Steve Jobs on Apple's cash, NetBooks, Apple TV, and Cheap PCs
Apple chief executive Steve Jobs made a surprise appearance on the company's fourth quarter conference call Tuesday and fielded a variety of questions that revealed further insight into company's ongoing product strategies. Specifically, he made remarks about Apple's position on the emerging NetBook space, how the troubled global economy impacts the company, the state of Apple TV, and how Apple views the prospects for $500 desktop PCs.
The hidden, outstanding success of the iPhone
Jobs announced the release of non-GAAP financial results that expose the hidden, deferred revenues related to the subscription accounting used for the iPhone and Apple TV. The numbers are "truly stunning" Jobs said. "By eliminating subscription accounting, adjusted sales for the quarter were $11.68 billion, 48% higher than the reported revenue of $7.9 billion, while adjusted income was $2.44 billion, 115% higher than the reported net income of $1.14 billion.
"Adjusted net income that is more than double our reported income," he added. "If this isn't stunning, I don't know what is. All due to the incredible success of the iPhone 3G."
Jobs also announced two milestones related to its phone business. "The first is that Apple beat RIM," Jobs said, noting that "RIM is a good company that makes good products. And so it is surprising that after only fifteen months on the market that we could outsell them in any quarter."
"But even more remarkable is this," he continued, "measured by revenues, Apple's become the world's third largest mobile phone supplier. I know this sounds crazy, but it's true. As measured in revenues, not units, Apple has become the third largest mobile phone supplier."
"Let's look at the ranking. Nokia is clearly number one with $12.7 billion. Samsung number two at 5.9 billion. Apple is number three at 4.6 billion, Sony Ericsson is number four with 4.2 billion. LG number five at 3.4 billion, Motorola number six with 3.2 billion and RIM number seven at 2.1 billion. Pretty amazing."
Lots of cash to throw around
Apple added another $3.7 billion in cash during the quarter, so it now has $24.5 billion "safely in the bank, and zero debt" Jobs noted. He spoke of "extraordinary opportunities" for companies in a time of economic downturn "with the cash to take advantage of them, like Apple does," but wouldn't clarify how that might relate to any specific strategies, including new efforts to acquire other companies.
Jobs did say the company's cash position "provides us tremendous stability and the ability to invest our way thorough this downturn. This is what we did during the last downturn. We increased R&D investments and created some of our best new products and businesses, like the Apple retail stores for one."
When asked how much more expensive the aluminum unibody was over conventional construction, and whether the 35% decline in aluminum pricing would show up in Apple's financials, Jobs answered, "We'd certainly sell our new MacBooks cheaper if we just delivered them with a block of aluminum. But we have to machine that aluminum, and it's a fairly precision operation. So the cost of aluminum matters some, but is not a dominant cost."
Netbooks, iPhones, and the troubled economy
Asked about PC prices in the current economy and the new netbook category that is "getting a lot of hype", Jobs said "well, again, this particular downturn is not creating a market of cheaper computers. That market has existed for some time. And there are parts of that market that we choose not to play in."
"I think that when people want a product of the class that we make, over and over again people have done the price comparisons and we're actually quite competitive. So we choose to be in some segments of the market and we choose not to be in certain segments of the market.
"So the question is, 'is the downturn going to drive some of our customers to those lower segments of the market place to buy lesser products.
"I will be surprised if that happens in large numbers. And I actually think that there are still a tremendous number of customers that we don't have, in the Windows world, or in the other 99% of the phone market that we don't have, who would like to and can afford to buy Apple products.
"We're not tremendously worried. As we look at the netbook category, that's a nascent category. As best as we can tell, there's not a lot of them being sold. You know, one of our entrants into that category if you will is the iPhone, for browsing the Internet, and doing email and all the other things that a netbook lets you do. And being connected via the cellular network wherever you are, an iPhone is a pretty good solution for that, and it fits in your pocket.
"But we'll wait and see how that nascent category evolves, and we have got some pretty interesting ideas if it does evolve," Jobs said.
Asked how well the iPhone will do in the troubled economy, Jobs replied, "We'll be glad to tell you how it does." Earlier in the call, Jobs said, "none of our competitors can deliver products in this class," and noted that cash strapped customers, "while they might postpone purchases, they are more likely to delay than switch."
Cheap PCs
Asked whether users will be likely to see a cheaper computer from Apple, Jobs answered, "I think what we want to do is deliver an increasing level of value to these customers."
"There are some customers which we chose not to serve," he added. "We don't know how to make a $500 computer that's not a piece of junk, and our DNA will not let us ship that. But we can continue to deliver greater and greater value to those customers that we choose to serve. And there's a lot of them."
"We've seen great success by focusing on certain segments of the market and not trying to be everything to everybody. So I think you can expect us to stick with that winning strategy and continue to try to add more and more value to those products in those customer bases we choose to serve."
Apple TV
Asked about the "digital living room opportunity and how it relates to Apple TV," Jobs replied, "well again I think the whole category is still a hobby right now. I don't think anybody has succeeded at it. And actually the experimentation has slowed down. A lot of the early companies that were trying things have faded away."
"So I have to say that given the economic conditions, given the venture capital outlook and stuff, I continue to believe that it will be a hobby in 2009."
Jobs was also asked about Tablet computing and touch screens and whether Apple has any products in the pipeline, to which he replied, "I think we have such creative people that are looking a lot of things, but I can't really talk about any of the future products we're working on, I'm sorry."
iPhone Nano
When asked why Apple only has one product offering in the vast smartphone market and what further opportunities for innovation or "other market opportunities within that market" Apple might have, Jobs replied, "I wasn't alive then, but from everything I've heard, Babe Ruth only had one home run. He just kept hitting it over and over again.
"I think that the traditional game in the phone market has been to produce a voice phone in a hundred different varieties. But as software starts to become the differentiating technology of this product category, I think that people are going to find that a hundred variations presented to a software developer is not very enticing. And most of the competitors in this phone business do not really have much experience in a software platform business."
"So we're extremely comfortable with our product strategy going forward, and we approach it as a software platform company, which is pretty different than most of our competitors."
Additional Coverage
Apple profits rise 26% on sales of 2.6M Macs, 6.8M iPhones
Notes of interest for Apple's Q4 2008 results call
Apple iPhone 3G sales surpass RIM's Blackberry
iPhone App Store continues to exceed iTunes song sales growth
The hidden, outstanding success of the iPhone
Jobs announced the release of non-GAAP financial results that expose the hidden, deferred revenues related to the subscription accounting used for the iPhone and Apple TV. The numbers are "truly stunning" Jobs said. "By eliminating subscription accounting, adjusted sales for the quarter were $11.68 billion, 48% higher than the reported revenue of $7.9 billion, while adjusted income was $2.44 billion, 115% higher than the reported net income of $1.14 billion.
"Adjusted net income that is more than double our reported income," he added. "If this isn't stunning, I don't know what is. All due to the incredible success of the iPhone 3G."
Jobs also announced two milestones related to its phone business. "The first is that Apple beat RIM," Jobs said, noting that "RIM is a good company that makes good products. And so it is surprising that after only fifteen months on the market that we could outsell them in any quarter."
"But even more remarkable is this," he continued, "measured by revenues, Apple's become the world's third largest mobile phone supplier. I know this sounds crazy, but it's true. As measured in revenues, not units, Apple has become the third largest mobile phone supplier."
"Let's look at the ranking. Nokia is clearly number one with $12.7 billion. Samsung number two at 5.9 billion. Apple is number three at 4.6 billion, Sony Ericsson is number four with 4.2 billion. LG number five at 3.4 billion, Motorola number six with 3.2 billion and RIM number seven at 2.1 billion. Pretty amazing."
Lots of cash to throw around
Apple added another $3.7 billion in cash during the quarter, so it now has $24.5 billion "safely in the bank, and zero debt" Jobs noted. He spoke of "extraordinary opportunities" for companies in a time of economic downturn "with the cash to take advantage of them, like Apple does," but wouldn't clarify how that might relate to any specific strategies, including new efforts to acquire other companies.
Jobs did say the company's cash position "provides us tremendous stability and the ability to invest our way thorough this downturn. This is what we did during the last downturn. We increased R&D investments and created some of our best new products and businesses, like the Apple retail stores for one."
When asked how much more expensive the aluminum unibody was over conventional construction, and whether the 35% decline in aluminum pricing would show up in Apple's financials, Jobs answered, "We'd certainly sell our new MacBooks cheaper if we just delivered them with a block of aluminum. But we have to machine that aluminum, and it's a fairly precision operation. So the cost of aluminum matters some, but is not a dominant cost."
Netbooks, iPhones, and the troubled economy
Asked about PC prices in the current economy and the new netbook category that is "getting a lot of hype", Jobs said "well, again, this particular downturn is not creating a market of cheaper computers. That market has existed for some time. And there are parts of that market that we choose not to play in."
"I think that when people want a product of the class that we make, over and over again people have done the price comparisons and we're actually quite competitive. So we choose to be in some segments of the market and we choose not to be in certain segments of the market.
"So the question is, 'is the downturn going to drive some of our customers to those lower segments of the market place to buy lesser products.
"I will be surprised if that happens in large numbers. And I actually think that there are still a tremendous number of customers that we don't have, in the Windows world, or in the other 99% of the phone market that we don't have, who would like to and can afford to buy Apple products.
"We're not tremendously worried. As we look at the netbook category, that's a nascent category. As best as we can tell, there's not a lot of them being sold. You know, one of our entrants into that category if you will is the iPhone, for browsing the Internet, and doing email and all the other things that a netbook lets you do. And being connected via the cellular network wherever you are, an iPhone is a pretty good solution for that, and it fits in your pocket.
"But we'll wait and see how that nascent category evolves, and we have got some pretty interesting ideas if it does evolve," Jobs said.
Asked how well the iPhone will do in the troubled economy, Jobs replied, "We'll be glad to tell you how it does." Earlier in the call, Jobs said, "none of our competitors can deliver products in this class," and noted that cash strapped customers, "while they might postpone purchases, they are more likely to delay than switch."
Cheap PCs
Asked whether users will be likely to see a cheaper computer from Apple, Jobs answered, "I think what we want to do is deliver an increasing level of value to these customers."
"There are some customers which we chose not to serve," he added. "We don't know how to make a $500 computer that's not a piece of junk, and our DNA will not let us ship that. But we can continue to deliver greater and greater value to those customers that we choose to serve. And there's a lot of them."
"We've seen great success by focusing on certain segments of the market and not trying to be everything to everybody. So I think you can expect us to stick with that winning strategy and continue to try to add more and more value to those products in those customer bases we choose to serve."
Apple TV
Asked about the "digital living room opportunity and how it relates to Apple TV," Jobs replied, "well again I think the whole category is still a hobby right now. I don't think anybody has succeeded at it. And actually the experimentation has slowed down. A lot of the early companies that were trying things have faded away."
"So I have to say that given the economic conditions, given the venture capital outlook and stuff, I continue to believe that it will be a hobby in 2009."
Jobs was also asked about Tablet computing and touch screens and whether Apple has any products in the pipeline, to which he replied, "I think we have such creative people that are looking a lot of things, but I can't really talk about any of the future products we're working on, I'm sorry."
iPhone Nano
When asked why Apple only has one product offering in the vast smartphone market and what further opportunities for innovation or "other market opportunities within that market" Apple might have, Jobs replied, "I wasn't alive then, but from everything I've heard, Babe Ruth only had one home run. He just kept hitting it over and over again.
"I think that the traditional game in the phone market has been to produce a voice phone in a hundred different varieties. But as software starts to become the differentiating technology of this product category, I think that people are going to find that a hundred variations presented to a software developer is not very enticing. And most of the competitors in this phone business do not really have much experience in a software platform business."
"So we're extremely comfortable with our product strategy going forward, and we approach it as a software platform company, which is pretty different than most of our competitors."
Additional Coverage
Apple profits rise 26% on sales of 2.6M Macs, 6.8M iPhones
Notes of interest for Apple's Q4 2008 results call
Apple iPhone 3G sales surpass RIM's Blackberry
iPhone App Store continues to exceed iTunes song sales growth
Comments
Haaaaa, sanity!
"We don't know how to make a $500 computer that's not a piece of junk, and our DNA will not let us ship that. But we can continue to deliver greater and greater value to those customers that we choose to serve. And there's a lot of them."
So the original G4 Mac mini, which was $499, was a piece of junk? Gotcha.
Steve tickles me. He's got a very amusing rap for such a bright fellow. Long live, Steve!
Amen. Long life to Steve. Though I do disagree.
I believe that Netbooks are a fantastic idea and that Apple will eventually be forced to serve this market.
iPhone is nice but there is a substantial market for a real keyboard and larger screen. Apple's current USB only Macbook strengthens the netbook appeal because if USB is good enough for Apple's laptops as the primary connectivity then Netbooks need not offer that much more connectivity either.
http://www.amazon.com/Acer-8-9-inch-...4636851&sr=8-1
Connectivity
This Acer Aspire One notebook has an integrated 54g wireless LAN (Acer InviLink) that's compatible with 802.11b and 802.11g networks and offers Acer's SignalUp technology for enhanced antenna efficiency. This notbook provides the following connections:
3 USB 2.0 ports for connecting a wide range of peripherals--from digital cameras to MP3 players
Secure Digital (SD) card reader, also compatible with MultiMedia cards (MMCs)
Multi-in-one card reader supports SD, MMC, Memory Stick/Memory Stick PRO, and XD Picture Cards
1 VGA monitor port
1 headphone jack and 1 microphone jack
RJ-45 port for 10/100 Fast Ethernet connection
More well appointed than a Macbook from a connectivity standpoint.
I eventually plan to see Netbooks with WWAN built right into the chipset and using
faster processors. They may as well add cellular options along with the WWAN. I think this market is only Nascent because the mobile Atom chips are new but I expect this to be an explosive area for computer companies.
Typical Apple MO is to downplay markets (flash based digital music players) until they're ready to promote a product and then suddently the category is a hot seller.
AppleTV - of course it's a hobby. It's functionality is pretty basic and it actually offers less functionality than say an Xbox 360 with extra software or a PS3. I still think it offers value but it's groundbreaking in no way that I can think of.
Asked about the "digital living room opportunity and how it relates to Apple TV," Jobs replied, "well again I think the whole category is still a hobby right now. I don't think anybody has succeeded at it. And actually the experimentation has slowed down. A lot of the early companies that were trying things have faded away."
"So I have to say that given the economic conditions, given the venture capital outlook and stuff, I continue to believe that it will be a hobby in 2009."
Too bad, It seems that next update of AppleTV will not be as robust as most of us expect. At least I hope it has external drive support, so storage can be increase.
Jobs said:
Asked about the "digital living room opportunity and how it relates to Apple TV," Jobs replied, "well again I think the whole category is still a hobby right now. I don't think anybody has succeeded at it. And actually the experimentation has slowed down. A lot of the early companies that were trying things have faded away."
"So I have to say that given the economic conditions, given the venture capital outlook and stuff, I continue to believe that it will be a hobby in 2009."
Too bad, It seems that next update of AppleTV will not be as robust as most of us expect. At least I hope it has external drive support, so storage can be increase.
If there's one thing I've learned from watching and listening to Jobs over the past few years, it's to "never" believe what's coming out of his mouth. He's essentially saying; "recession", but what he and Apple are doing in the labs and behind the scenes is planning to take over the living room!!
September 2009 or earlier: Apple "TV"
They may not kill the 20" and 30" Cinema displays (though I believe they are going to kill the 20"), but a TV is on the cards, in the tea leaves and in their future. Like the mobile phone was for them, this too is almost unavoidable.
Buy. (But only if you have the cajones to Hold.)
AppleTV - of course it's a hobby. It's functionality is pretty basic and it actually offers less functionality than say an Xbox 360 with extra software or a PS3. I still think it offers value but it's groundbreaking in no way that I can think of.
I agree that it is in no way groundbreaking. It offers so many rich possibilities, and could be so much better.
But, I have to tell you that I am (actually my whole family is) amazed at how often I (we) end up using the little box! And how much enjoyment we get out of it. It has been $229 well-spent.
I believe that Netbooks are a fantastic idea and that Apple will eventually be forced to serve this market.
iPhone is nice but there is a substantial market for a real keyboard and larger screen.
AAPL is a shrewd company and Steve's guile belies his response.
It's all in the lab, HM... It's all in the lab!
I agree that it is in no way groundbreaking. It offers so many rich possibilities, and could be so much better.
But, I have to tell you that I am (actually my whole family is) amazed at how often I (we) end up using the little box! And how much enjoyment we get out of it. It has been $229 well-spent.
I'll wait until after MWSF to make sure I don't buy just before a product refresh but even at it's basic level I personally see enough value in the ATV to warrant a purchase. It's just not the game changer that some consumers need to open the wallet.
AAPL is a shrewd company and Steve's guile belies his response.
It's all in the lab, HM... It's all in the lab!
Of course. The purchase of P.A Semi has Netbook written all over it and Apple's newfound love for the "Cloud" is another.
I expect a $699-799 Apple "netbook" to hit within 18 months.
So the original G4 Mac mini, which was $499, was a piece of junk? Gotcha.
Remember, the minis didn't and still don't come with a monitor, keyboard or mouse. The base mini today costs $599 - $200 more for a faster processor, larger hard drive and Super Drive. Compare that with the current $500 notebooks on the market and what hardware and software they include. Then look at the repriced $999 MacBook and decide where the real value is.
You know, one of our entrants into that category if you will is the iPhone, for browsing the Internet, and doing email and all the other things that a netbook lets you do. And being connected via the cellular network wherever you are, an iPhone is a pretty good solution for that, and it fits in your pocket.
Personally, if Apple can't make a decent profit in the Netbook market, which I believe is something PC makers are struggling with, then it isn't worthwhile to spend the effort in developing a Netbook.
Besides, the iPod Touch is a decent entry into the Netbook market. It is actually priced lower than most netbooks, has more storage than many of them and is well suited for portable internet access. If Apple decides to release iWorks Touch or perhaps Microsoft develops an Office Touch, it'll be a decent productivity tool. Peripherals can be sorted out by adding Wireless USB instead of space consuming physical ports.
The netbook is taking off though, I think surprisingly well for being such a new category, to dismiss it out of hand sounds like a feint to me. IDG estimates 2M sold in EMEA last quarter, not too shabby for a category of products that didn't exist at all last year that I remember, back then it was just one guy and a few people trying to design one.
Did he dismiss it? Not entirely I don't think. I don't know, as I don't have one, but if you had Pages and Numbers for the iPhone, and perhaps a tiny bluetooth (soft, foldable, whatever) keyboard, you'd pretty much have a very cool netbook, no? Maybe in a slightly different form factor? He did mention the iphone in that context.
Did he dismiss it? Not entirely I don't think. I don't know, as I don't have one, but if you had Pages and Numbers for the iPhone, and perhaps a tiny bluetooth (soft, foldable, whatever) keyboard, you'd pretty much have a very cool netbook, no? Maybe in a slightly different form factor? He did mention the iphone in that context.
You're right he didn't dismiss it. Although slapping an external KB on an iPhone hardly qualifies it as a netbook.
Realistically they're just going to wait it out like Sony is doing to see what happens. Sales are definitely taking off in that area, but the market has also become incredibly saturated with competitors as of late.
The thing that bothers me is that Apple lets their low end rot with old designs. I mean look at the mac mini, and now they're gonna do the same with the low end macbook. How hard would it be to update these things to current chipsets?
So the original G4 Mac mini, which was $499, was a piece of junk? Gotcha.
Yes, it was back then and it definitely is now. So what is your point? You wanted to buy cheap and you got exactly what you wanted.
They advertised it it appropriately as a low-end Mac for people that wanted to fiddle with OSX but not break the bank to do it.
Who cares about guidance...
...just look at the non-GAAP numbers. Those reflect Apple's ACTUAL sales and profits last quarter, if Apple didn't defer the iPhone revs.
Sales would have been $11.7B, not $7.9B.
Profit would have been $2.4B, not 1.1B.
EPS would have been $2.69!!! not $1.26.
Just look at those numbers. That's why free-cash flow is so high. That's why cash is being added to Apple's cash pile faster than income. If you just look at those numbers, you'll realize that Apple is one of the most profitable companies in the world, and growing like mad. That's why Apple merited a high multiple, and that's why stupid analysts just don't get it. Steve actually had to get in on the conference call to explain the non-GAAP figures to the analysts, because they've been so clueless since Apple started deferring revenues.
Awesome!
The hidden, outstanding success of the iPhone
Jobs also announced two milestones related to its phone business. "The first is that Apple beat RIM," Jobs said, noting that "RIM is a good company that makes good products. And so it is surprising that after only fifteen months on the market that we could outsell them in any quarter."
Someone should tell Jobs, that the iphone is sold in about 20x more markets than blackberries also.
Wow, the comments on the AppleTV were really disheartening.
I sure hope we some some advancement on the Apple TV.
I love mine. Nice to listen or watch podcasts on the big screen and the movie rentals is a great feature. More and more movies appearing.
I want to see forward movement here.
I really think we will see some sort of crossover device. Something between a phone and a laptop.
Was hoping it would be out before years end but it did not happen.
The new 'books are nice but 2008 was just not a "wow" year like 2007 was with the iPhone.