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UBS: software may become Apple's next money-maker

post #1 of 22
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Following today's announcement of Mac OS X 10.4 Tiger, UBS Investment Research said it believes Apple's software business is destined to become the company's next big "multiplier" as revenues approach $1B in 2005.

In a research note released to clients on Tuesday, the firm said Apple should benefit from two full months of Tiger sales in its fiscal June quarter. It also expects key new Mac OS X features such as Spotlight, Dashboard, and iChat to fuel Mac growth in the near future.

Noting that the last upgrade of an Apple OS, "Panther," shipped in October 2003, analyst Ben Reitzes said he believes Tiger will have a "more dramatic effect" on Apple's business.

"We believe the next big 'multiplier' business to get attention will be Apples software, which posted revenue of $213 million in 1Q05 and we estimate will approach $1 billion in total revenue this fiscal year," the analyst wrote in the report. "We believe the math behind Apples software potential is attractive, making estimates conservative." UBS also estimates the annual revenue run rate of Apple's iPod peripherals to be at $400M, iTunes at $500M, Apple Retail at $2.5B and iPod hardware topping $4B -- Apple's other key "multiplier" businesses.

Reitzes said his firm believes that Apples software is extremely well suited for "the digital lifestyle" that consumers are rapidly adopting. "With delays at Microsoft for Longhorn and battles with viruses, we believe the time is right for Apple to regain share on the back of Tiger," he said. "Over 10 million Apple users have still not upgraded to systems that run OSX, and we believe that Tiger may push many over the edge." The analyst also believes the upgrade will be popular with over 14 million active Mac OS X users.

With increased sales of Macs and an already large install base of users, UBS said the revenue opportunity for Apple's software could be significant. "In fact, one could argue that with its new stores, an enhanced online store, and broadened distribution, this could be Apples year to see its software sales surge," Reitzes said. Assuming no major bugs, he believes Apple may see up to 25% of its existing Mac OS X users upgrade to Tiger over the next several quarters, compared to 10-12% for a typical upgrade. "As a result, we believe our software revenue estimates of $990 million for FY05 and $1.18 billion for FY06 are conservative."

In addition to benefitting software sales, UBS said Tiger should help continue momentum of Mac sales, possibly helping to offset some typical seasonality. The firm is modeling Mac unit sales to increase 33% in 2005, leveraged by the new Mac Mini and iMac G5.

UBS maintained its "Buy2" rating on Apple with a price target of $50 per share.
post #2 of 22
Well, I sure hope so. I think Apple will do $1.1 billion this year.
post #3 of 22
tiger is taking another dump on longhorn's grave
post #4 of 22
Holy crap... there are 10 million OS 9 holdouts, still?!

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post #5 of 22
Quote:
Originally posted by m01ety
Holy crap... there are 10 million OS 9 holdouts, still?!


Scary right?

In my user group:

http://www.metromac.org/

there are about 800 members. Almost 300 are using 9 or earlier. Some are still on 7.5.1.

Of the rest, about 20 are on 10.0, 75 on 10.1, 250 on 10.2 and the rest about 175 on 10.3.
post #6 of 22
Quote:
Originally posted by melgross
Scary right?

In my user group:

http://www.metromac.org/

there are about 800 members. Almost 300 are using 9 or earlier. Some are still on 7.5.1.

Of the rest, about 20 are on 10.0, 75 on 10.1, 250 on 10.2 and the rest about 175 on 10.3.

Wow....! Pathetic. What are they, scared? Or are they afraid to try out new hardware as well?
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post #7 of 22
Quote:
Originally posted by melgross
Scary right?

In my user group: http://www.metromac.org/ there are about 800 members. Almost 300 are using 9 or earlier. Some are still on 7.5.1.

Of the rest, about 20 are on 10.0, 75 on 10.1, 250 on 10.2 and the rest about 175 on 10.3.

How many of the 300 have machines capable of running 10.4?

ps. 10.0? Why 10.0 when the 10.1 upgrade is free? I still think Apple needs to bring people's OSes more into line somehow. Perhaps make 10.2 a free upgrade for ANYBODY, or something.
post #8 of 22
It's called CHEAP!

I would suppose that maybe 50 or so could run 10 effectively. The rest are too old.

What I get is:

Photoshop 4 does everything I want.

Or... Word 5.1 was the best version they ever made.

Or... It works fine.

Or...I never upgrade my software, why do I need anything newer?

Or.. I'm not going to spend over $100 every 12 to 18 months, screw Apple.

Etc.

And we meet in the Apple store in Soho!
post #9 of 22
Melgross

BINGO!! Man folks underestimate the stubborness of Mac users. Hell PC users too. If it isn't broke they're not replacing it generally.

I still talk to people running Quark 4. Or Photographers on Photoshop 6. A lot of people simply don't fall for the latest marketing pitch. If they don't see a direct correlation between a feature and making them money or really making their life easy they don't upgrade.

Apple needs to pull out all the stops to get people on Tiger so that we can get Tiger infused apps coming at a torrid rate. Give iLife 05 away with it. Bundle it with iLife and iWork for 249.99 or something...oops too late

This is just how it is. a large portion of your userbase isn't going to come along for the ride.
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post #10 of 22
I did some consulting for a desktop publishing house that was still on Quark 4.11 and OS 9.x.x until Quark 6.5 just came out.

It has been big mess for them to transition over, and they still have a long way to go. My mother, who is also a graphic designer, has been in the same boat.

I am buying her a mini to replace her machine which is OS 9 and all the relevant legacy apps. If it aint broke, don't fix it is the principle most of these people live by.
post #11 of 22
Quote:
Originally posted by corvette
I did some consulting for a desktop publishing house that was still on Quark 4.11 and OS 9.x.x until Quark 6.5 just came out.

It has been big mess for them to transition over, and they still have a long way to go. My mother, who is also a graphic designer, has been in the same boat.

I am buying her a mini to replace her machine which is OS 9 and all the relevant legacy apps. If it aint broke, don't fix it is the principle most of these people live by.

My girlfriend is still using OS 9 with some version of Quark.

I dont think many application developers actually worry about her needs, which is mutual as she doesn't worry about the other applications (for now).

The problem is more for someone sitting on OS 10.2 who wants to buy the latest applications but finds some problems with support. Should he have to upgrade his OS? Should application developers ensure their programs work on 10.2?

Obviously Apple would love for everyone to pay them money (and get the latest OS). But in terms of Apple and the Mac developer community, what is a more realistic goal, something actually workable?
post #12 of 22
Quote:
Originally posted by Tazznb
Wow....! Pathetic. What are they, scared? Or are they afraid to try out new hardware as well?

I would guess a combintation of cost, compatibility, and features. My mom has a 350 MHz iMac running 9.2.2. (1) I would bet that 9 still runs rings around Tiger, much less any 10.3 or earlier. (2) She has 64 MB. On 9, she can generally run IE and mail (outlook express) at the same time. They run fast enough for her (somethings may be faster with a faster computer, but her 1.5/256 DSL would be a general bottleneck). It would cost $$ to upgrade her--she'd have to buy more memory, new MS Word (which she uses at work), more memory (as MS Word needs alot/512 MB over the system to not be slowed down in my tests), maybe some other sw. So she'd have a slower machine, after having spent at least $500 on the upgrade. Not worth it! A mini might work, but she'd still have to upgrade the sw, upgrade its RAM (at least to 512), and buy a monitor, so she'd be out $1000+ (with a noticeably faster machine).

The cost of upgrading the software that you own can't be underestimated. Professional apps (Photoshop, Final Cut Pro, Quark, etc) cost at least $500, and require more memory than an OS 9 system (i.e., if you had a Photoshop system, 256 MB might have worked, but a new system, you'd want to get at least 1GB). If you own SCSI, ADB, or even USB devices, there may not be drivers for that hardware on OS X, so you'd have to buy replacement hardware.

I would bet that few of those 300 OS 9 people could upgrade to Tiger for $129--most of those people would have to spend at least hundreds more for a machine that might appear slower (their machine might be quite stable and they only use 1 or 2 apps at a time, so OS X's stability and app switching might not matter to them).

That said, there's NO excuse for still being on 10.0. I've never heard any "pro" arguments--only "con". 10.0 used more memory, was slower, and much, much buggier. I don't think any shipping app even supports it.
post #13 of 22
Quote:
would guess a combintation of cost, compatibility, and features. My mom has a 350 MHz iMac running 9.2.2. (1) I would bet that 9 still runs rings around Tiger, much less any 10.3 or earlier.

What a load of crap.

Comparing OS 9 to OS X is a joke. Please lets put the two, side by side, to the test and lets see how quickly we can make 9 lockup.
post #14 of 22
I am a graphic designer who was laid off in 2001 (9/11 downsizing), had trouble in an oversaturated market (Chicago) with too little work available until 2004, have student loans and got married last fall (paid forf wedding and honeymoon).

I use my Macs to make money and guess what...
I upgrade my Macs between 4 to 5 years and my pro apps (Photoshop, Illustrator, Quark, etc) either every other version or no further apart than 2 versions. Equipment and software is how I make money and part of this industry is based on knowing the latest and greatest (because half the time I work on a client's workstation with a wide range of old and new hardware and software, but hey are in periodic buying cycles and many are upgrading this year). I reiterate....IF YOU MAKE MONEY WITH YOUR MAC AND SOFTWARE, can write off hardware and software upgrades as business expenses (I do), then there is very little excuse not to unless one is too lazy to learn Application changes. In business there is a saying "Grow or Die".

I went from a Sawtooth G4 (400 Mhz G$ in 2004) to a Powerbook 15" Alum 1.5 Gig late 2004. I went from Photoshop 6 to CS Suite in January, and Quark 4 to 6.5 this month. These expenses will be paid off before June while maintaining my basic and descretionary funds at last year's levels.

People sitting on the fence because hardware was too expensive had good reason until the Mac Mini. People have good reason to hold off if they are not REALLY using their Macs to make money and can't write off the expense by at least 50%.
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post #15 of 22
A lot of OS9 users are also the Quark 4 users which doesn't run well under classic emulation.

Quark on OSX was a joke up until very recently so there was little point for a lot of Quark 4.11 users to upgrade. If that's all they do on their machine then an OS9 machine is better for them.

I've argued with designers stuck on Quark that the benefits of a fast new G5, OSX and a move to InDesign would soon pay back their time and costs but when they've got continuous work on, taking the time out to move to a new system isn't to be underestimated.

Now that a G5 iMac is arguably faster than anything a print designer could need I'd bet the cost benefit of a switch is finally tipping in the upgrades favour. Plus those old G4s can't be much longer for this world.

The price of the extra ram needed for a pro is negligible really. They should be able to pay for a couple of gig extra with a days work and it'd pay for itself in a week.

Apart from Quark, almost any old software I've tried, including Word98 works in classic. There's quite a performance leap from an iMac 350Mhz to a Mac Mini even if you're running old software in classic mode.
post #16 of 22
Quote:
Originally posted by hmurchison
Man folks underestimate the stubborness of Mac users. Hell PC users too. If it isn't broke they're not replacing it generally.

Is that subborness or wisdom?

I mean, if it ain't broke...why fix it?
post #17 of 22
Quote:
Originally posted by ChillMac
I reiterate....IF YOU MAKE MONEY WITH YOUR MAC AND SOFTWARE, can write off hardware and software upgrades as business expenses (I do), then there is very little excuse not to unless one is too lazy to learn Application changes.

Well, in all fairness it should be more than simply "if you can write it off". A wise business decision needs to weigh the net cost against the net gain. Some of that calculation may be in $, productivity, expanded capability, etc. But just because you can write it off doesn't mean there is any benefit to be gained. It just makes the net cost less.
post #18 of 22
Quote:
Originally posted by Chris Cuilla
Is that subborness or wisdom?

I mean, if it ain't broke...why fix it?

I think it's a balancing act. I think people especially small entrepreneurs don't always think about where they could be more efficient. How they can attract and fulfill more client needs. If you cannot for the life of you see how an upgrade will improve your workflow and productivity then by all means don't upgrade but I have the think that people still using PS 5 or 6 or Quark 4 outside of a prepress facility could find value in the current apps. It's all on a case by case basis really.
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post #19 of 22
Quote:
Originally posted by mdriftmeyer
What a load of crap.

Comparing OS 9 to OS X is a joke. Please lets put the two, side by side, to the test and lets see how quickly we can make 9 lockup.

OK. For what my mom does--turn on the computer, check e-mail look at some web sites, then shut down the computer, only once a month does she run into problems (usually IE running low on memory). She knows she can quit Outlook if she's going to be on IE a while to free up more memory, and stay on IE longer. Sometimes she usues AppleWorks to print pictures that we send her. The stability of OS 9.2..2 is quite good for her. So YOU and I might be able to lockup 9 easily, but she doesn't--she has a routine that (either from the start or learned over the years) makes OS 9.2.2. Quite stable. I have more problems with OS X stability than she does (about every 3rd day, my 10.3.8 computer freezes, a little better than 10.3.7, which was maybe everyother day). However, my useage (always on, always something running) would probably make OS 9 lock up earlier--but she doesn't use her computer that way, so she'd never (or very rarely) run into my problems with her useage patterns.

As for speed, I'd happily compare launch times for a 64 MB 350 iMac running OS 9 with a 128 MB OS X 10.3.8 (or would you need 256 for a "fair" comparision?). It would have to be comparing 4 programs--AppleWorks, IE vs Safari, Outlook vs Mail, Word (pre-Office) vs Mac Office 2004 Word. On her 64 MB iMac, it rarely takes more than 5 seconds for any program to fully launch (and remember this IS a 350 MHz G3 machine)
post #20 of 22
Quote:
Originally posted by Tazznb
Wow....! Pathetic. What are they, scared? Or are they afraid to try out new hardware as well?

OK, I'm confused. I thought one of the arguments 'for' apple computers was they were useful a lot longer than PCs, and as such, costing more up front doesn't mean it costs more long-term. Great. But now everyone wants everyone to upgrade every 2-3 years? Just like PC users? Where's the benefit then?

I agree with the posters basically arguing the "If it works for you, WHY change?" I mean, even upgrading from Panther to Tiger, should everyone just go out and buy it because you all say we should? Or should we judge based on our needs? I mean, how often have people rushed to upgrade only to find out some piece of hardware they have no longer works? Or their computer starts acting futzy. Or a ton of other minor issues, all to get features they might not use at all (for example, I seldom to never use Expose - most of the time its used, its by accident than intention - which was one of the biggest selling points of Panther). How exactly is a new computer plus Tiger going to improve Mom's IE and mail usage? Esp. for someone who doesn't even realize you can open more than one browser window at once. I know people who feel they must type addresses into Yahoo's search box to get there (that's right, rather than the address bar, you search for 'www.amazon.com' in Yahoo, then click the link it gives you). Doesn't matter how often you say "Hey, you know you could just type it HERE!", they do what they'll do. That's a good hunk of PC/Mac users, too.

And remember that just because you use a Mac in business doesn't mean everyone does. Or that most people using 9 are holdout Quark users. Most of them might be Mac users who don't even know there is an OS update, let alone that they're missing out on anything. And some people just don't care (you ever try to talk to someone who doesn't have a computer about how useful they could be? Most just don't care).
post #21 of 22
But sometimes change is good...

Okay, I agree if you use a computer for nothing more than e-mail and word processing, than the old PowerPC's and iMac G3's running 9.x are going to be about all you need. You certainly don't need an iMac G5 to print off word documents and check your e-mail; HOWEVER the claim that OS9 runs circles around Panther - or Tiger when it comes out are pretty far fetched...

But to the topic of this thread...

Apple will make a killing with software - especially their ProApps (Final Cut Pro, DVD Studio Pro, Shake, Motion, etc.) which are getting more and more support from small and large film editors alike. There might not be a huge market for this, but Apple has priced accordingly to compensate for a smaller market, dev. costs, marketing, etc. Don't forget Steve's other day job is CEO of a little company called Pixar. I don't think they're editing and doing CGI work on old iMacs and PowerPC's running 9.x. The old rule of business still applies ... if they'll buy it, than we'll sell it. People are obviously shelling out meny for the ProApps, and I would only expect this to increase as more and more people see the Macintosh as a powerful machine capable of incredible things and not just some eye candy in a cool box...

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post #22 of 22
Quote:
Originally posted by Louzer
OK, I'm confused. I thought one of the arguments 'for' apple computers was they were useful a lot longer than PCs, and as such, costing more up front doesn't mean it costs more long-term. Great. But now everyone wants everyone to upgrade every 2-3 years? Just like PC users? Where's the benefit then?

I agree with the posters basically arguing the "If it works for you, WHY change?" I mean, even upgrading from Panther to Tiger, should everyone just go out and buy it because you all say we should? Or should we judge based on our needs? I mean, how often have people rushed to upgrade only to find out some piece of hardware they have no longer works? Or their computer starts acting futzy. Or a ton of other minor issues, all to get features they might not use at all (for example, I seldom to never use Expose - most of the time its used, its by accident than intention - which was one of the biggest selling points of Panther). How exactly is a new computer plus Tiger going to improve Mom's IE and mail usage? Esp. for someone who doesn't even realize you can open more than one browser window at once. I know people who feel they must type addresses into Yahoo's search box to get there (that's right, rather than the address bar, you search for 'www.amazon.com' in Yahoo, then click the link it gives you). Doesn't matter how often you say "Hey, you know you could just type it HERE!", they do what they'll do. That's a good hunk of PC/Mac users, too.

And remember that just because you use a Mac in business doesn't mean everyone does. Or that most people using 9 are holdout Quark users. Most of them might be Mac users who don't even know there is an OS update, let alone that they're missing out on anything. And some people just don't care (you ever try to talk to someone who doesn't have a computer about how useful they could be? Most just don't care).

It's true that Macs last longer. We discontinued using my old upgraded 9500 finally middle of last year. My wife was using it for internet and e-mail. I finally persuaded her to let me get her a new machine. We also have a B/W. I have it in my shop downstairs. My daughter and I have newer machines.

I'm waiting for a Express bus G5 to come out. My daughter, who is 13, will be going to art school next term, and will be getting a new one then.

The point here is that a company such as Apple is in the wilderness, so to speak. Being that they are not compatible with Windows, they can't benefit from the programs available on that platform.

The market for Mac programs is, for the most part, much smaller than the Windows market, while the R&D costs to write those programs remains the same. We have to buy those programs at a much higher per capita percentage than Windows users must, if they are to remain profitable.

As more programs (except possibly for games) tend to be bought by those getting new machines, or at least upgrading their OS, you can understand the problem.

If people remain on old systems and software, the companies we rely on to provide it will lose sales, profits and get out of the market. If that happens, then the computer sales will shrink further as well, and a vicious cycle begins.

Goodbye Apple.

The opposite happens if sales go up.

Apple announced last quarter that their computer sales were up 27% over the quarter the year before. They have just now announced that computer sales this quarter were up 43% over the quarter a year ago.

This is what we need for a strong platform. Even though Apple said that they didn't think that growth at this level could be sustained, they would be happy with the 15% that they are predicting long term. If the industry continues to grow at a 7 to 10% rate, then Apple's market share would slowly, but continually increase.

This would make our position in the industry strong, and would insure that innovation in both hardware and software would continue.

As that innovation is what Apple depends upon to push its platform, it is imperative that it continue.

Everyone doesn't have to buy new stuff every 2 years or so, but enough must for the platform to survive, and remain healthy.

I'm not Uncle Sam, pointing my finger and saying "I need you!". But the concept is there.

Understand?
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