Wednesday, 20 October 2010

Want another Apple? No thanks?!

For those who follow my blog closely, they'll recognise the picture; I've used it before and thought it would be very apt for this post too.
After yesterday's announcement of Q4 results, the web is full of buzz surrounding Apple and its giant achievements for this year - and rightfully so

In this post I'll show the financial path Apple has traveled in the last 5 years, and why I think their glory ride to be over.

First, the stats. Based on all quarters for this year, I've put together a preliminary annual report for Apple 2010 - that is just all quarterly figures added, so the real financial annual report will show different figures; however, I consider it close enough.
Update 23rd October 0:08 AM CET: Updated the stats to also contain 2004, so they're inline with my other comparison figures across this blog. Sorry, and thank you
Below that are the revenue and operating profit for 2004-2010

Right. Please pause for a deep breath. I'm not an Apple fanboy, hardly so, but these figures are *impressive* to say the least. 5 Times more revenue and 10 times more profit than 5 years ago? People would give an arm and a leg for that - and more. To make matters "worse", I'll add employee count: 36,800 for 2009, making for an average operating profit per employee of $375,000
Finally, with an operating margin more than double what it was in 2005, where are the limits for Apple?

In order to answer that question, we must simply compare Apple to other Apples that preceded Apple. To do that, we should know what Apple does. What does Apple do?
  • Apple sells unique hardware: iMac, MacBook, iPod, iPhone, iPad
Is that all there's to it? I think so. Going through the financial reports, that's it. When Apple's not selling their main hardware, they're selling related hardware: iTunes Store sales, iPod services, Apple-branded and third-party iPod accessories, sales of displays, wireless connectivity and networking solutions, and other hardware accessories account for 13% of revenue.
Oh wait, they are very innovative, right? Wrong. On average, Apple spends 3% of revenue on R&D - that's even less than SAP, IBM, Oracle or even HP - making Apple the least innovative company on paper

There. That's quite sobering, isn't it? Apple sells hardware and is the least innovative company around. [pause to think about that statement]

Of course there will be arguments about this: no, Apple sells a unique experience, it's The Brand, they give you a Visionary Augmented Reality, and whatnot. I admit that they make a lot more wizardry stuff out of their R&D bucks than any of the other companies mentioned above, but still: Apple gives you the biggest lock-in on hardware and software in the history of mankind. Period. Wintel? They wish they'd gotten this far!

Back to the questionnaire: Apple has just proven to be a pure hardware company, so we can compare it to others like it. What are the biggest and best hardware companies around? On to the Fortune 500...
To my mind come Cisco, Texas Instruments, and Intel. Cisco and Intel made almost the same revenue in 2009 even, Texas Instruments a third of that. Cisco has an operating margin of 17%, Texas Instruments does 14%, and Intel is down to 12%

Begs the question: how come Apple has gotten this far? Beating Cisco on operating margin? For comparison's sake, Cisco had an operating margin of 23% back in 2005, when they still monopo-lied (love that word!) the market.
Let's not forget however that Apple is the first consumer-hardware, and that we're in a real consumer market these days - who knows when and where it will end?

I'm not saying it should end - heck Apple is to the world what the world was to Microsoft Windows: an endless innovator filling the gaps. No one cares that Apple is Steve's private playground as Apple's great ideas get copied outside his reach, and find their way to others via open systems such as Android, or Windows even (nothing new there).
But, if I look at the differences between the iPhone 3 and iPhone 4, I wonder whether Apple is great or even good at anything else than innovation

Apple fought its way out from the pits to the stars. Now they're there, what to do?

3 reacties:

Arru said...

I think you're on kind of the right track here but, let me ask you this:
if Apple is all-but-hardware, no one would care about their software. It would be either their version of totally commoditized solutions, or routinely replaced by customers. There would be no talk of Apple's OS or bundled applications. Could you really put your money on that being an accurate assessment? Really?

How about this: Apple is a design company, doing both software and hardware, being smart enough to figure out that hardware is a great vehicle to monetize software. Hence all the hardware-software specificity ("lock-ins") that gives rise to expressions like "jailbreak" and "hackintosh". IMO, pure software companies are the exception – and Microsoft, with all the OEM agreements and flashy stickers, isn't one.

Kudos for recognizing Apple's trailblazing role and how free software, not in the least, benefits from this. I'm less concerned about Apple itself and more about the lack of diversity in its competition. The model all along has been the "Windows" mode of operation, where marketplace hardware and one-size-fits-all OS were supposed to relive the triumph over Apple's integrated model back in the 80s-90s. When this didn't happen (google "ipod killer") all energy was redirected into exactly duplicating Apple's model down to the last detail (see Zune, Windows phone 7) And why? I'm convinced that one Apple is absolutely necessary, but I agree with you that no one benefits from another...

Martijn Linssen said...

Thank you Arry, good questions

An absolute true statement about design, and piggybacking on the hardware

As far as I'm concerned Microsoft has been end-of-life for a few years now, to be witnessed via the moving of existing functionality in place (leave my MS Office toolbar alone!) and time (hey this button looks 4 times as sexy now, and takes twice as long to load), next to incorporating the additions made by the market to fill the gaps

MS failed to go Cloud, not surprisingly, but they have utterly failed to innovate in this century. Funny thing is, MS and Apple now have an equal revenue and profit, but MS has 89K employees, each generating 160K profit per year. So they have a long way to go until they reach rock bottom...

Eva Santisteban said...

Great post!, that's true, and I've to confess that I love apple.
I just only add that apple also gives a tool for peoples' identity, the ability to be different from the rest of tech users.
Nowadays, the society is based in a big individualism and the people still have the need to be identified in a group or team, so, being an apple user covers a basic human need.

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