Goodbye iPod, hello iPhone

[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.

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

[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.]

Apple vs. Palm: Fresh shots across the bow

[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:

Apple's Q3 2009: Analyzing the analysts

[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.

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

[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.

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

[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)

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."

See also:

• The FCC is asking Apple and AT&T all the right questions
• Antitrust inquiry: How Apple and Google compete
• Google CEO Schmidt leaves Apple board

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Antitrust inquiry: How Apple and Google compete

[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:

Apple's Q2: Analyzing the Analysts

[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.

Bearish grunts from a pair of Apple bulls

[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:

All about Microsoft's "Lauren"

[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.