ‘I don’t hate it this week, but I still don’t like it.’”

Segall didn’t hear any more about the name from Jobs personally, but friends told him that Jobs was silk-screening the name on prototypes of the new computer. He was testing it out to see if it looked good.

“He rejected it twice but then it just appeared on the machine,” Segall says, laughing. “He never formally accepted it.” ...

Segall is delighted that iMac grew on Jobs. “It’s a cool thing. You don’t get to name too many products, and not ones that become so successful. It’s really great. I’m really delighted. It became the nomenclature for so many other products. Millions of people see that work.”

Segall says over the last few years, the debate about dropping the “i” prefix has come up several times at Apple. “They’ve asked: ‘Should the company drop the “i”?’ But there’s a desire to keep it consistent: iMac, iPod, iPhone. It’s not as clean as it should be, but it works.”

You can read more of the interview, including the story of how the "Think Different" campaign got started, at Cult of Mac here.

Also worth visiting: Segall's own blog, Observatory, with his commentary on everything from Motorola's (MOT) Cliq ads (he loves them) to Research in Motion's (RIMM) appropriation of The Beatles' All You Need Is Love (hates it; "they’ve successfully broken the gall barrier.").

Kahney, the former news editor of Wired.com, is the author of several books about Apple (AAPL), including most recently Inside Steve's Brain.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

The man who put the 'i' in iMac

2009-11-04T06:47:00.000-08:00

Meet the creative director who named a generation of Apple products

[Originally published Nov. 4, 2009 on Fortune.com]

The TBWA\Chiat\Day creative team was horrified in 1998 when Steve Jobs pulled back a cloth and revealed the bulbous teardrop that came to be known as the Bondi-Blue iMac.

But then Jobs wasn't so crazy at first about the name they proposed for it.

No one had ever seen anything like the new computer, veteran creative director Ken Segall tells Cult of Mac's Leander Kahney in an exclusive interview published Tuesday evening.

"We were pretty shocked but we couldn’t be frank," Segall recalls. "We were guarded. We were being polite, but we were really thinking, 'Jesus, do they know what they are doing?' It was so radical."

Segall eventually came up with "iMac," a name that connected the original 1984 Macintosh with the rapidly expanding Internet. But Jobs took some convincing.

Below the fold, excerpts from the story as Kahney tells it:

Jobs said he was betting the company on the machine and so it needed a great name. He suggested one at the meeting, Segall says, but it was terrible. It would “curdle your blood.” ...

Segall says he came back with five names. Four were ringers, sacrificial lambs for the name he loved — iMac. “It referenced the Mac, and the “i” meant internet,” Segall says. “But it also meant individual, imaginative and all the other things it came to stand for.” It “i” prefix could also be applied to whatever other internet products Apple was working on.

Jobs rejected them all, including iMac.

“He didn’t like iMac when he saw it,” Segall says. “I personally liked it, so I went back again with three or four new names, but I said we still like ‘iMac.”

He said: ‘I don’t hate it this week, but I still don’t like it.’”

Segall didn’t hear any more about the name from Jobs personally, but friends told him that Jobs was silk-screening the name on prototypes of the new computer. He was testing it out to see if it looked good.

“He rejected it twice but then it just appeared on the machine,” Segall says, laughing. “He never formally accepted it.” ...

Segall is delighted that iMac grew on Jobs. “It’s a cool thing. You don’t get to name too many products, and not ones that become so successful. It’s really great. I’m really delighted. It became the nomenclature for so many other products. Millions of people see that work.”

Segall says over the last few years, the debate about dropping the “i” prefix has come up several times at Apple. “They’ve asked: ‘Should the company drop the “i”?’ But there’s a desire to keep it consistent: iMac, iPod, iPhone. It’s not as clean as it should be, but it works.”

Brit blog names iPhone 'world's worst'

2009-11-03T13:30:00.000-08:00

In June, Apple's smartphone was the editors' choice at CNET UK. How times have changed.

[Originally published Nov. 3, 2009 on Fortune.com]

"The iPhone may be the greatest handheld surfing device ever to rock the mobile Web, and a fabulous media player to boot," writes CNET UK's Flora Graham in a mock award citation posted Tuesday. "It may be the highest-rated mobile phone on CNET UK, rocking the pockets of half of our crack editorial team. It's certainly the touchscreen face that launched a thousand apps. But as an actual call-making phone, it's rubbish, and we aim to prove it."

What follows is a litany of complaints no iPhone owner hasn't heard -- or expressed -- before. But to read them in a publication that four months earlier named Apple's (AAPL) device the "world's best touchscreen phone" is unexpected. And in Ms. Graham's voice, sort of fun.

To quote a few of her sharper lines:

Say what? Call quality on the iPhone is pathetic, and it's mostly because of the tiny speaker. It has to be aligned with your ear canal with the accuracy of a laser-guided ninja doing cataract surgery, or else the volume cuts down to nothing as the sound waves bounce uselessly around your ear shells.
Dropped calls and data gaps. If, like Will Smith in Enemy of the State, you're trying to avoid the eagle eye of Big Brother, the iPhone could be for you. It drops calls, fails to connect and doesn't even ring sometimes -- not for everyone, but more often than any other phone we're currently using.
You can't answer if it doesn't ring. Perhaps the worst of the iPhone's problems is its ability to sit there stealthily and ignore incoming calls. With no ring or vibrate to clue you in, your friends and family are redirected to voicemail... or just treated to silence. If you're in a two-iPhone family, it can be a case of the deaf leading the mute.
The iPhone might burn your face off. According to our ultra-sciencey test, it is extremely unlikely that the iPhone will burn your face off... Nevertheless, pressing a large, flat surface to your cheek is always going to be sweaty... Thus the current trend for people to walk down the street with their phones on hands-free, yelling into the mike at the bottom while they hold the rest of the phone away from their faces.
iPhone battery life. A couple of hours of Google Maps over 3G and you'll be lost in the woods without even the possibility of phoning for help. Compare that to the good old days when your phone would last a week without charging, and you'll wonder why you ever bothered to switch.
The iPhone sucks -- so what? If the iPhone is inaudible, unconnected, on fire and out of battery, why is the thing so popular? The fact is, although the iPhone is the worst phone in the world, it's the best handheld computer there is.

At least until CNET UK's editors name a new one.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

How Apple sliced its pie in 2009

2009-10-28T04:28:00.000-07:00

The Mac and iPod slices shrank between '08 and '09. iTunes grew a bit. iPhone grew a lot.

[Originally posted Oct. 28 at Fortune.com.]

Steve Jobs likes to describe Apple's (AAPL) business model as a stool built on three-legs: the Mac, the iPod and the iPhone.

But a quick glance at the 2009 Form 10-K, which Apple filed on Tuesday, shows that it is now more like a four-leg chair, with a couple of wedge-shaped pillows on the side.

The Mac and iPod still bring in the biggest part of Apple's total sales revenue -- 37.7% and 22.1%, respectively -- but their shares of the pie are shrinking.

The iPhone, meanwhile, is rapidly catching up, thanks to unit sales that grew 78% and GAAP revenue (swelled by deferred revenue dating back to 2007) that grew 266%. The iPhone now accounts for 18.5% of Apple's sales, just behind the iPod.

The fourth leg of the chair is the line item Apple calls "other music related products and services" but which is mostly iTunes Store sales -- music, video and apps. It continues to grow at a steady pace and now represents about 11% of Apple's net sales.

Spreadsheets summarizing Apple's revenue streams are pasted below the fold. Apple's 2009 Form 10-K is available as a pdf file here.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Net sales by product in millions.

: Source: Apple 10-K report

Share of total revenue by product.

: Source: Apple 10-K report

Steve Jobs is $300 million richer

2009-10-21T08:31:00.000-07:00

His net worth shot up to $5.4 billion Wednesday, only partly thanks to Apple

[Originally posted Oct. 21, 2009 on Fortune.com]

In September, Steve Jobs' $5.1 billion earned him the No. 43 spot on Forbes' list of the 400 richest Americans. Since then, Apple's shares have rocketed to a new all-time high, closing Wednesday at $204.92.

So Jobs was a lot richer Wednesday than he was in September -- $300 million richer, at least on paper -- but only 3/5 that increase is thanks to Apple (AAPL). The rest is Disney's (DIS) doing.

[Jobs was even richer before the market gave up most of its gains in the last hour of trading. See below.]

According to the two companies' proxy statements, the bulk of Jobs' net worth is in the form of preferentially owned stock:

5.426 million shares of Apple (most of it from a 2003 grant of 10 million shares, later reduced to pay taxes)
138 million shares of Disney (from when Disney acquired Pixar)

In the six weeks since Forbes took its financial snapshot, Apple has gained 32.42 points (as of Wednesday's close) while Disney inched up 87 cents. But because Jobs' net worth is so much more closely tied to Disney than to Apple, those 87 cents carry a lot of weight in his portfolio. Bottom line: by Wednesday night, Jobs' holdings had increased in value ...

from Apple: $180 milion
from Disney: $120 million
total: $300 million

Shortly after 2 p.m., before the market tanked, Apple was up 9.71 points to an all-time intraday high of 208.62, and Disney was up .36 points to $29.71, together adding $103.5 million to Jobs' bottom line.
Apple closed the day at $204.92, up 6.16 points. Disney closed at $29.23, down 12 cents.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple earnings: How the analysts got it so wrong

2009-10-20T20:22:00.000-07:00

Everybody failed to predict Cupertino's blowout quarter, but some failed worse than others

[Originally posted Oct. 20, 2009 on Fortune.com]

"Well, that was quite embarrassing!" writes "deagol," a widely read amateur analyst whose estimate of Apple's (AAPL) fourth quarter earnings fell 16% short of the record profits the company reported Monday.

The irony is that deagol, who filed a long post-mortem mea culpa on his website Monday night, had less to be embarrassed about than 18 of the 19 Wall Street analysts we polled in advance of Apple's fiscal 2009 4Q earnings report. (See The Street awaits Apple's earnings.)
Once again, the amateurs and independents out-performed the professionals in our quarterly Apple analyst bake-off. The color-coded spreadsheet is pasted below the fold.

But first, some general comments about why everybody failed to predict that Apple's profits would grow 46% or that the company would sell a record 3 million Macs -- up 17% in a quarter in which its competitors, selling cut-rate Windows boxes at razor-thin profit margins, grew an anemic 2%. (See here.)

The key misses:

Macs. Apple was right and Microsoft's (MSFT) Laptop Hunters ad campaign was wrong. Consumers -- or at least enough of them -- were shopping for user experience, not low prices or spec lists.
iPods. Although Piper Jaffray's Gene Munster dismisses the iPod as "no longer an investable theme" due to cannibalization from the iPhone, iPod touch sales were up 100%, suggesting that there may be still be life in the category.
iPhones. A record 7.4 million sold even though Apple couldn't build them fast enough to meet demand. We won't even talk about Jim Cramer, who told his Mad Money audience that because of this, Apple's share price was going to fall -- not explode as it did in after-hours trading.
ASPs. Average selling prices actually went up a bit, rather than down as you might have expected after back-to-school sales and price cuts on iPhones and MacBooks. Deagol attributes it to 15" and 17" MacBook Pros getting "crazy popular" among college students.
Taxes. For reasons I can't begin to explain, Apple's effective tax rate was 25.6%, not the 30% they had guided.

Without further ado, our Analyzing-the-Analysts spreadsheet, with best results highlighted in green and worst in red. Responding to reader requests, this time I've also highlighted second worst in pink and second best (and in one category third best) in light green.

: Click to enlarge. Revenue: billions; earnings: dollars/share; unit sales: millions; gross margin in %.

A tip of the hat, as Stephen Colbert might say, to Brian Marshall at Broadpoint AmTech, who scored the most greens by filing the most bullish report. And as always to our three independent analysts, who managed to stay entirely out of the red. You can read Turley Muller at Financial Alchemist, Deagol at Deagol's AAPL Model, and Andy Zaky (when he's writing) at Bullish Cross. These guys are too good not to be making a living at it.

A wag of the finger to the insufficiently bullish: BMO Capitol's Keith Bachman, Needham's Charlie Wolf and most of all Oppenheimer's Yair Reiner, whose last-minute warning of iPhone production "hiccups" sent the Mad Money in precisely the wrong direction.

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Verizon vs. AT&T: There's a map for that

2009-10-11T14:58:00.000-07:00

[Originally posted Oct. 11, 2009 on Fortune.com]

UPDATE: Since this was posted, AT&T has sued Verizon in a U.S. District Court, claiming false advertising and petitioning for restraining orders that would keep this ad off the air. See here.

- - - -

Borrowing a line from Apple's (AAPL) "There's an app for that" TV ad campaign, Verizon (VZ) launched a high-profile attack on rival AT&T (T) last night in the middle of Monday Night Football's Viking-Packer game.

"If you want to know why some people have spotty 3G coverage," goes the voice over, as a scruffy-looking character frowns at his iPhone. "There’s a map for that."

A YouTube version of the ad -- captured, ironically, on an iPhone 3GS -- is pasted below the fold.
The campaign begins at a moment of high drama in the smartphone wars. It was launched on the eve of a Tuesday morning press conference at which Verizon discussed its plans to compete against Apple with devices running Google's (GOOG) Android operating system. (See here.)

And it follows both a new wave of complaints about AT&T's sluggish service and a widely-read estimate by Morgan Stanley that if Apple were to sell the iPhone through both AT&T and Verizon, its share of the U.S. handset market could rise from less than 5% today to more than 12%. (See here.)

Below: Verizon's new TV ad.

See also:

Google and Verizon go after Apple

Battle of the buzzwords: Apple vs. Microsoft

2009-09-29T06:08:00.000-07:00

[Originally posted Sept. 20, 2009 at Fortune.com]

Apple (AAPL) is awesome. Microsoft (MSFT) is muscular. Apple execs speaks in adjectives; Microsoft's in gerunds. Cupertino wants to show us how cool its products are, and how easy-to-use. Redmond wants us to know how hard it's going to compete to grow its market share.

That's the take-away message from the pair of videos pasted below the fold.

The first -- Apple's Sept. 9 "It's only rock and roll" presentation boiled down to just the adjectives -- has been viewed nearly half a million times since it was posted last week by justanotherguy84.

The second -- which we put together Sunday morning at the suggestion of TechFlash's Todd Bishop -- is Microsoft COO Kevin Turner's July presentation to analysts boiled down to just the buzzwords. Turner is, as Bishop promised, a modern master of techno-business jargon.

Let's go to the videos. Each is less than two minutes long.

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Microsoft's grinning robots

2009-09-28T04:18:00.000-07:00

[Originally posted Sept. 28, 2009 at Fortune.com]

One of the disadvantages of reading American newspapers is that you don't get Charlie Brooker delivered to your doorstep.

Brooker is a British comedian and, as everyone who reads The Guardian knows, the author of the Screen Burn column that appears in G2 every Monday.

He's also Britain's funniest and most enthusiastic Apple (AAPL) basher -- an honorific he secured with a Feb. 5, 2007 column that included this classic paragraph:

"I hate Macs. I have always hated Macs. I hate people who use Macs. I even hate people who don't use Macs but sometimes wish they did. Macs are glorified Fisher-Price activity centres for adults; computers for scaredy cats too nervous to learn how proper computers work; computers for people who earnestly believe in feng shui." (link)

Now, in Monday's Guardian, he offers a sort of bookend to that 2007 column -- a companion piece in which he reveals his true feelings about Microsoft (MSFT) Windows. He still hates Macs and Mac users, but it's not as if thinks Windows is so great. In fact, he writes:

"I know Windows is awful. Everyone knows Windows is awful. Windows is like the faint smell of piss in a subway: it's there, and there's nothing you can do about it. OK, OK: I know other operating systems are available. But their advocates seem even creepier, snootier and more insistent than Mac owners. The harder they try to convince me, the more I'm repelled. To them, I'm a sheep. And they're right. I'm a helpless, stupid, lazy sheep. I'm also a masochist. And that's why I continue to use Windows – horrible Windows – even though I hate every second of it. It's grim, it's slow, everything's badly designed and nothing really works properly: using Windows is like living in a communist bloc nation circa 1981. And I wouldn't change it for the world, because I'm an abject bloody idiot and I hate myself, and this is what I deserve: to be sentenced to Windows for life."

What has set Brooker off are those Windows 7 Launch Party videos we wrote about last week. (See Microsoft's lamest idea yet.)

By now, it seems, dozens of tech writer have taken pot shots at Redmond's house party campaign -- including one clever video editor who, by bleeping some key words, turned it into something that actually swings. (See here.)

Anybody can poke fun of Microsoft, but nobody does it better than Charlie Brooker.

Monday's column is entitled "Microsoft's grinning robots or the Brotherhood of the Mac. Which is worse?"

To read it, click here.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple's tablet stoppeth one of five

2009-09-23T10:58:00.000-07:00

[Originally posted Sept. 23, 2009 on Fortune.com]

Coleridge's Ancient Mariner had nothing on Apple's (AAPL) much-rumored tablet.

Without even a prototype -- like Microsoft's (MSFT) -- to look at, 21% of 3,100 respondents in a RBC Capital/ChangeWave survey said they'd be interested in buying an Apple tablet computer in the $500 to $700 price range. That's better than the 9% who said they would be interested in buying the original iPhone in an April 2007 survey -- after Steve Jobs had unveiled it, but before it had been released.

"The promising early interest illustrates the market opportunity for a Mac-based Tablet," writes RBC analyst Mike Abramsky in a Wednesday morning note to clients.

Among the other findings in the survey:

25% of respondents bought a Mac laptop in the last 90 days, up from 18% in July
17% bought a Mac desktop in the last 90 days, up from 12% in April.
30% of 4,200 respondents in a separate survey already had an iPhone, up from 20% in June

It should be noted that respondents to ChangeWave surveys tend to be early adopters. They are drawn, according the ChangeWave Alliance website, from "a worldwide group of 20,000 highly qualified business, technology, and medical professionals ... who spend their everyday lives working on the frontline of technological change."

Given what he calls the "surging Mac and iPhone sales momentum," Abramsky has raised his Apple price target to $250. Shares opened Wednesday at $185.35 and were up 3.7 points (2%) in mid-afternoon trading.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Boiling Apple down to its adjectives

2009-09-15T05:51:00.000-07:00

[Originally posted Sept. 15, 2009 on Fortune.com]

Last week we counted how many times Apple (AAPL) marketing chief Phil Schiller used the words "amazing" and "incredible" in his presentation at the "It's only rock and roll event." (Answer: an incredible 15 times each.)

Now someone who calls himself justanotherguy84 has taken the exercise one step further. He (or possibly she) has posted a 2-minute YouTube video of the entire Sept. 9 event stripped of just about everything but the adjectives.

Ever wonder how Steve Jobs and company leave the indelible impression that Apple's products are really great, really easy and just plain awesome?

Check it out below the fold.

Thanks to reader Urs in Zurich for the tip.

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple's amazing, incredible Phil Schiller

2009-09-12T07:26:00.000-07:00

[Originally posted Sept. 12, 2009 at Fortune.com]

The day after Apple's (AAPL) "It's only rock and roll" event, Erik Sherman asked on CBS's BNET why the media missed the strategic importance of the gaming announcements that were made that day.

He has a point. Apple spent nearly a third of the hour-plus long presentation talking about the iPod touch -- the "funnest iPod ever" -- and how it stacks up against handheld game machines made by the likes of Sony (SNE) and Nintendo.

Yet the attention of the press seemed to be on everything else: the return of Steve Jobs, the video camera on the iPod nano, the camera missing from the iPod touch.

I went back and reviewed the podcast video of the event and I think I've found the reason: Phil Schiller.

Schiller, for those who don't recognize anyone on Apple's executive team beyond its famous CEO, is the company's senior vice president for worldwide marketing and Steve Jobs' regular stand-in at events like this. He gave the Macworld keynote in January, when Jobs was too sick to attend, and emceed last June's World Wide Developers Conference. He ran the show for nearly 20 minutes Wednesday -- longer than anyone else, including Jobs.

Listening to Schiller the second time, I realize that he actually made a strong case that Apple, with the iPod touch, is finally getting serious about competing in the multi-billion dollar videogame market. He had the numbers -- and the demos -- to prove it.

But by that point, I had mostly tuned Schiller out -- and I was not alone. As Sherman notes, it was roughly 40 minutes into the event -- while Schiller was on stage -- that Chris Nuttall from the Financial Times blogged, “I’m sorry, but can we get to some news.”

I can't speak for the rest of the media, but after reviewing Wednesday's video I think I can finally put my finger on what it is about Schiller's presentation style that loses me: his tireless, repetitive use of the same handful of adjectives.

In Schiller's world, everything Apple does is great, cool, remarkable, unbelievable and, more than anything else, amazing and incredible.

In the space of his 20 minutes -- much of which was ceded to game developers -- Schiller repeated the words "amazing" and "incredible" an incredible 15 times each. I would go back and count the times he said "really great," but I don't think I can take it one more time.

Enthusiasm for one's products is a must for a marketing man. But so too is being able to communicate that enthusiasm in a way that doesn't lose the audience.

If Steve Jobs really wants to drive home the message that Apple has, in the iPod touch, its first world-class game machine, maybe he should do it himself.

UPDATE: Some enterprising soul has posted a 2-minute YouTube video of the special event cut down to just the adjectives. See here. I wish I'd had it when I made my word count.

Thanks reader to Urs in Zurich for the pointer.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Why are there no Mac viruses?

2009-09-02T03:52:00.000-07:00

[Originally posted Sept. 2, 2009 on Fortune.com]

There are, as far as we know, no Mac OS X viruses in the wild.

To prove that assertion wrong, you only have to name one.

Academic proofs of concept and theoretical vulnerabilities don't count. Neither do computer worms, Trojan horses, spyware, adware, spam or any of the other nasty species in the zoology of malware.

That eliminates Inqtana-A, iBotNet, MacSweeper and a handful of other examples of Mac malware usually trotted out at this point by PC apologists. Nor can you count the 10-second Zero Day Pwn2Own Safari exploit that got so much press attention last March. None of these, strictly speaking, were viruses.

The issue comes up anew because Apple's (AAPL) latest Get a Mac ads are once again hammering Microsoft (MSFT) for those "thousands of viruses" to which its operating systems and application suites are heir. And that, in turn, has led to a resurgence of comments in this space to the effect that a) Macs are just as vulnerable as Windows machines and b) the only thing that protects them is their miniscule market share.

Those ideas, while widely promulgated on the Web, are wrong. The fact that Mac OS X represents less than 4% of the worldwide installed base of computers might explain why there are fewer Mac viruses. But it wouldn't explain why there are none.

So what's the answer?

First, let's define some terms.

A Mac OS X virus in the wild, to use the definition put forward in a short-lived contest that offered $25,000 to the first hacker who could write one, is executable code that attaches itself to a program or file so that it can spread from one Mac to another. "In the wild" means it has infected, or is currently infecting, new machines through normal day-to-day usage.

By this definition, there have been hundreds, if not thousands, of Windows viruses (see partial list), a handful of Mac OS 9 viruses, and not one for Mac OS X.

The reasons for this have been extensively debated by security experts, who offer several explanations:

Small market share. There is some truth to the "security through obscurity" argument. Many virus writers are motivated by the power they can command -- and the money they can make -- by seizing control of large numbers of computers. That puts a financial premium on Windows viruses.
Mac OS X, with its Unix-based file system and kernel, is harder to infect with a self-replicating program. (See Claudiu Dumitru's MacOS X Vulnerabilities for background.) Windows, as I understand it, allows users to write run executable code outside their own protected memory space; Mac OS X does not.
Viruses are going out of style. The action these days, I'm told, is in Trojans and spyware.

This is not to say that OS X is invulnerable. The frequency of Apple's security updates and the emphasis the company is putting on the new security features in Snow Leopard are proof that it is not. Maybe Apple is just lucky. Or maybe it's better at protecting its users from infection than Microsoft.

That said, if the built-in anti-virus protection in Windows 7 is as good as some earlier reviewers suggest. the security gap could close when Microsoft's new system finally launches next month.
Which may be why Apple is hammering home the "thousands of viruses" message now.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple's Q2: A test of fundamentals

2009-08-22T04:24:00.000-07:00

[Originally posted Aug. 22, 2009 on Fortune.com]

When Apple (AAPL) reported its fiscal 2009 first-quarter earnings, exactly three months ago, the stock opened the day at $78.20, its lowest point since October 2006.

On Wednesday, when Apple is scheduled to report its second-quarter results, the same shares opened at $122.27 -- a 56% increase.

While that's still below the price targets set by most analysts -- many of whom revised their targets upward in just the past week -- some think Apple's share price has got ahead of itself.

RBC Capital's Mike Abramsky (an Apple bear) said as much in a note to clients Tuesday. "Valuation has risen faster than peers ... and while we expect near term upside around the refreshed iPhone, we continue to see elevated challenges ahead to valuation."

Still, Apple is not in the same kind of trouble as its competitors -- like Dell (DELL) for example. Apple still has rich cash holdings ($25 billion, or $29 per share), enviable profit margins (34.7% last quarter) and the deferred revenue from seven quarters of iPhone sales (which could add 30 or 40 cents to its earnings per share).

But the company has a basic problem with its fundamentals: two of its three primary engines of growth have stalled.

As Silicon Alley's Dan Frommer points out, the Street is expecting Apple to report that it shipped 2.1 to 2.2 million Macs in the second quarter -- a year-over-year decline of 4% to 9%. That would represent the first time in five years that Mac sales have shrunk. Moreover, it's being compared with a quarter (2008 Q2) in which Mac sales grew by more than 50%. (See chart below.)

Chart: Andy Zaky

Meanwhile, iPod shipments are also expected to shrink -- a 6% decline, to about 10 million units.
The iPhone -- which was supposed to fill the gap -- is still on its growth curve. The Street expects Apple to report that it shipped 3.3 million units in the quarter, nearly doubling last year's Q2 shipments of 1.7 million.

But that may not be enough to make up the difference. The consensus, according to Thomson Financial, is that Apple will report earnings of $1.09 a share on revenues of $7.94 billion -- a 5.7% year-to-year increase in revenue and a 6% decline in earnings.

"How can the market justify giving Apple a 22 P/E," asks Andy Zaky of Bullish Cross, "when it's not growing at all?"

Zaky, a blogger-analyst who has taken his Apple profits and turned "agnostic" on the stock, acknowledges that he could be wrong. One could argue, he says, that the market has already adjusted for the current state of affairs by taking Apple's stock price from $200 to $120. Or that Apple's growth drivers have stalled because of weakness in the economy and not because there's anything inherently wrong with the company.

And there are several things that could kick-start Apple's growth. Like if the rumors are true that Apple is about to cut an iPhone deal in China, or that it's set to unveil a new family of iPhones, or that it's working on a new device that will be its answer to all those $400 netbooks -- or that the global economy has turned a corner and started to recover.

Meanwhile, the pressure is on COO Tim Cook (standing in for Steve Jobs) and CFO Peter Oppenheimer to report Q2 results that surprise the skeptics, chart a path for growth and offer guidance for Q3 that, while dutifully conservative, reflects a little more confidence in Apple's future.

Apple will report its earnings on Wednesday after the markets close. A conference call with reporters and analysts is scheduled for 5 p.m. ET (2 p.m. PT). Tune in here for live coverage and analysis.
See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Below: more Zaky charts, including operating expenses by quarter and Mac sales by region.

Arrington to Apple: Liar liar pants on fire

2009-08-22T02:58:00.000-07:00

[Originally posted Aug. 22, 2009 on Fortune.com]

"A total lie." "Untrue." "Misleading." "Complete fabrication." "Way beyond misleading."

Those are some of the nicer things Michael Arrington had to say about Apple (AAPL) in his analysis of what he calls "Apple's long rambling letter to the FCC."

Arrington, for those who don't have Techmeme on their morning reading list, is the former securities lawyer and serial entrepreneur who runs TechCrunch, arguably Silicon Valley's most influential tech blog.

The letter he's referring to is Apple's formal response to an inquiry by the Federal Communications Commission into the role AT&T (T) played in Apple's rejection of Google's (GOOG) powerful Google Voice app. See here.

AT&T's answer: we played no role. Google's answer: redacted. Apple's answer: we never rejected the app; we just haven't, for various reasons, approved it yet. (link)

Arrington's response: Apple is lying through its teeth. In particular, he writes:

Apple: “Contrary to published reports, Apple has not rejected the Google Voice application, and continues to study it.”
Reality: One third party Google Voice app developer disclosed to us in July that Apple SVP Phil Schiller told them that Google’s own app would be or already was rejected. Google also confirmed this to us later. There is overwhelming evidence that Apple did in fact reject the application.

Apple: “The application has not been approved because, as submitted for review, it appears to alter the iPhone’s distinctive user experience by replacing the iPhone’s core mobile telephone functionality and Apple user interface with its own user interface for telephone calls, text messaging and voicemail ...”
Reality: This strongly suggests that the Google Voice app replaces much of the core Apple iPhone OS function. This certainly isn’t accurate, and we believe the statement is misleading ...

Apple: “... The Google Voice application replaces Apple’s Visual Voicemail by routing calls through a separate Google Voice telephone number that stores any voicemail, preventing voicemail from being stored on the iPhone, i.e., disabling Apple’s Visual Voicemail.”
Reality: Not true and misleading. The Google Voice application has its own voicemail function, which also transcribes messages. But it only works for incoming Google Voice calls, not calls to the iPhone. The Google Voice app in no way “replaces” Apple’s voicemail function.

Apple: “Similarly, SMS text messages are managed through the Google hub — replacing the iPhone’s text messaging feature.”
Reality: Not true and misleading. The Google Voice app doesn’t replace or in any way interfere with the iPhone’s text messaging feature. If someone sends a text message to your Google Voice number, the Google Voice app shows it. If it is sent directly to the iPhone phone number, nothing is different.

Apple: “In addition, the iPhone user’s entire Contacts database is transferred to Google’s servers, and we have yet to obtain any assurances from Google that this data will only be used in appropriate ways. These factors present several new issues and questions to us that we are still pondering at this time.”
Reality: Complete fabrication, way beyond misleading. The Google Voice app can access the iPhone’s contacts database, like thousands of other iPhone apps. But the Google Voice app never syncs the contacts database to their own servers. There is no option for users to do this ... (link)

Apple has not yet responded to a request for comment.

Arrington it must be said, is not an entirely disinterested party. His company is preparing to market a Web tablet -- the CrunchPad -- that might compete directly with the tablet Apple is rumored to be building. And after enthusiastically embracing Apple's iPhone, he announced in July that he was abandoning it for a BlackBerry Curve that will run Google Voice (see here).

Moreover, Arrington's TechCrunch 50 conference, now in its third year, is scheduled to begin Sept. 14 (tickets cost $2,995 at the door), which gives him even more motivation than usual to make himself the center of attention.

In the end, Arrington believes, Apple will find a face-saving way to accept the Google Voice application. "They have to," he writes. "Any serious investigation into the app by the FCC will show that the complaints around the app are unfounded and that it does none of the things Apple accuses it of doing."

Arrington's colleague Steve Gillmor goes one step further. He writes in TechCrunchIT that the whole Google Voice affair is a Machiavellian plot against -- you guessed it -- AT&T.

"Strip away the religious fervor of the Arrington plan ... and you might glimpse the true reality of what’s going on. Namely, that Apple is conspiring with Google to force the FCC to 'force' Apple to, regrettably, open the door to VoIP and the Universal Inbox."

We won't hold our breath.

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Why Google's CEO had to leave Apple's board

2009-08-09T10:06:00.000-07:00

[Originally posted Aug. 3, 2009 at Fortune.com]

Much has changed since Eric Schmidt joined Apple's (AAPL) board of directors in August 2006, almost three years ago.

Schmidt, the former chief technology officer of Sun Microsystems (JAVA) and now the CEO of Google (GOOG), brought to Apple's board deep expertise in Web search and advertising, a shared distrust of Microsoft (MSFT) and almost no conflicts of interest.

But in the past three years the areas of overlapping interests -- from smartphones to browsers to operating systems -- have grown so great that the Federal Trade Commission in May opened discussions with the two companies about whether Schmidt's presence on Apple's board constituted a violation of the Clayton Antitrust Act. (link)

And on Friday the Federal Communications Commission launched a pointed inquiry into Apple's decision to bar a powerful Google voice mail management program from its iPhone App Store -- an inquiry that put Schmidt and Apple CEO Steve Jobs on opposite sides of a Federal investigation.
Finally Jobs announced on Monday what had come to seem an inevitability: that Schmidt was off the board.

“Eric has been an excellent Board member for Apple, investing his valuable time, talent, passion and wisdom to help make Apple successful,” Jobs said in a prepared statement.

“Unfortunately, as Google enters more of Apple’s core businesses, with Android and now Chrome OS, Eric’s effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest. Therefore, we have mutually decided that now is the right time for Eric to resign his position on Apple’s Board.” (link)

Although pressure on Schmidt to step down had mounted in recent weeks, Schmidt told attendees at a technology conference as recently as July 10 that he saw "no issue" with his remaining on the board. (link)

But Apple's decision to reject Google Voice -- an important application into which Google had sunk a lot of time and money -- may have been the last straw.

"If nothing else," writes TechCrunch's Erick Schoenfeld in Why Schmidt Had to Go, "last Friday's letters from the FCC [were] a wake-up call to Apple that Google stands on the opposite side of the fence when it comes to the evolution of the mobile Web. Google wants the mobile Web to be as open as the Internet. ... Apple is not about being open. It never has been...

"Google wants to diminish the importance of any single computing device in favor of Web apps which sit in the cloud and are accessible from all devices -- mobile phones, Macbooks, Dell laptops, or whatever. As much as is physically possible, it wants to replace the operating system with the Web.

"Ultimately, that is a bigger threat to Apple than Microsoft ever was."

Putting lipstick on Microsoft's pigs

2009-08-06T03:07:00.000-07:00

[Originally posted Aug. 6, 2009 on Fortune.com]

At the end of a long report on the Apple Stores -- and the corner he believes they have turned -- Needham analyst Charles Wolf turned his attention this week to Microsoft (MSFT) and its plans to launch a fleet of company-branded stores of its own, complete with wall-sized digital screens, spaces for free public events and "Guru" bars to deal with customers’ software complaints.

Let's hope Steve Ballmer isn't on Needham's mailing list, because Wolf's two-page description of Microsoft's efforts and its products may be most dismissive ever produced by a Wall Street analyst. He even goes so far as to evoke the old lipstick joke that got Barack Obama in so much trouble with Sarah Palin during the primaries.

"Microsoft has always touted itself as an innovator," Wolf begins in a section entitled The Sincerest Form of Flattery. "But the company’s true genius has stemmed from its ability to copy the ideas of others."

And the company it's most fond of copying, he says, is Apple (AAPL).

"Introduced in 1990, Windows was a rip-off of Apple’s Macintosh operating system. Microsoft introduced the Zune MP3 player in 2005, a rip-off of the iPod Classic. However, the Zune, another instance of a failed copy attempt, has never been able to gain more than a few percentage points of market share compared to the iPod’s 70%-plus market share. Meanwhile, Apple has moved on to the iPhone and iPod Touch.

"Now Microsoft plans to copy the Apple Stores. In our opinion, Microsoft faces major challenges in this regard. It’s easy to copy the floor plan of an Apple Store as well as its fixtures. Leaked slides indicate Microsoft plans to do exactly this ...

"But Microsoft will not find it easy to hire a staff that’s as passionate about the products its sells as the staffs in the Apple Stores. Indeed, given Microsoft’s reputation, it may be nearly impossible."

Apple hired Ron Johnson from Target (TGT) to design its stores under the critical eye of Steve Jobs. Microsoft, Wolf notes, turned to David Porter, a former vice president at Wal-Mart (WMT) -- "a company that has consistently eschewed premium products."

"To convince customers that there’s more to Microsoft than the mostly lackluster me-too products it now sells represents the major challenge of its stores," Wolf continues. "The mantra of the campaign, according to leaked documents, is 'Engage, Educate and Excite.' Microsoft plans to focus on the 'user experience.' But typical Windows users are not interested in this. If they are, they most likely have already switched to a Mac."

To support that last point, Wolf offers the following chart. It shows the ~~exponential~~ growth of former Windows customers now using Macs. Wolf estimates that since 2004, 14 million Windows users have switched to a Mac, equal to more than 75% of the size of the Mac's 2004 user base. Of the 150 million customers who visited Apple Stores in fiscal 2008, he estimates that more than half were Windows users.

: Yellow triangles = installed base of Windows switchers

According to leaked documents, Microsoft's stores plan to focus on six product families — Office, Bing, Windows, msn, the Zune music player and Xbox.

The company, says Wolf, has its work cut out for it in a few of those categories.

"Windows Mobile in its current incarnation," he writes, "is clearly the least user-friendly mobile operating system on the market. How does Microsoft put lipstick on this product? What Microsoft actually needs is a new mobile operating system that can compete with the iPhone OS, Android and BlackBerry. The same type of comments applies to the Zune. It’s a so-what product that’s now two generations behind the iPod."

"In our opinion," Wolf concludes, "Microsoft’s venture into retail is conceptually equivalent to an oxymoron."

And then he closes by quoting John Dvorak: “Now comes the latest fiasco: Microsoft wants to open retail stores, all of them next to or near an Apple store.”

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Goodbye iPod, hello iPhone

2009-08-05T04:19:00.000-07:00

[Originally posted Aug. 5, 2009 on Fortune.com]

Apple passed an important milestone last quarter that nobody on Wall Street seems to have noticed: the iPod, once Apple's (AAPL) No. 1 source of revenue, fell into third place after the Mac (No. 1) and the iPhone (No. 2).

Think of Apple's business model -- as Steve Jobs often does -- as a three-legged stool: Mac, iPod, iPhone. As recently as 2006, the iPod leg accounted for 55.5% of Apple's revenue. By last quarter, its share had shrunk to less than 18%.

But this is a good thing, argues Bullish Cross' Andy Zaky, a day trader and occasional blogger whose estimates of Apple's earnings regularly beat -- by a long shot -- the estimates published by professional analysts.

"Many Apple critics have argued that Apple would essentially fall off the earth because at some point in time the iPod's growth would collapse," says Zaky. "The second part is true. The iPod growth rate has in fact fallen off a cliff as Apple posted its first yearly drop in iPod sales ever in Q3."

"However," he adds, "Apple is still firing on all cylinders thanks to the explosive growth of the iPhone."

To make his point, Zaky has prepared three charts that pretty much say it all.

The first shows in percentage terms how much the iPod has contributed to Apple's revenue stream since 2006 Q1. The spikes represent holiday sales seasons, when iPods are popular gifts, but the downward trend is clear.

The second chart shows the rapid growth of iPhone revenue as reported quarterly using generally accepted accounting principles (GAAP). This caveat is necessary because Apple spreads revenue from iPhone sales over the life of a 2-year contract. If you use non-GAAP numbers, revenue from the iPhone last quarter was considerably higher: $2.9 billion, according to Apple CFO Peter Oppenheimer.

Zaky's third chart puts it all together. It shows the relative height of the three legs in terms of their contribution to Apple's quarterly revenue. As you can see, the iPhone passed the iPod for the first time in 2009 Q3. The Mac, however, is still the largest and most important leg of Apple's three-legged stool.

Zaky predicted all this back in January in a long post that warned (incorrectly, as it turns out) of the "downfall of Apple," in part because the iPhone appeared to be cannibalizing iPod sales.

"The Phone itself has acted as a destructive double-edged sword regarding the appearance of Apple's financial health. On the one hand, the handset market is significantly larger than that of the MP3 market. And so it makes a whole lot of sense for Apple to have entered that market... On the other hand, it would be incredibly naive for one to believe that iPhone sales aren't cannibalizing iPod sales to some degree. While not everyone who is in the market for an iPhone is in the market for an MP3 player, iPhone purchasers who are in both markets have little need to own both an iPod and an iPhone.

"The main problem with the iPhone cannibalizing iPod sales is that it makes iPod unit sales growth appear significantly weaker than it actually is. The iPhone is basically an iPod with a phone. One who decides to buy an iPhone over an iPod touch is essentially buying an iPod. Yet, analysts, traders and the media don't portray it that way. Instead, the financial community tends to view any apparent weakness in iPod unit sales growth as being attributed exclusively to either market saturation or weakness in the consumer.
"Yet, if one were to combine iPod and iPhone sales, he or she would get a drastically different picture regarding iPod unit growth..." (link)

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Report: Foxconn paid iPhone suicide's family $44,000

2009-07-27T16:41:00.000-07:00

[Originally posted July 27, 2009 on Fortune.com]

Much has been written -- especially in China -- about the case of Sun Danyong, the 25-year-old Foxconn employee who jumped to his death from a 12th-story apartment in Shenzhen two weeks ago after being interrogated about a missing next-generation iPhone prototype.

The story cast a harsh light on working conditions at Foxconn -- the brand name of Taiwan-based Hon Hai, one of the world's largest manufacturers of computer components -- and the culture of secrecy that surrounds Apple (AAPL) product development. (Apple issued a statement last week that it was "saddened by the tragic loss of this young employee.")

Monday's New York Times moves the story forward in several new directions -- including Foxconn's claim that products in Sun's charge had gone missing before and a report that the company has tried to make amends by giving Sun's girlfriend an Apple laptop computer and his family 300,000 renminbi, or more than $44,000.

[UPDATE: The Associated Press, quoting an unnamed Foxconn official, reported a higher figure Tuesday: $52,600 to the parents, plus $4,385 per year as long as either of them remains alive.]

The New York Times piece, written by Shanghai-based business reporter David Barboza, summarizes the facts as we know them: that Sun was given 16 prototype iPhones in early July to deliver to R&D but only 15 were received; that he complained to friends that he was beaten and humiliated by the factory's security team (a charge the security guard vehemently denies); and that shortly before he died, on the morning of July 16, Sun sent a text message to his girlfriend that said, in part,

"Dear, I’m sorry. Go back home tomorrow. I ran into some problems. Don’t tell my family. Don’t contact me. I’m begging you for the first time. Please do it! I’m sorry.”

James Lee, general manager of China operations at Foxconn, told the Times that his company had a duty to protect the intellectual property of its clients -- not an easy thing to do in the hotbed of electronics piracy and counterfeiting that is Shenzhen.

Lee also claimed that this was not the first time the company had had problems with Sun Danyong. "Several times he had some products missing, then he got them back," Lee told the Times. "We don’t know who took the product, but it was at his stop."

Report: Foxconn building 'crippled' iPhone for Chinese market

To defend his company against charges of unfair labor practices, Lee granted the Times a rare tour inside two Foxconn campuses, including the one where Sun worked. "The campuses were so large," writes Barboza, "they contained retail stores, banks, post offices and high-rise dormitories with outdoor swimming pools."

But perhaps the most telling section of the story is the part where the Times is interviewing Sun's family, and his older brother, Sun Danxiong, tells the paper about the gift of $44,000 and the Apple laptop for Sun's girlfriend.

"On Thursday, with his son Danxiong standing nearby, holding a box with Sun Danyong’s ashes, the father, Sun Yangdong, said Foxconn had treated the family well. But he said he was still in shock that his son could leap from a building because he was so gentle and tender.

Soon after, a security guard, who was joined by two men wearing Foxconn shirts, threatened to “beat up” a journalist’s translator if she persisted in asking the family questions. Foxconn officials later said the guard was not on their staff and might have been with the police bureau." (link)

According to Evan Osnos, writing for the New Yorker, Sun was an archetypal member of the Shenzhen factory world -- a noticeably quiet young man who grew up in an isolated mountain village and moved to the city shortly after graduating from Harbin Institute of Technology, one of China’s best schools. Profiles of Sun in the Chinese language Southern Daily say his family was poor enough that Sun would erase the old pencil notes from his school notebooks so he could use them again and again.

Osnos quotes from a separate Southern Daily story about Gu Qinming, the security manager who interrogated Sun. Gu says he suspected the employee of lying, but denies having beaten or confined him. He says he merely jabbed Sun in the shoulder, asking, “Are you a man?”, after Sun allegedly blamed a female colleague for the missing phone. Gu, whose name, address and personal details were broadcast in China over the Internet, told Southern Daily that he is unable to return to his home.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple vs. Palm: Fresh shots across the bow

2009-07-24T13:15:00.000-07:00

[Originally posted July 24, 2009 on Fortune.com]

To the delight of an armada of tech writers, Palm (PALM) has responded to the shot Apple (AAPL) fired across its bow last week with a cheeky little blast of its own.

The issue is whether Apple will continue to allow the Pre to sync seamlessly with iTunes, the feature of Palm's whizzy new smartphone that got the most attention in advance of its launch in early June.

Apple unleashed an iTunes software update last week that shut down the feature. It was accompanied by a sharply worded warning that -- uncharacteristically -- named names. The update, it said, had "disabled devices falsely pretending to be iPods, including the Palm Pre."

Palm responded with a quick workaround. In its description of the new features of an operating system update released Thursday, Palm's official blog saved the best -- Steve Jobs-style -- for last:

"Oh, and one more thing: Palm webOS 1.1 re-enables Palm media sync. That’s right — you once again can have seamless access to your music, photos and videos from the current version of iTunes (8.2.1)." (link)

Palm can play this cat-and-mouse game -- the sort that big companies usually engage in with ankle-biting hackers -- because the Pre division is run by former Apple engineers, including the guys who built the original iPod.

But it's not clear how much longer Apple can let it go on. In a lively debate on Investor Village's AAPL Sanity board (free subscription required), participants were of two minds.

Some called for Apple to bring out its legal big guns, as COO Tim Cook has repeatedly threatened to do. "The sync," wrote one investor, "will be crushed in the palm of Apple's quite formidable hand."

Others worried that an infringement lawsuit could make Apple look bad and give the Pre publicity they seem to feel that Palm -- whose sales lag far behind the iPhone's -- can ill afford on its own.
But according to a report to clients issued Friday morning by RBC Capital's Mike Abramsky, the Pre is not doing that badly in the marketplace. Fresh retail checks at 25 Sprint (S) stores, he reports, show that the Palm Pre's momentum "remains robust."

"We estimate Palm has sold 325,000 - 375,000 Pres to date, ahead of our expectations," he writes. "Sprint stores have stock, but inventory continues to be tight (only estimated 2-4 days), given strong sell-through. Stores are receiving shipments every couple of days, indicating manufacturing constraints continue to abate."

Abramsky's research contradicts reports -- repeated in the AAPL Sanity debate -- that the Pre's return rates might be as high as 40%. "Most buyers," he writes, "appear delighted with their new Pre user experience." He estimates returns at 2% - 3%, which he says are in line with average smartphone returns.

Top reasons for Pre returns, according to Abramsky:

personal preference, i.e., Pre/WebOS not their "cup of tea" and/or too much effort to learn a new OS (particularly for older buyers);
other hardware issues (burned out pixels, fit/finish, etc.); and
poor battery life.

Abramsky notes that Apple had similar post-launch quality issues with the iPhone. "Notwithstanding initial glitches," he concludes, "user satisfaction with Pre and WebOS experience appears high, sustaining robust sales and limiting returns in line with averages."

Translation: The Pre will live to fight another day.

Illustration re-posted by permission of Judith Hunt. For more her work see here.

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple's Q3 2009: Analyzing the analysts

2009-07-22T04:19:00.000-07:00

[Originally posted July 22, 2009 on Fortune.com]

Tuesday was not a good day for professional analysts as a class -- and Merrill Lynch's in particular.

Not only were most caught off guard by the strength of Apple's (AAPL) record third-quarter results -- see here -- but the men and women who track the company for banks and brokerage houses were bested once again by a bunch of bloggers, day traders and amateurs analysts.

In the color-coded chart excerpted above -- and pasted in full below the fold -- the estimates that were closest to the mark are highlighted in green and the worst highlighted in red.

The first thing to note is the number of green rectangles at the top, in the amateur's portion of the chart, and the number of reds scattered below, among the pros.

All three of our "unaffiliated" analysts did well. Deagol, a pseudonymous indie who has developed almost a cult following on the Apple investor boards, came closest on the big $8.34 billion revenue number. Andy Zaky, a day-trader who writes the Bullish Cross blog, was within a penny on EPS and on the money for the number of iPhones sold -- along with several of the analysts he berates as "clueless."

But the prize this year goes to Financial Alchemist's Turley Muller, a former mortgage trading analyst who is currently unemployed and has plenty of time on his hands to create complex spreadsheets that model company performances.

Over the previous three quarters, Muller missed Apple's earnings per share number by 4 cents, 2 cents and then a penny. This quarter he hit Apple's $1.35 EPS right on the nose to score the first of his four greens.

Turley Muller on how to predict Apple's gross margins

The other three came for correctly predicting iPhone unit sales (5.2 million) and making the best estimate of both Apple's non-GAAP revenue ($9.78 billion) and non-GAAP earnings per share ($2.14), pro-forma numbers that take into account deferred revenue and costs on sales of iPhones and Apple TVs.

(GAAP stands for generally accepted accounting principles, something Apple must follow in order to comply with SEC regulations. They provide non-GAAP numbers to give analysts a better feel for what's really going on in their accounting books.)

Spotlight on Apple’s hidden revenue stream

Among the pros, Piper Jaffray's Gene Munster was a bit of a puzzle. A favorite among Apple bulls for his enthusiastic support of the company, he took at face value Apple's gross margin guidance -- even though he regularly warns clients that Apple always guides conservatively -- and missed the earnings number by a full 32 cents a share. He's particularly good at counting iPod sales, however, and his estimate came within 30,000 units of the number Apple reported (10.2 million).

Otherwise there is not much to praise in the work of the professional analysts. Several came within 100,000 units on the Mac sales number (2.6 million units) -- but in the case of Morgan Stanley's Katy Huberty and Bernstein Research's Toni Sacconaghi that was only because they revised their estimates after Monday afternoon, when NPD reported surprisingly strong June Mac sales.

MacBooks flew off the shelves in June

Broadpoint.AmTech's Brian Marshall, inexplicably, estimated highest on iPod unit sales and lowest on Macs and was proved wrong on both counts.

But the booby prize this quarter goes to Merrill Lynch's Scott Craig, who scored a record four reds, missing Apple's GAAP revenue by $380 million and its non-GAAP revenue by nearly $1 billion. Two of his bad calls, surprisingly, came in categories he correctly predicted in January: iPhone sales and non-GAAP revenue.

In Craig's defense, he published his estimates six weeks ago, on June 8, before the launch of the iPhone and the flood of MacBook sales triggered by Apple's price cuts. He did issue a report to clients Monday after the NPD data came out noting that Mac sales seemed to have grown 5% for the quarter, as opposed to the -7% his model predicted. But he never got around to publishing revised estimates before the actual results were released.

Better luck next time.

UPDATE: With bit of 20-20 hindsight, a bunch of banks and brockerages raised their Apple price targets on Wednesday, including Morgan Stanley, Kaufman Bros., Caris & Co., UBS, Pacific Crest, AmTech, BMO Capital, Susquehanna Financial and FTN Equity Capital. Tiernan Ray has a rundown of the upgrades, with price targets, at Barron's Tech Trader Daily.

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

IT on the iPhone: 'Use at your own cost and peril'

2009-07-12T04:13:00.000-07:00

[Originally posted July 12, 2009 on Fortune.com]

Ever wondered why your company will support Research in Motion's (RIMM) BlackBerry but not the iPhone? Does it seem like the corporate deck is stacked against Apple (AAPL)?

A conference call with four chief information officers organized by Morgan Stanley's Kathryn Huberty last week might have confirmed your worst fears.

Of the four guests, only one -- the CIO of a multi-billion dollar company who runs a Mac shop for the "creatives" who work there -- actively supports the iPhone.

The other three dismissed the device with varying degrees of curiosity and contempt.

"[Our company] doesn't explicitly prevent employees from using the iPhone," said one veteren CIO. "But we don’t support it through the help desk. So if there’s a problem we won’t help them with the issue."

"Frankly," added a second, "some management in our organization think it’s more of a toy/gimmick thing because of the way it's marketed."

The third summed up the posture of his department as "Use [it] at your own cost and peril."

What, exactly did these IT professionals see as the iPhone's shortcomings?

The most detailed answer came from Timothy Campos, the former CIO of KLA-Tencor (KLAC), a leading supplier of semiconductor yield enhancement equipment based in Milpitas, Calif.:

"Apple is way behind BlackBerry in terms of centralized management of these devices," he said. "They’re starting to catch up, but in terms of being able to control and manage what is on the device, to configure the device, to do remote provisioning of the device, to make sure the device works -- we can do that for the BlackBerry; we can’t do that for the iPhone.

"It’s a solvable problem, but there’s no business case -- at least in our industry -- for solving that problem. And so do we don’t do it.

"What's interesting about the iPhone is [that] the capability of the device is tremendous," he added. "We're looking closely at it. There are a lot of people in IT who play around with it. So I wouldn’t say we have our heads in the sand. And as Apple catches up on the centralized management issues, it's not out of the realm of possibility that we would replace BlackBerrys with iPhones, or add iPhones to the mix."

That sentiment got dittos across the board. But in the current economic climate -- which has put constraints on IT spending at all four companies -- these managers are not looking to complicate their lives.

"We might have taken it on if it weren't for the downturn," said the managing director of IT at a ceramics manufacturing company that already supports two mobile platforms -- BlackBerry and Palm. His department was thinking of adding the iPhone to the mix. But "that was one of the projects we didn’t need to take on," he said.

Apple can take comfort in the fact that IT's resistance to change is generalized and not restricted to the iPhone. Three of these four shops are still running Microsoft's (MSFT) Windows XP -- with no plans to move up to either Vista or Windows 7.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Why Google's CEO had to leave Apple's board

2009-07-03T08:04:00.000-07:00

[Originally posted Aug. 3, 2009 on Fortune.com]

Much has changed since Eric Schmidt joined Apple's (AAPL) board of directors in August 2006, almost three years ago.

Schmidt, the former chief technology officer of Sun Microsystems (JAVA) and now the CEO of Google (GOOG), brought to Apple's board deep expertise in Web search and advertising, a shared distrust of Microsoft (MSFT) and almost no conflicts of interest.

But in the past three years the areas of overlapping interests -- from smartphones to browsers to operating systems -- have grown so great that the Federal Trade Commission in May opened discussions with the two companies about whether Schmidt's presence on Apple's board constituted a violation of the Clayton Antitrust Act. (link)

And on Friday the Federal Communications Commission launched a pointed inquiry into Apple's decision to bar a powerful Google voice mail management program from its iPhone App Store -- an inquiry that put Schmidt and Apple CEO Steve Jobs on opposite sides of a Federal investigation.
Finally Jobs announced on Monday what had come to seem an inevitability: that Schmidt was off the board.

“Eric has been an excellent Board member for Apple, investing his valuable time, talent, passion and wisdom to help make Apple successful,” Jobs said in a prepared statement. “Unfortunately, as Google enters more of Apple’s core businesses, with Android and now Chrome OS, Eric’s effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest. Therefore, we have mutually decided that now is the right time for Eric to resign his position on Apple’s Board.” (link)

"Google wants to diminish the importance of any single computing device in favor of Web apps which sit in the cloud and are accessible from all devices -- mobile phones, Macbooks, Dell laptops, or whatever. As much as is physically possible, it wants to replace the operating system with the Web.

"Ultimately, that is a bigger threat to Apple than Microsoft ever was."

Antitrust inquiry: How Apple and Google compete

2009-05-05T08:10:00.000-07:00

[Originally posted May 5, 2009 on Fortune.com]

Given the looming presence of Microsoft (MSFT) on the PC desktop, we tend to think of Apple (AAPL) and Google (GOOG) as corporate best friends united by a common enemy.

But the news Monday night that the U.S. government has opened an inquiry into the two companies' "interlocking directorates" under the Clayton Antitrust Act has prompted a fresh look at the extent to which Apple and Google are, in fact, competitors.

We assume, by the way, that the red flag that caught the attention of the Federal Trade Commission is Google CEO Eric Schmidt's seat on Apple's board, since the only other overlap is Arthur Levinson, former chief executive of Genentech (DNA), a gene-splicing company.

Schmidt is known to recuse himself from Apple board meetings when the iPhone is discussed. That makes sense. It wouldn't be fair for Google's team Android to get inside information about Apple's plans for future mobile devices.

But does Schmidt leave the room when Safari comes up? Or iTunes? Or MobileMe?

When you start to look at the hundreds of software products Apple and Google make -- especially on the Web -- things quickly get pretty complicated. Here's a partial list of the areas in which we know Apple and Google compete:

Smartphone operating systems: iPhone vs. Android
Web browsers: Safari vs. Chrome
Music and video: iTunes vs. YouTube
Cloud computing: MobileMe vs. iGoogle
e-mail services: Mail vs. Gmail
Address lists: Address Book vs. Contacts
Calendars: iCal vs. Google Calendar
Chat: iChat vs. Google Talk
Photos: iPhoto vs. Picasa
File storage: iDisk vs. Google Docs

There could be many more. If you spot any we've missed, put them in the comment stream and we'll add them here.

By the way, according to the New York Times, which broke this story, interlocking directorates rarely lead to major confrontations between companies and the government. It's easier just to ask the director or directors in question to resign from one board or the other.

Arthur Levinson's seats are probably safe.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple's Q2: Analyzing the Analysts

2009-04-23T08:52:00.000-07:00

[Originally posted April 23, 2009 on Fortune.com]

No analyst we know of correctly predicted Apple's (AAPL) second fiscal quarter results for 2009, in which the company proved that computer makers don't have to slash prices or build "junky" $400 netbooks to weather an economic storm. But some analysts did better than others.

Who did best?

Let's look at the numbers. The table below represents the estimates of all the Wall Street analysts whose numbers we could get our hands on, as well as those of three of the most prominent blogger analysts. (We could have included lots more bloggers; everybody these days seems to have an Apple earnings spreadsheet in their hard drive.)

In our chart, the actual results and the most accurate estimates are highlighted in green. The worst estimates are highlighted in red. There were several ties.

The professionals and the bloggers scored roughly the same -- which in itself tells you something. As usual, the bloggers were more bullish than the pros, but this quarter Apple's actual results in most categories blew past even the most optimistic of the bulls.

It will pain some readers to hear this, given his bottom-of-the-barrel target for Apple's shares ($95), but the blue ribbon goes once again to Mike Abramsky of RBC Capital, usually considered a Research in Motion (RIMM) bull and an Apple bear. He scored two greens and no reds this quarter. (Last quarter, when his price target was $70, he beat the field with three greens.) [UPDATE: CNBC's Jim Goldman reports that Abramsky reversed himself after that earnings report and has now slapped a $165 per share target on Apple.]

Tied for second place are Piper Jaffray's Gene Munster and Financial Alchemist's Turley Muller, with two greens and one red apiece. Muller gets the edge in our book because he hit so close and Munster missed so badly -- and inexplicably -- on Apple's earnings per share.

Yair Reiner gets special mention for having nailed that surprising high iPhone unit sales number (3.8 million).

In the department of strange bedfellows, Andy Zaky of Bullish Cross -- who never tires of berating the professional analysts for misunderstanding Apple, and has often singled out Morgan Stanley's Kathryn Huberty for special opprobrium -- ended up tied with Huberty in the iPod division, missing the actual number by nearly 500,000 units, but coming closer than anyone else in our chart.

And we can't close without pointing out that among very worst predictions for the quarter were those offered by Apple COO Peter Oppenheimer, whose guidance numbers missed actual revenue by $360 million and EPS by $0.33 to $0.43 a share. Talk about conservative guidance!

For those readers who submitted estimates that I didn't include here, you know who you are. Feel free to reiterate them in the comments.

Apple's detailed earnings results are available in its press release. An audio webcast of the earnings call with analysts is available here and Seeking Alpha has published a transcript.

Barron's Eric Savitz has published a round-up of analyst reactions to the earnings report -- including Abramsky's upgrade -- here.

See also:

Bearish grunts from a pair of Apple bulls

2009-04-21T04:33:00.000-07:00

[Originally posted April 21, 2009 on Fortune.com]

You know Apple (AAPL) is in for a bumpy quarter when both Gene Munster and Andy Zaky sound bearish notes in advance of the company's fiscal Q2 earnings report -- due out Wednesday after the markets close.

Munster, a senior research analyst at Piper Jaffray, is one of Apple's strongest supporters among the mainstream analysts. And Zaky, who writes a blog called Bullish Cross, is best known for his quarterly analyst smackdowns, in which bloggers who follow the stock challenge the pros to do a better job than they at predicting Apple's numbers.

Neither man has turned negative on Apple. Munster retains his "buy" rating and is sticking to his price target of $180 a share -- one of the highest in the industry. And Zaky, while acknowledging that the Street's consensus estimates for Q2 -- earnings of $1.09 a share on revenue of $7.94 billion -- are "more fairly stated" than they've been in recent quarters, still expects Apple to beat them.

Munster, however, issued a report to clients Tuesday in which he predicts that Apple will miss the Street's consensus on both revenue (by a hair) and earnings (by a mile). See chart:

And while Zaky believes the Street is still too cautious, he has become uncharacteristically pessimistic about Apple's near-term prospects.

"Bullish Cross is readjusting its outlook on Apple to a view that is more commensurate with the increasingly bleak economic environment," he wrote in a post published Monday on Seeking Alpha. "Given the relatively high lack of transparency with regard to iPhone and Macintosh sales going forward, Bullish Cross holds an increasingly cautious view with regard to Apple's fundamentals and earnings estimates in 2009."

Given that Munster expects Apple to meet or beat the consensus on Mac, iPhone and iPod sales, it's hard to understand at first glance why his earnings estimate is so low -- $.98 per share vs. the Street's $1.09 and Zaky's $1.19. But in Tuesday's report he explains that he calculated that $.98 using the guidance on gross margins that Apple issued in January (32.5%). Using the gross margins Apple enjoyed in Q1 (34.7%) his EPS estimate jumps to $1.11.

Given how easily Zaky expects Apple to beat the consensus on revenue and EPS -- and how loudly he has railed in the past at analysts too "clueless" to follow Apple's iPhone accounting -- he is surprisingly toned-down this quarter. He has even canceled his quarterly smackdown.

His new "agnostic" attitude toward Apple may have something to do with the fact that Wall Street seems to have come around to his view of the company, driving Apple's shares up 24% in the past month. It may also have something to do with the disclosure at the end of his post:

Disclosure: No Position in Apple.

It turns out that Zaky, who has been heavily invested in Apple all this time, has sold his shares.
Apple's quarterly earnings call is scheduled for Wednesday, April 22, at 5 p.m. ET (2 p.m. PT). Tune in here for live coverage and analysis.

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

All about Microsoft's "Lauren"

2009-03-31T11:34:00.000-07:00

[Originally posted March 31, 2009 on Fortune.com.]

Her hair is red, her eyes dark brown, her physique slim. She stands 5'2" in her stocking feet and weighs 113 lbs. in her birthday suit.

Her name is Lauren De Long, and she set a million geek hearts aflutter with her spunky performance in the now famous "you find it, you keep it" PC ad, in which she chose an HP (HPQ) Pavilion running Microsoft (MSFT) Windows Vista Home Edition over any computer in the Apple (AAPL) store.

She also set off Apple 2.0's hottest flame war — 402 comments and counting — with the line "I'm just not cool enough to be a Mac person." (See How Microsoft put Apple owners on the defensive.)

She was supposed to be an ordinary American who answered a Craigslist ad for a market-and-research job and to her surprise found herself starring in a multi-million dollar Microsoft advertising campaign.

But a little inspired sleuthing by the wife of a Seattle-based investigative reporter turned up her film and television credits, her Now Casting bio and resume, her IMDB listing, her MySpace photo gallery and her official website.

Before donning dorky glasses and a green scarf to go laptop shopping with Steve Ballmer's money, De Long played a feed store clerk in a 2001 TV movie called The Retrievers, Darla in a 2003 film called American Grace, Grace in The Answer Yes (2006), head nurse in This Hollow Sacrament (2006), Samantha in 99 Pieces (2007), jacuzzi girl in 7eventy 5ive (2007), Molly in Ladybugs (2007) and Emmy Kyle in Hatched (2008).

She "provides the terror hottie mojo" in 99 Pieces, according to TerrorHotties.com. (link)
Her next gig, according to Todd Bishop's Microsoft Blog, is a 7-Eleven ad. "This is the perfect shoot for me," she says, "because I LOVE junk food."

She has also been booked to play Jessica in Humdrummer, a feature film. And in Zig Zag, a short pitched for the film festivals, she plays Amy, a "sexy and passionate criminal who's double-crossing ways backfire on her."

A few more things about Lauren: She loves to eat. She has a puppy named Bruce. She enjoys dark chocolate and a good glass of port. She loves the winter because she gets to stay inside by a fire. She prefers walking to running. She loves the lake and laying out in the sun. One of her favorite things to do is host a great party. She is awesome at the BBQ. She enjoys deep conversations and good debates. She is stubborn as hell but quick to apologize if she is wrong. She is a romantic. She hopes that someday she will be as accomplished as her mom. She has six brothers and no sisters. She still sleeps with her Teddy Bear. And holding a baby always tears her up. (link)

For more headshots and stills, click here.

Photo © 2009 Greg Nystrom. Posted with permission.

[Follow Philip Elmer-DeWitt on Twitter @ philiped]

Below: the ad that made her Internet-famous.

Apple vs. Palm: Geeks with grudges

2009-02-26T08:15:00.000-08:00

[Originally posted Jan. 26, 2009 on Fortune.com]

The bad blood between Apple (AAPL) and Palm (PALM) that bubbled to the surface last week has a history that long predates Palm's launch of the Pre, a smartphone that flatters Apple more sincerely than any of the other iPhone imitators.

When asked at Apple's earnings call last Wednesday how the iPhone was going to going to stay ahead of competitors nipping at its heels, you could hear the heat in acting CEO Tim Cook's answer.

"We think competition is good. It makes us all better. And we are ready to suit up and go against anyone.

"However," he added, his voice rising, "we will not stand for having our IP [intellectual property] ripped off, and we'll use whatever weapons that we have at our disposal. I don't know that I can be clearer than that." (link)

Palm was quick to respond to what it perceived as a shot across its bow.
"If faced with legal action," a spokesperson told Digital Daily, "we are confident that we have the tools necessary to defend ourselves."

But the bad blood between Palm and Apple goes deeper than a patent dispute, as my colleague Brent Schlender presciently pointed out when the venture capitalists at Elevation Partners made their first big investment in Palm -- a $325 million cash infusion just a few weeks before the iPhone hit the market.

In a column written at the time of the loan, Schlender noted that both the giver -- Elevation partner Fred Anderson -- and the receiver -- Palm executive chairman Jon Rubenstein -- had long, complex relationships with Apple.

Anderson, who was Apple's CFO from 1996 to 2004, before he became a venture capitalist, had just reached a settlement with the SEC over his alleged role in backdating Apple stock options -- including hundreds of millions of dollars worth for Steve Jobs. At the time of his settlement, Schlender reminds us, Anderson "denied any wrongdoing, paid a fine, and issued a vaguely antagonistic statement disputing Jobs’s account of the options backdating. Clearly Anderson felt he had been thrown under the train."

Rubenstein's relationship with Jobs is even older and more complex. It dates back to 1990, when Jobs asked him to run hardware engineering at NeXT. Rubinstein came to Apple with Jobs' return in 1997 and played a key role in developing some of the revitilized company's most profitable products. As Schlender tells it:

"Rubinstein ... who was instrumental in developing the iMac, the PowerBook, the Power Macintosh, and the iPod, retired quietly a little over a year ago, on April Fools Day, 2006 — the 30th birthhday of Apple. Interestingly, about six months before that, he gave a rare interview to the Berliner Zeitung in which he threw water on the idea of converging a cellphone and an iPod media player into a single device — basically what is now the iPhone. “Is there a toaster that also knows how to brew coffee?” he asked. 'There is no such combined device, because it would not make anything better than an individual toaster or coffee machine,' Rubinstein argued. 'It works the same way with the iPod, the digital camera or mobile phone: it is important to have specialized devices.'

"Strange words, considering that Apple’s iPod group was already working on what would become the iPhone. Stranger still, when you look back and see that Apple publicly announced Rubinstein’s upcoming 'retirement' less than three weeks after that interview. I think you can safely surmise that Ruby, who had been with Jobs for more than 15 years at both NeXT and Apple, wasn’t on the same page with his boss." (link)

At the unveiling of the Pre at the Consumer Electronics Show three weeks ago, Rubinstein introduced the device by first talking about how he retreated with his family to Mexico after he left Apple to lick his wounds -- a surprisingly personal way to launch a new cellphone. (You can watch him here in the Palm-supplied video that shows us more of Rubinstein than we ever saw in his years at Apple.)

Once at Palm, it didn't take Rubinstein long to start raiding his former employer for engineering and marketing talent -- including senior vice president for product development Mike Bell (a 16-year Apple veteran), director of software Chris McKillop (of the iPhone and iPod team), and spokesperson Lynn Fox (out of Apple PR).

So did Palm, in fact, rip off Apple's intellectual property? Patent attorneys could be arguing that question for years to come. Meanwhile, Palm partisans have begun laying the groundwork for their defense, leaking to reporters a white paper prepared by Microsoft's Bill Buxton that traces the history of multi-touch back to IBM's Type and N-key Rollover. (link)

Meanwhile, the exuberance with which the tech press initially greeted the Pre (it won Best in Show and rave reviews, for example here and here) is being tempered by the sour reaction of Apple partisans. Perhaps the sourest of the lot is Daniel Eran Dilger's long screed in Roughly Drafted Magazine, in which he repeatedly refers the still-unreleased Pre as a "demo" and compares it to a "bald man's combover." (See The Emperor's New Phone.)

The Pre is scheduled to go on sale in the first half of 2009. A price point has not been announced, although outsiders have speculated that it will be somewhere between $249 and $399. The iPhone retails for $199 (8GB) and $299 (16GB).

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple awarded iPhone patent

2009-01-27T15:13:00.000-08:00

[Originally posted Jan. 27, 2009 on Fortune.com]

Tim Cook must have known.

One day before Apple's acting CEO told Wall Street analysts that his company would not stand for having its intellectual property "ripped off" -- a remark clearly aimed at certain iPhone-like features of the Palm Pre -- the U.S. Patent Office awarded Apple Patent No. No. 7479949.

This 358-page document, originally filed on Sept. 5, 2007, is the mother of all iPhone patents. Signed by 21 Apple (AAPL) employees -- starting with Jobs, Steven P. and Forestall, Scott -- it covers everything from the way a finger or fingers touch the screen to the heuristics that turn those touches into commands.
Other smartphones introduced since the iPhone came out have avoided using the multi-touch technology covered by this patent. The Palm Pre may have crossed the line. See Apple vs. Palm: Geeks with grudges.

Patents in the United States are enforced through civil lawsuits in Federal court. The patent holder will typically ask for monetary compensation and an injunction prohibiting further violations.

In order to prove infringement, the patent owner must establish that the accused infringer practices all of the requirements of at least one of the claims of the patent. The accused infringer has the right to challenge the validity of that patent, something Palm has already suggested it plans to do.

“If faced with legal action,” a Palm spokesperson said last week, “we are confident that we have the tools necessary to defend ourselves.”

Palm (PALM) shares were down more than 10% in mid-morning trading, but had made back half those losses by mid-afternoon.

Kudos to Alex Brooks of World of Apple for spotting the news.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

IBM settles; Papermaster to join Apple in April

2009-01-27T03:34:00.000-08:00

[Originally posted Jan. 27, 2009 on Fortune.com]

In the end, they split it down the middle.

On Tuesday, International Business Machines (IBM) announced that it has resolved the lawsuit against a newly appointed senior vice president at Apple Inc. (AAPL) that was, for a brief moment last November, the hottest story in technology -- a bi-coastal drama that pitted one of the world’s largest and most established computer companies against one of the brashest.

The case involved Steve Jobs' decision to hire Mark Papermaster, a 25-year IBM veteran, to replace Tony Fadell as head of the iPod/iPhone division. (Fadell, once considered a rising star in Cupertino, was said to be stepping down to devote more time to his family, according to Apple's press release.)

IBM complained loudly and litigiously, arguing in a 10-page complaint filed last October that Papermaster was "in the possession of significant and highly-confidential IBM trade secrets and know-how" -- secrets he was now in a position to deliver to a major competitor. The case rested on a noncompete agreement that Papermaster signed in 2006.

IBM management seemed to believe that the iPod division job Papermaster had been given was a subterfuge -- a "placeholder," as PBS columnist Robert Cringely put it, until the noncompete year was up and Papermaster could take the job for which Cringely and others believed he was really hired: “to lead Apple’s PA Semi acquisition and create a new family of scalable processors optimized for Snow Leopard and beyond." (link)

Papermaster's lawyers argued that Apple and IBM were in totally different businesses and besides, noncompete agreements are not enforceable in Texas (where Papermaster worked for 17 years) or California (where Apple is headquartered).

On Nov. 7, a U.S. district court judge granted IBM a preliminary injunction, ordering Papermaster to "immediately cease his employment with Apple Inc."

A week later, Papermaster's lawyers filed their counterclaims. Two days after that, the judge ordered IBM to put up a $3 million bond to guarantee payment of any costs or damages, should it turn out that the injunction should not have been issued.

Things got very quiet after that.

Then, on Tuesday, IBM issued a statement that reads, in part:

"IBM and Mr. Papermaster have now agreed on a resolution of the lawsuit under which Mr. Papermaster may not begin employment with Apple until April 24, 2009, six months after leaving IBM, and will remain subject thereafter to all of his contractual and other legal duties to IBM, including the obligation not to use or disclose IBM’s confidential information. Following commencement of his employment with Apple, Mr. Papermaster will be required to certify, in July 2009 and again in October 2009, that he has complied with his legal obligations not to use or disclose IBM’s confidential or proprietary information. The preliminary injunction will be replaced by a court order under which the Court will have continuing jurisdiction over this matter, including compliance enforcement powers, until October 24, 2009, one year after Mr. Papermaster’s departure from IBM."

So Papermaster had to wait six months, not 12, before he could take the job at Apple, and he has to promise to the court that he will abide by his noncompete.

Apple's press release says only that "litigation between IBM and Mark Papermaster has been resolved," and adds that Papermaster will be reporting to Steve Jobs on April 24.

Case closed.

Here's the link to the consent order and stipulation of "dismissal with prejudice," that the two parties worked out on Jan. 24.

See also:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Steve Jobs, chained to a rock

2009-01-18T11:09:00.000-08:00

[Originally posted January 18, 2009 on Fortune.com.]

He was a Titan who stole fire from the gods and gave to mankind the tool that allowed mortals to rise above the beasts. For his sins, Jupiter had him chained to a rock on Mount Caucasus. Every day a vulture feasted on his liver, which grew back overnight.

Steve Jobs, who announced on Wednesday that he is taking a medical leave to focus on his health, must feel something like poor Prometheus, chained to his rock in the hills above Palo Alto. The vultures this week are an ever-expanding team of reporters from Bloomberg News -- and whoever is feeding them medical updates.

On Thursday, Bloomberg reporters Connie Guglielmo, Rochelle Garner and Jason Gale wrote that Jobs could be facing surgery to remove what's left of his pancreas, quoting a doctor in Australia who hasn’t treated Jobs and doesn’t know details of his condition. (link)

On Friday, Guglielmo, joined this time by John Lauerman and Dina Bass, reported that Jobs is considering a liver transplant. This time they cite "people who are monitoring his illness" and quote a doctor in Savannah, Georgia, who hasn’t treated Jobs and doesn’t know details of his condition. (link)

Not content to feed on his liver, team Bloomberg called Apple's (AAPL) CEO and somehow managed to get through. They wrote:

"In a telephone interview today, Jobs said he won’t comment further on his health.

'Why don’t you guys leave me alone -- why is this important?' Jobs said." (link)

Asked to explain how she could say what medical procedures Jobs was or wasn't considering, Guglielmo referred us to a publicist, who would say only that Bloomberg News stands by its story.

- - -

Image Photoshopped with apologies to Elsie Russell.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

The last time Tim Cook ran Apple

2009-01-15T03:49:00.000-08:00

[Originally posted Jan. 15, 2009 on Fortune.com]

Apple (AAPL) shares dropped 7.56% to $78.88 in after-hours trading in New York on news Wednesday that COO Tim Cook was taking over day-to-day operations -- a $6.7 billion hit on Apple's market capitalization.
This is not the first time Cook has stepped in while Steve Jobs dealt with a serious medical condition.

Cook ran the shop for a month in 2004 while Jobs recovered from surgery that removed a malignant tumor from his pancreas (see here). The stock fell then too -- down 2.3% on Aug. 2, 2004, the day after Apple announced the news -- a loss that widened to nearly 8% by week's end.

But by Sept. 1, 2004 the stock had not only recovered, but gained 10.9% on its July 30 price -- closing at what now seems an impossibly low $35.86.

Some of that bump may be attributed to investor relief that Jobs was due back at the helm. But whether or not Jobs returns from his latest medical leave, the fact is that Tim Cook has been running day-to-day operations at Apple for some time, as Adam Lashinsky's long profile in Fortune makes clear. (See The genius behind Steve.)

In July 2004, two weeks before Jobs' operation, Apple reported earnings of $61 million on sales of $2.014 billion and was holding just under $5 billion in cash.

In its last quarterly statement, Apple reported earnings of $1.14 billion on sales of $7.9 billion, with nearly $25 billion in cash.

In other words, it's the same company, only four or five times bigger.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Jan. 1984: How critics reviewed the Mac

2009-01-12T09:40:00.000-08:00

[Originally posted Jan. 12, 2009 on Fortune.com]

Anticipating the 25th anniversary of the Macintosh -- unveiled by Apple (AAPL) in a Super Bowl ad on Jan. 22, 1984 -- AAPLinvestors has assembled some choice quotes from the first wave of critical reviews.

Below, a sample from their collection, to which we've added a few of our own (from Owen W. Linzmayer's Apple Confidential 2.0).

Byte, Gregg Williams, February 1984
The Macintosh brings us one step closer to the ideal of computer as appliance.

Creative Computing, John Anderson, July 1984
In its current form, the Macintosh is the distilled embodiment of a promise: the software can be intuitively easy to use, while remaining just as powerful as anything else around. It is now time to lay out the “bads”:

• The Macintosh does not have enough RAM.
• Single microfloppy is slow and inadequate.
• There are no internal expansion slots or external expansion buses.
• MacWrite has some severe limitations.
• The system is monochrome only.
• MS-DOS compatibility is ruled out.
• The Macintosh will not multitask.
• You can’t use a Mac away from a desk.
• MacPaint has an easel size limitation.
• Forget about external video.
• Macintosh software development is an involved process.

Bill Gates
Anybody who could write a good application on a 128K Mac deserves a medal.

InfoWorld, Thomas Neudecker, 26 March 1984
We think Apple has at least one thing right -- the Macintosh is the one machine with the potential to challenge IBM’s hold on the market

The Seybold Report, Jonathan and Andrew Seybold
Apple also got some important things wrong. Our biggest worry is that Mac may be under-configured... But the dumbest thing Apple did with the whole development effort was to allow two different operating systems for Mac and Lisa.

San Francisco Examiner, John C. Dvorak, 19 Feb. 1984
The Macintosh uses an experimental pointing device called a "mouse." There is no evidence that people want to use these things.

David Bunnell, Macworld, from The Macintosh Reader
Borland founder Philippe Kahn was half right in January 1985 when he called the early Macintosh a "piece of s___." It was underpowered, had very little software, no hard drive, no compelling applications like desktop publishing, and was marketed by a company that seemed to be near death. I can't help but be amused by all the pumped-up bravado I hear and read about the people who created the Macintosh. To hold up the Macintosh experience as an example of how to create a great product, launch an industry, or spark a revolution is a cruel joke.

Click here to see APPLinvestor's full collection.

Below the fold: That 1984 Super Bowl commercial with the "Big Brother" theme.

See also:

25th anniversary video: Steve Jobs unveils the Mac

Why investors are better off without Macworld

2008-12-18T07:31:00.000-08:00

[Originally posted Dec. 18, 2008 on Fortune.com]

Apple (AAPL) may have dropped nearly 7% on the news that Steve Jobs is blowing off Macworld, but according to Bullish Cross' Andy Zaky, investors should be happy he did.

In an unpublished analysis of the company's last four major press events -- starting with Macworld 2008 and ending with October's Spotlight on Notebooks -- Zaky documents a pattern that's become increasingly self-destructive.

"All of Apple's media events," he writes, "are met with crazy rumor mongering, irrationally exuberant speculation and undue rants about Steve Jobs' health."

The result is that almost every Apple extravaganza since Macworld 2007 -- no matter what news comes out of it -- has triggered a massive sell-off of Apple stock.

Take, for example, the effect on the share price of the last four press events:

The nearly 11% drop last June is probably the most shocking, given the rave reviews, the huge lines and the sales the iPhone 3G has continued to rack up.

The release of the new iPhone -- like nearly every Apple event this year -- was billed by traders as "buy on the rumor, sell on the news." Instead, says Zaky, they've been selling on the rumor AND on the news.

If that's how Wall Street is going to react to these things, why bother having them?

Not that Zaky is suggesting that Wall Street figured into Steve Jobs' Macworld decision, one way or the other. "Personally," he says, "I think Apple cares less about its shareholders than almost any other company out there."

What he is suggesting is that the event-marketing strategies Steve Jobs uses to draw attention to his products may work for him, but they aren't working any more for his investors.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Behind Steve Jobs' Macworld exit

2008-12-17T04:58:00.000-08:00

[Originally posted Dec. 17, 2008 on Fortune.com]

Truth is, nobody outside Steve Jobs' inner circle knows why Apple's CEO won't be giving his annual Macworld keynote this year.

The news broke Tuesday afternoon, and by dawn Wednesday just about every reporter who follows the company had filed a story. Techmeme's news aggregator listed 104. Google News had 779.

I haven't read them all, but I've read enough to know that nobody has talked to Jobs or been given the inside dope.

On its face, Apple's press release makes a plausible case for why Macworld 2009 will be its last. Apple (AAPL) has cheaper and more effective venues for reaching its audience -- on its own terms and its own schedule.

But to get a feel for how far Apple's four-paragraph release is from the real story, contrast it with John Gruber's 2002 Daring Fireball report the last time Apple called IDG World Expo's bluff. (Killer quote from IDG chief Charlie Greco, apparently thinking Jobs needed IDG's expo more than the expo needed Jobs: "You know how badly they want to do San Francisco," [Greco] said. "We don’t have to let them.")

But even if you accept Apple's reasoning for abandoning Macworld, that doesn't explain why Jobs isn't giving the valedictory keynote. Or why he waited until three weeks before the event to spring the news of his absence and his keynote stand-in Senior VP Phil Schiller -- too late for the thousands of Apple enthusiasts making the pilgrimage to San Francisco to get their money back.

Apple must have known that the sudden switch would rekindle speculation about Jobs' health. (See here for background.)

Asked by Time Magazine's Josh Quittner if Jobs canceled because of illness, Apple PR chief Steve Dowling said, "Phil is giving the keynote because this is Apple's last year in the show, and it doesn't make sense for us to make a major investment in a trade show we will no longer be attending." (link)

What "major investment" is he talking about? Apple has already rented the space in Moscone West, and Jobs gets paid whether he speaks or not.

CNBC's Jim Goldman thinks he got the inside scoop. "I can tell you that sources inside the company tell me that Jobs' decision was more about politics than his pancreas," he wrote.

But Goldman's sources also told him that if Jobs was ever unable to perform any of his responsibilities as CEO because of health reasons, he should "rest assured that the board would let me know." (link)

Goldman is a good reporter, but he's not the first to make the mistake of believing that Jobs or Apple's board puts any journalist's interests ahead of its own.

Steve Jobs may someday tell us what's really going on. But he'll do it in on his own terms, and in a venue of his choosing.

One thing we know for sure: it won't be Macworld.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Video: Bart Simpson channels Steve Jobs

2008-12-01T12:06:00.000-08:00

[Originally posted Dec. 1, 2008 on Fortune.com]

Get it while it's still available on YouTube: The Simpsons' clever send-up of "Mapple," "MyPods," "MyPhones" and "Steve Mobs," whose real slogan, Lisa Simpson learns, is not "think differently" but "no refunds."

Our favorite scene: When the black-shirted staff at the Mapple Store turns on Bart and prepares to flay him with their ear buds.

Below the fold: three clips from the Apple (AAPL) spoof.

See also:

Comic relief: Homer Simpson's iPhone

[Follow Philip Elmer-DeWitt on Twitter @philiped]

The Papermaster chronicles: An Apple vs. IBM timeline

2008-11-08T03:41:00.001-08:00

[Originally posted Nov. 8, 2008 on Fortune.com]

Steve Jobs' high-profile raid on IBM's managerial ranks hit a snag on Friday.

A judge in White Plains, N.Y., ordered Mark Papermaster -- IBM's (IBM) former top microprocessor executive and Apple's (AAPL) newest senior VP -- to immediately stop working for Jobs.

It's the latest chapter in a bi-coastal drama that pits one of the world's largest and most established technology companies against one of the brashest. Here's a timeline:

January 2008: Robert Mansfield, Apple's VP for computer hardware development, includes Papermaster's name in a short list of possible hires. The two were classmates at the University of Texas at Ausin and both worked at IBM.
February 2008: Papermaster is invited to Cupertino to meet Jobs and discuss an unnamed "senior leadership position" involving product development in consumer electronics.
A few weeks later, Apple calls to say the senior leadership position is no longer open and offers him a less senior position in laptop design. He declines.
April 2008: Apple acquires P.A. Semi (formerly Palo Alto Semiconductor), a maker of power-efficient processors based on IBM's "Power" architecture.
September 2008: Papermaster, whom IBM in court papers describes as the company's "top expert in 'Power' architecture and technology" [PDF], gets another call from Apple. Steve Jobs wants to talk to him.
Oct. 7: Papermaster meets with Jobs, Tony Fadell (head of the iPod and iPhone division), and others. He's told that Fadell is leaving, and that Jobs is looking to replace him. The next day, Papermaster meets with Fadell's team.
Friday Oct 10: Jobs makes Papermaster an offer he can't refuse -- a "once in a lifetime opportunity" to head the iPod and iPhone division.
Monday Oct. 13: Papermaster informs his superiors at IBM that he intends to accept the job. They tell him they suspect Apple's interest in him has something to do with P.A. Semi.
Monday Oct. 20: IBM offers Papermaster a "substantial increase" to persuade him to stay.
During the same conversation, IBM reminds Papermaster that he has signed an agreement that bars him from working for an IBM competitor for one year. [PDF] It offers Papermaster a year's salary if he will respect the agreement. Papermaster says he needs time to think it over.
Tuesday Oct. 21: Papermaster submits his resignation the next day. He is scheduled to leave the company at week's end and start working for Apple in November.
Wednesday Oct. 22: IBM files a 10-page complaint in the Southern District of New York to prevent Papermaster, "who is in the possession of significant and highly-confidential IBM trade secrets and know-how" from accepting an executive position with Apple. IBM describes Apple as a competitor that is trying to expand its presence in the markets for servers and chips for handheld devices.
Tuesday Nov. 4: After the Wall St. Journal breaks the story, Apple issues a press release announcing that Papermaster had been named senior VP of devices hardware engineering to lead the iPod and iPhone division, the job formerly held by Tony Fadell (see here). Neither chips nor servers are mentioned.
Thursday Nov. 6: Papermaster files court papers arguing that Apple and IBM are in totally different businesses -- one focused on high-performance business systems, the other on consumer-oriented hardware and related products. [PDF]
Friday Nov. 7: Robert Cringely publishes a column echoing the conventional wisdom in Silicon Valley -- that Papermaster's position as head of the iPod and iPhone division is a subterfuge, a "placeholder" until his noncompete year is up and he can take the job for which he was really hired: "to lead Apple’s PA Semi acquisition and create a new family of scalable processors optimized for Snow Leopard and beyond."
Later that afternoon: Federal District Judge Kenneth Karas in White Plains grants IBM a preliminary injunction, ordering Mark Papermaster to "immediately cease his employment with Apple Inc. until further order of this court." [PDF] IBM PR expresses satisfaction. Apple PR expresses confidence that Papermaster "will be able to ultimately join Apple when the dust settles." (link) Papermaster cannot be reached.

Papermaster's lawyers have until Tuesday Nov. 11 to submit objections. A hearing is set for November 18.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

The day Tim Cook calmed the waters

2008-11-08T03:41:00.000-08:00

[Originally posted Nov. 10, 2008 on Fortune.com]

Adam Lashinsky's fascinating profile of Tim Cook in the new issue of Fortune reminds me of the day last February when Apple's (AAPL) chief operating officer single-handedly reversed a slide in the company's share price that had been going for two months.

Here's what I wrote the next day:

It’s perhaps a measure of how badly Apple investors needed to hear from someone -- anyone -- high up at the company, that all it took to move the stock nearly 4% in after-hours trading on Wednesday was for COO Tim Cook to answer a few questions.

The stock had fallen more than 80 points since December and has been getting pummeled in recent weeks by rumors of falling component orders and reports from bearish analysts -- chief among them Bernstein Research’s Toni Sacconaghi, who estimated last week that Apple would miss its 2008 target of 10 million iPhones by more than 2 million units. With nobody from Apple stepping up to speak to these issues, the stock had nowhere to go but down.

But yesterday afternoon Cook talked for 45 minutes before at packed house at the Goldman Sachs Technology Investment Symposium, answering the questions that had been piling up -- about inventory levels, iPod sales, unlocked iPhones, the timing of price cuts and the growth potential of the Mac.
There wasn’t much news -- for the most part, he reiterated the company line -- but for investors there was clearly something reassuring about hearing Apple’s strategy laid out clearly, calmly and for the most part without hype. That is to say, by someone other than Steve Jobs.

The main news to come out of the session was Cook’s repeated assurances that Apple is committed to hitting that 10 million iPhone target in 2008 and will do whatever it takes to make it -- even if it means offering the iPhone to multiple carriers in some countries and selling unlocked phones. “We’re not married to any business model,” Cook said.

He also described the surprisingly large number of hacked iPhones turning up around the world as a good problem to have. When users are “stepping over each other” to get to a device, it’s a sign of pent-up worldwide demand.

He touched on most of the hot topics, saying among other things …

There is “huge headroom” in the Macintosh market
Apple TV is still a “nichey” product but has “enormous opportunity”
iPod shuffle sales were down 17% globally last Q, thus the price cut
40% of iPod sales in U.S. are to new customers; that doesn’t feel like a saturated market to him
The iPod touch is the beginning of a new mobile platform
The $200 iPhone price cut last September was in part to grow the user base and attract developers
No more detail about the SDK until next week to keep “the element of surprise”

Nothing terribly surprising there. But for some investors tuning in to the webcast, what he had to say was less important than how he said it.

“I was just impressed as I could be,” wrote one listener on TMO’s influential Apple Finance Board. “I am always haunted by the vulnerability of Apple’s shareholders like myself if something should happen to Steve Jobs. For the first time, listening yesterday to Tim Cook made me feel confident that in him was a person who could ably step in if Jobs fell off the earth.” (link)

- - - -

We've asked Apple Investor Relations if they could repost their recording of Cook's comments, which was available at Apple.com last February as a QuickTime file.

Meanwhile, I highly recommend Lashinsky's piece in Fortune. It's the best profile of Tim Cook I've ever read. See Apple: The genius behind Steve.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Losing Tony Fadell: The man who made the iPod

2008-11-04T03:16:00.000-08:00

[Originally posted Nov. 4, 2008 at Fortune.com]

Big news for Apple in Tuesday's Wall Street Journal: The company is losing one of its stars, Tony Fadell.

Tony who?

If Steve Jobs didn't loom so large in Apple's public persona -- drawing the spotlight at every appearance -- a lot fewer people would be asking that today.

Fadell was -- and until he leaves at an as-yet undisclosed time for "personal reasons," still is -- the top engineer in a company renown for its engineering prowess. At Business 2.0, the now-defunct Time Inc. monthly, we ranked him No. 27 on our 2007 list of "50 Who Matter Now" in the world of business.

And when Fortune tried earlier this year to handicap who might be best equipped to replace Steve Jobs as Apple's CEO, Fadell came in No. 2, after COO Tim Cook. Here's how we described him then:

Tony Fadell
Title: Senior vice president, iPod division

With his American swagger and his hair bleached white, Fadell stood out at button-down Philips Electronics, where he led an in-house pirate operation designing Windows CE-based devices. It was there that he came up with the idea of marrying a Napster-like music store with a hard drive-based MP3 player. He shopped the concept around the Valley before Apple's Jon Rubinstein snapped it up and put Fadell in charge of the engineering team that built the first iPod. Ambitious and charismatic (and no longer a bleached blond), he now runs the hardware division that makes two of Apple's three key product lines: the iPod and the iPhone. (link)

Fadell will reportedly be replaced by Mark Papermaster, the top IBM executive who managed the company's blade server business. IBM (IBM) sued Papermaster last week over a noncompete clause in his contract to try to prevent him from joining Apple (AAPL). See here.

In a press release issued Tuesday morning, Apple announced that Papermaster had been named senior vice president of devices hardware engineering, reporting directly to Steve Jobs.

According to the release, Fadell and his wife Danielle Lambert, a VP of human resources, "are reducing their roles within the company as they devote more time to their young family. Fadell will remain at Apple as an advisor to the CEO. Lambert will depart the company at the end of this year after a successor is in place."

[Follow Philip Elmer-DeWitt on Twitter @philiped]

The day Apple released its iPhone revenue bomb

2008-10-23T04:31:00.000-07:00

[Originally posted Oct. 23, 2008 on Fortune.com.]

Some Apple watchers have complained almost since the launch of the iPhone that Wall Street doesn't understand the device's value to the company. Analysts consistently underestimate Apple's revenue, these investors insist, because they fail to fully account for iPhone sales.

The problem has been festering for so long — and the gap has grown so large between Apple's actual earnings and the Street's grasp of those earnings — that Apple finally let the cat out of the bag Tuesday during its quarterly earnings call.

Measured by so-called generally accepted accounting principles (GAAP), the company earned $1.26 a share in 2008 Q4 on revenue of $7.9 billion. This is the form in which Apple (AAPL) has always reported its income.

But on Tuesday, for the first time, the company went one step further. CFO Peter Oppenheimer told analysts that when measured by actual revenue — counting the full value of every iPhone and Apple TV sold in the quarter — the company earned a good deal more: $2.69 per share on sales of $11.68 billion (see transcript here).

The consensus among analysts before the earnings call was that Apple's revenue for the quarter would be about $8.05 billion. Some traders looked at $7.9 billion and thought Apple had fallen short of the Street's target by $150 million. The smart ones looked at $11.682 billion and realized they'd underestimated Apple's earnings by nearly $3.8 billion. They're probably the reason Apple's share price jumped 12% in after hours trading.

How could the analysts have been so wrong?

In the analysts' defense, the accounting methods Apple uses aren't easy to follow — even though Oppenheimer has spelled them out at almost every earnings call.

For reasons that have to do with being able to provide free upgrades over the life of the phone, Apple doesn't book the full value of, say, a $199 iPhone the day it's sold. Rather, its accountants spread that income out over 24 months, booking $8.29 in the first month, $8.29 the second month, and so on until the revenue from that iPhone has been fully accounted for. (Actually, the value of that iPhone is probably closer to $500, once AT&T has paid its share, but you get the idea.)

Given that Apple's iPhone sales have been growing exponentially over the past 15 months and that each month's iPhone revenue includes not just a share of the sales from that month, but a share of iPhone sales from each of the months that preceded it, you begin to see the dimensions of what one might call Apple's iPhone revenue bomb.

"This is a pretty big deal," Steve Jobs told analysts and journalists on Tuesday, as he made his first appearance at an Apple earnings call in 8 years to try to explain the iPhone's so-called subscription accounting system.

"As long as our iPhone business was small relative to our Mac and music businesses, this didn’t really matter much. But this past quarter, as you heard, our iPhone business has grown to about $4.6 billion, or 39% of Apple's total business, clearly too big for Apple management or investors to ignore."

Oppenheimer and Jobs promised to provide adjusted revenue numbers — so-called non-GAAP revenue — every quarter going forward. But they didn't provide any non-GAAP numbers from quarters past, making it difficult to gauge how fast Apple is actually growing.

That's where Andy Zaky comes in. An amateur Apple watcher — and one of the blogger-analysts who humiliated the professionals in a Q4 earnings estimate smackdown earlier this week (see here) — Zaky stayed up all night Wednesday trying to reconstruct Apple's actual earnings in quarters for which it didn't provide non-GAAP data.

His results, published early Thursday on his blog Bullish Cross, and republished by AppleInsider and Seeking Alpha, show that Apple's revenue actually grew 75% year-to-year last quarter, not the 27% that the company reported, while its real net income grew nearly 125%. The pros could learn a lot by studying his findings.

Zaky's results are summarized in the chart below. To see how he arrived at his numbers, click here.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Why does Steve Jobs look so thin?

2008-06-13T02:30:00.000-07:00

[Originally posted June 13, 2008 on Fortune.com]

Much of the speculation about Steve Jobs' rail-thin appearance at the unveiling of the new iPhone on June 9 has tended to be all or nothing.

Either his cancer has returned or he is recovering from a bout with a "common bug," as his spokeswoman told the Wall Street Journal on Tuesday. "That's all there is to it," she said. (The talk may have unnerved investors a bit: Apple (AAPL) shares fell 4.1% on Thursday and another 2.4% by midday Friday.)

But this is not the first time Jobs' appearance has raised concerns about his health, and the "common bug" doesn't explain the weight loss that's evident in a review of his keynote videos over the past few years.

There's another possibility, one that is consistent with both Jobs' medical history and the changes in his appearance. It stems directly from the type of cancer for which he was treated four years ago and the nature of that treatment.

In 2003 Jobs learned that he had a malignant tumor in his pancreas - a large gland behind the stomach that supplies the body with insulin and digestive enzymes. The most common type of pancreatic cancer - adenocarcinoma - carries a life expectancy of about a year. Jobs was lucky; he had an extremely rare form called an islet cell neuroendocrine tumor that can be treated surgically, without radiation or chemotherapy.

As Fortune reported in a March 5 cover story, ("The trouble with Steve Jobs"), Jobs tried various alternative therapies for nine months before the tumor was taken out on July 31, 2004, at the Stanford University Medical Clinic in Palo Alto, near his home.

"This weekend I underwent a successful surgery to remove a cancerous tumor from my pancreas," Jobs wrote in an e-mail to Apple's staff the next week. "I will be recuperating during the month of August, and expect to return to work in September."

What Jobs didn't tell the staff was that the operation he had undergone had radically rearranged his digestive organs and would permanently change the nature of his health.

The Fortune article reported - and Apple has not disputed - that his surgery was a variation on the Whipple procedure, or a pancreatoduodenectomy, the most common operation for pancreatic cancer.

Nobody who has a Whipple is ever quite the same.

The Whipple procedure, named for Allen Oldfather Whipple, the American doctor who perfected it in the 1930s, is a complex, Rube Goldberg-type operation in which surgeons remove the right-most section, or "head," of the pancreas - as well as the gallbladder, part of the stomach, the lower half of the bile duct, and part of the small intestine - and then reassemble the whole thing in a new configuration. The severed surfaces of the stomach, bile duct, and remaining pancreas are stitched to the small intestine so that what's left of the pancreas can continue to supply insulin and digestive enzymes.

These before-and-after diagrams, reposted with permission from the Mayo Clinic website, will give you a feel for what's involved:

A German study comparing the long-term effects of two variations of the Whipple procedure on 104 patients found an increase in diabetes and various degrees of gastric acid reflux, stomach ulcers, oily bowel movements, intolerance toward larger meals and aversion to certain foods. (Annals of Surgery, 2005)

Along with the digestive problems, patients often lose 5% to 10% of their body weight after the procedure. Weight stabilizes within the first year or two for the vast majority of patients, says Dr. Dilip Parekh, chief of tumor and endocrine surgery at the University of Southern California, who has performed more than 100 Whipple procedures. “There is a small group of people who tend to have persistent problems with weight loss and loss of energy and you often you are not able to pinpoint why,” he says. “But if they stay active and manage their nutrition well, there is no reason for them not to live a normal life.”

Jobs has never spoken publicly about what life is like after the Whipple, so we can’t be sure that he has any of the post-operative problems associated with the procedure. But they would go long way toward explaining why he looked the way did on Monday. And none of them would indicate that his cancer has returned, or that his capacity for work is diminished. Post-operative guides for patients suggest that there will be lifestyle changes but that they need not be drastic. And a survey of patients at Johns Hopkins Hospital found that the overall quality of life of long-term survivors of the surgery is nearly comparable to that of healthy people.

Apple was invited to comment on this story, but has so far declined.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

After Steve Jobs: Handicapping Apple's back bench

2008-06-08T03:30:00.000-07:00

[Originally posted June 4, 2008 on Fortune.com]

"You know, I think it wouldn't be a party," Steve Jobs told Fortune in February, describing the future of his company if, as he put it, Jobs got hit by a bus. "But there are really capable people at Apple. ... My job is to make the whole executive team good enough to be successors."

Life at Apple without Jobs may be more than just a hypothetical. The 53-year-old Silicon Valley pioneer had a malignant tumor removed from his pancreas four years ago. With fresh concerns about his health following his gaunt appearance at the World Wide Developers Conference two weeks ago, it's fair to ask: who's on that executive team -- and which ones have a shot at ruling Apple once Jobs leaves (even if he exits years from now and not for health reasons)?

There are 11 men in all -- not counting Jobs. A handful are familiar faces to the small community of professional Apple watchers. As far as the general public is concerned, they are invisible, hidden in the long shadow cast by Apple's (AAPL) high-profile CEO.

Some seem more qualified to step into Jobs' shoes than others, but judge for yourself. Here they are, as listed on the company's Executive Profiles web page, in rough order of their chances of succeeding Steve Jobs.

Timothy D. Cook: Chief operating officer. A 12-year veteran of IBM (IBM) and Compaq, Cook, 47, probably has more direct line responsibility that anyone in the company -- even Jobs. Not only is he head of the resurgent Mac division, but he's responsible, as his official bio puts it, "for all of the company's worldwide sales and operations, including end-to-end management of Apple’s supply chain, sales activities, and service and support in all markets and countries." Cook's deep knowledge of Apple's operations and ready command of detail has won him the respect of the board of directors and the investment community. A bachelor with a passion for cycling, he's as steady and low-key as Jobs is temperamental. A Wall Street Journal profile described Cook's dressing down of another man at a meeting as so "professional and surgical" it was only afterward that observers realized the man had just had his head handed to him. Although some wonder whether Cook has enough charisma to run Apple, when the CEO was out of commission, Cook was the executive Jobs put in charge.

Tony Fadell. Senior vice president, iPod division. With his American swagger and his hair bleached white, Fadell, 38, stood out at button-down Philips Electronics (PHG), where he led an in-house pirate operation designing Windows CE-based devices. It was there that he came up with the idea of marrying a Napster-like music store with a hard drive-based MP3 player. He shopped the concept around the Valley before Apple's Jon Rubenstein snapped it up and put Fadell in charge of the engineering team that built the first iPod. Ambitious and charismatic (and no longer a bleached blond), he now runs the hardware division that makes two of Apple's three key product lines: the iPod and the iPhone. [UPDATE: Apple announced in Nov. 2008 that Fadell was stepping down as senior VP.]

Ron Johnson. Senior vice president, retail. Johnson, 49, was a retailing star at Target (TGT) before he came to Apple in 2000, and he's an even bigger star today, having designed what is arguably the world's most user-friendly chain of retail stores. He shares Jobs' single-minded focus on the customer experience, and when he parts ways with Jobs -- the Genius Bar, where customers get hands-on troubleshooting, was a Johnson idea that Jobs resisted -- he is often right. Most retailers focus on how you find the right item, he says, how you select it and how you get it out of the store. "We said there's a bigger idea. Let's design it around the customer's life, not the moment when they're in the store." (link) Apple's second-most charismatic public speaker, he is on several outsiders' short list of possible successors.

Philip W. Schiller: Senior vice president, worldwide product marketing. An avuncular, unthreatening presence, Schiller, 47, plays a slightly rotund Sancho Panza to Jobs' Quixote at nearly every Apple event. His deer-in-the-headlight performance -- caught on videotape -- when ambushed by a British TV reporter at the London unveiling of the iPhone contributed to the sense that Apple would be in trouble if Jobs were ever to leave. But it would be a mistake to underestimate Schiller. He has 24 years of marketing experience -- 17 of them at Apple -- and his official bio credits him with delivering a long list of "breakthrough" products: iMac, MacBook, Airport, Xserve, Mac OS X, Safari, AppleTV, iPod and iPhone.

Scott Forstall. Senior vice president, iPhone software. A veteran of NeXT, where he helped build the operating system that became OS X, Forstall came to Apple with Jobs in 1997. After proving himself by managing the team that released OS X Leopard, he was put in charge of software for the iPhone. "I actually have a photographer's loupe that I use to make sure every pixel is right," he told Time. "We will argue over literally a single pixel." His profile was raised by public appearances at WWDC 2006 and the March '08 SDK announcement. In an executive shakeup three days before WWDC 2008, he was elevated to senior vice president, reporting directly to Jobs. "Forstall is the man if SJ gets to pick [his successor]," says 9to5Mac's Cleve Nettles.

Jonathan Ive. Senior vice president, industrial design. Although his name is often floated as the next Apple CEO -- and despite the fact that he garnered 49% of the votes in a recent online poll that asked "who would you trust to run Apple, without Jobs?" -- Ive, 41, is probably the least likely of the leading contenders to take the job. Modest and notoriously shy (when he won the 2005 Design and Art Direction award it was Jobs who made the acceptance speech, although Ive was in the audience), he guards his privacy jealously; even Apple's HR department doesn't know exactly when he was born. Ive is perhaps the most influential industrial designer of our age. Why would he give up a job he clearly loves to take on the responsibilities of a CEO?

Below: The also-rans.

Peter Oppenheimer. Chief financial officer. A long-time Apple senior exec -- he joined he company in 1996 after a six years at Coopers & Lybrand and a sojourn at ADP (ADP), where he was CFO of the claims services division -- Oppenheimer, 45, has the job formerly held by Fred Anderson (the ex-Apple CFO thrown under the bus in the options backdating scandal). Oppenheimer's is a familiar voice to analysts and tech journalists. He turns up every three months on the company's quarterly earnings call to rattle off Apple's sales and revenue numbers and to offer his traditionally conservative guidance for the coming quarter. He took a lot of heat from shareholders in January when guidance even more pessimistic than usual sent the stock into a one-day 16-point nosedive.

Bertrand Serlet. Senior vice president, software engineering. One of only two members of Apple's executive team for whom English is a second language -- Fake Steve Jobs calls him a "friendly cyborg" from another planet, but he's actually from France -- Serlet, 47, came to Apple from Xerox PARC and NeXT, where he developed the workspace manager in NEXTSTEP and OPENSTEP. Having help port the NeXT operating system to Mac OS X, he took over Avie Tevanian's software engineering post in 2003. Serlet is credited with leading development of 10.4 and 10.5 versions of OS X, but he's most famous among Apple fans for his "Redmond, start your copiers" performance at WWDC 2006 -- available on YouTube -- pointing out similarities between OS X and Windows Vista.

Sina Tamaddon. Senior vice president, applications. Another non-native born American (he's Iranian), and yet another veteran of NeXT, Tamaddon, 50, came to Apple with Jobs' return in September 1997. Although he's held several top positions at Apple -- including vice president and general manager of the Newton Group -- and reports directly to Jobs, Tamaddon probably has a lower profile than anybody else on the executive team. He's the only member without a bio on Apple's official web page, and as this went to press, the question "Where did Sina Tamaddon go to school" had still not elicited any replies on WikiAnswers.

Daniel Cooperman. Senior vice president, general counsel and secretary. A relative newcomer, Cooperman, 56, joined Apple in November 2007 as the last move in a series of legal musical chairs (he left Oracle (ORCL) for Apple as Donald Rosenburg was leaving Apple for Qualcomm; Rosenberg had replaced Nancy Heinen, who is fighting SEC charges in the backdating case). Jobs began recruiting Cooperman last August after getting the okay from his friend Larry Ellison, according to Law.com, sweetening the pot with restricted stock worth $25 million. "The switcheroo was Larry's idea," wrote Fake Steve Jobs last September, when the move was announced. "Now that the feds are circling again he says I need some bad-ass mofo leading my team, not some namby-pamby Valley type. 'I want you to have my consigliere,' he told me. 'He's a good man. He can be trusted. Listen to him.'"

Bob Mansfield. Senior vice president, Mac hardware engineering. Mansfield has an important job: he heads the team that has delivered "dozens of breakthrough products," according to his official bio, from the iMac to the Macbook Air. But he didn't actually head the team when most of those breakthroughs were made. After stints at two companies specializing in 3D graphics chips, SGI and Raycer Graphics, he came to Cupertino in 1999 when Apple acquired Raycer. He was part of the troika that took over Mac engineering after the messy dismissal of Tim Bucher in 2004 and was formally put in charge of the division only last month. Unlike most senior VPs at Apple, he answers to Tim Cook, not Steve Jobs.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple takes delivery of 188 mysterious ocean containers

2008-05-28T07:46:00.000-07:00

[Originally published May 28, 2008 on Fortune.com]

Here's an intriguing report from ImportGenius, a search engine that gathers "competitive intelligence" by monitoring U.S. Customs records of ocean containers entering American ports.

Searching for shipments to Apple, Inc. (AAPL), employees at the Scottsdale, Ariz., company reported on Friday that they've spotted a "major spike" since mid March in ocean containers marked with a mysterious new label: "electric computers."

“They have never before reported this product on their customs declarations,” says ImportGenius managing director Ryan Peterson, who notes that there has been no corresponding falloff during this period of shipments labeled "desktop computers" or any of the other labels Apple usually uses.

"The fact that they are importing millions of units, combined with dwindling stocks of the first generation of iPhones," persuades Peterson that these "electric computers" are, in fact, the 3G iPhones Apple is expected to release in a matter of weeks.

He makes a strong case, citing records of a total of 188 ocean containers shipped to Apple from two trusted Asian suppliers, Hon Hai Precision Corp. and Quanta Computer.

For example, on March 19 Apple took delivery from Quanta of 20 containers of merchandise, described on the Bills of Lading as “electric computers."

"The initial shipments were followed," according to ImportGenius.com, "on March 27, April 28, May 6 and May 17 with an additional 44 containers—each containing an estimated 40,000 units of the new phone. The sixteen containers imported by Apple Inc. itself—as opposed to the Quanta subsidiary—were delivered on March 19 and 27 to the Jonestown, Pa. facilities of Ingram Micro, Apple’s U.S. distribution partner."

You can read the rest of the report here. It's quite impressive in its specificity. It notes, for example, that "Bill of Lading # HLCUSHA0803FTFR8, arrived at the port of New York on the Vessel NYK Delphinus on May 17th." That shipment contained 504 cartons, weighing 7140 kg, of the vaguely described “electric computer."

"Knowledge is power," declares ImportGenius' promotional material. "Whether you are looking to keep tabs on your competitors with Supply Spy, identify suppliers with ImportScan our easy to use online software makes it easy. You get access to records on nearly every container that entered the United States from 2006 to the present."

Who knew?

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Al Gore gets 10,000 Apple options

2008-03-26T09:31:00.000-07:00

[Originally posted March 26, 2008 on Fortune.com]

Former vice president Al Gore, who sits on Apple's compensation committee and supervised the company's internal investigation of its option backdating case, has been granted options to buy 10,000 shares of Apple (AAPL) at the strike price of $129.67, according to Jonny Evans at Macworld UK.

With Apple shares closing at $140.98 Tuesday night, the options would be worth $113,100 if exercised today. Should Apple reach its 2007 high of 202.96 before the options expire in 10 years, the grant would be worth more than $730,000, not counting taxes.

Gore, who describes himself as a "recovering politician," has won the Nobel Peace Prize and an Academy Award since leaving office. He took a seat on the Apple board in 2003 and co-founded the cable network Current TV in 2004. He also advises Google (GOOG) and venture capital firm Kleiner Perkins Caufield & Byers.

Bloomberg News reports that in January, Gore exercised options to buy 1,000 shares at $7.48, reaping a potential profit of more than $124,000.

[Follow Philip Elmer-DeWitt on Twitter @philiped]