WOW! Apple posts record earnings

Back in the day, Apple would report poor earnings on a Friday after the market closed (so people might forget about it over the weekend) and good earnings on a Thursday.  And when they announced today, a Monday, people expected big news.  But not this big! Apple generated $24 Billion dollars in revenue in FY07 (their first fiscal qtr is the holiday qtr) and shipped more than 2 million Macs, 10 million iPods, and 1 million iPhones.  Analysts expected profit of around $0.67 per diluted...

Back in the day, Apple would report poor earnings on a Friday after the market closed (so people might forget about it over the weekend) and good earnings on a Thursday.  And when they announced today, a Monday, people expected big news.  But not this big! Apple generated $24 Billion dollars in revenue in FY07 (their first fiscal qtr is the holiday qtr) and shipped more than 2 million Macs, 10 million iPods, and 1 million iPhones.  Analysts expected profit of around $0.67 per diluted share: Apple reported more than $1 per share - above even the highest expectations.  Apple's after hours stock price hit another all-time high of over $184 per share. This performance, coming off a great Back To School season, and reports of huge market share gains may be just the beginning.  Now that the holiday season is here, can we expect even bigger things from Steve and Co?

  • Wall Street Breakfast: Must-Know News

    Paulson: No GSE rescue planned. Treasury secretary Paulson says he has no plans to use congressional authority to inject Treasury capital into government-sponsored mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) - despite last week's dismal earnings reports, which he says were no surprise. "Given that Fannie Mae and Freddie Mac are solely involved in housing, that’s their sole business, and given the magnitude of the housing correction we’ve had, it’s not a surprise to me to see those losses." Paulson also downplayed the need for a second stimulus package. Private equity soaks up $8B of RBS's LBO debt. Sources say Royal Bank of Scotland (RBS) is dishing off up to $8B in LBO loans to private-equity firms, who are becoming increasingly aggressive in their pursuit of cheap debt. The buyers - Apollo (AINV), GSO Capital, Blackstone (BX) and TPG - stand to make returns of up to 30%. GSO is also lending money to Blackstone to help it complete LBOs such as its joint acquisition of The Weather Channel, prompting rivals KKR and TPG to seek out their own debt-market partners. "Purchasing debt at big discounts is a terrific one-off opportunity," Morgan Stanley's Mark Bradley says. "But firms like GSO, with their ability to provide all the debt to buy-outs, are going to change private equity in a lasting way." Credit unions: next shoe? Five of the largest U.S. credit unions are reporting big paper losses on mortgage-related securities - a sign housing-market distress is spreading to even the most risk-averse participants. The federal regulator of credit unions thinks losses are likely to be reversed when mortgage markets stabilize, and says the institutions are adequately capitalized. Some worry they're underestimating the depth of their mortgage-market problems. After you finish reading Wall Street BreakfastSeeking Alpha's Market Currentswill keep you current all day long. iPhone apps hot seller - Jobs. Users have downloaded over 60 million iPhone programs from Apple's (AAPL) AppStore, CEO Steve Jobs told the WSJ in an interview. If sales keep up, Apple could bag at least $360M/year in new revenue. Mind you, Jobs thinks bigger than that: "This thing's going to crest a half a billion, soon. Who knows, maybe it will be a $1 billion marketplace at some point in time - I've never seen anything like this in my career for software." UPS downplays TNT deal talk. UPS (UPS) is in initial talks for a €10B buyout of Dutch logistics firm TNT, after recent talk of a FedEx bid (FDX) fizzled. Morgan Stanley (MS) is advising UPS; Goldman Sachs (GS) is advising TNT. A deal would vastly enhance UPS's Europe reach. In a Monday interview with Reuters, UPS downplayed the chatter, saying a deal would devalue its shares. Shares of TNT initially leapt more than 6% Monday, but fell back on UPS's lack of enthusiasm. Naked shorts rule about to expire. The emergency measure that protects a select group of 19 financial stocks from abusive short-selling expires Tuesday. At least two-month is likely to pass before a similar rule under consideration may be imposed. Some say traders may not pick up where they left off: "A message has been sent and I don’t think we’ll see a return to that." Others are less sure: "We remain concerned that during this interim time period our members will continue to be exposed to these 'distort and short'" games, ABA's Sarah Miller says. Waste Management to boost bid for Republic. Sources say Waste Management (WMI) will raise its bid for rival Republic Services (RSG) by about 10% to $6.73B - or $37/share from $34/share. That would be a 33% premium to RSG's share price before the initial bid. Despite initial pessimism, it seems a deal would pass regulatory muster. Republic, meanwhile, is attempting to buy rival Allied Waste Industries (AW) for $6.24B in stock - a move a raised bid from WMI could thwart. Though Republic is smaller than both Waste and Allied, it is considered the top waste-hauler in the country. Update: Confirmed. NBC finds winning combo with TV-Internet Olympic coverage. NBC's (GE) decision to air the Olympics on both TV and the web seems to be paying off. Friday night's taped opening ceremony reached 34.2M viewers, a jump of 35% from the last summer games, and Saturday's network coverage attracted 24.1M viewers, the highest audience for the Summer Olympics in a decade. The NBC webcasts scored high too, with a record 4.8M people watching streaming Olympic video on Saturday. Despite fears that offering Olympic content online would lead to internet piracy and erosion of the television audience, "the early numbers suggest that all of this is fueling more interest," said Gary Zenkel, president of NBC Olympics. Inflation expectations dive. TIPS (Treasury Inflation Protected Securities) traders think the commodities top is in, as inflation expectations fall to a 10-year low. "The bottom line is you've seen a significant turn in commodity prices," RBC's Thomas Tucci says. "Going forward you're more likely to see inflation erode." If I'm the Fed, Cantor Fitzgerald's Brian Edmonds muses, "I feel pretty good about my statement that we expect inflation to moderate over time." American, BA, Iberia pushing for closer ties. American Airlines (AMR), British Airways (BAIRY.PK), and Iberia are seeking permission from the U.S. government to cooperate more closely on trans-Atlantic flights. Antitrust immunity would allow the airlines to cooperate internationally on pricing, scheduling, and marketing. Coming amidst rising fuel costs and stiff industry competition, the airlines see the move as cost-saving and say it will allow travellers a greater choice of destinations and flight connections. However, not all are pleased with the idea of greater airline cooperation; critics argue it will lead to less competition, higher prices and fewer choices. GATX deals for GE Freight. Freight car lessor GATX (GMT) is offering about $3.5B for GE's (GE) rail services unit, sources say. GATX CEO Brian Kenney recently told investors he's looking to invest more aggressively during the economic downturn. JDA Software to buy i2. JDA Software (JDAS) announces a $346M merger agreement to acquire i2 Technologies (ITWO)- a 5% premium on ITWO's Friday close. The merger will create a global leader in the supply chain planning and optimization market. China trade surplus jumps. China's trade surplus widened to $25.3B (+4%) in July, beating analyst estimates by more than $5B. Exports rose 26.9%. The strong numbers are likely to rekindle talk of Beijing allowing yuan gains to accelerate. Stocks plunged 5.2% to an 18-month low, as China overtook Vietnam as the world's worst performer this year. A Goldman note said the Olympics will slow the economy. Earnings: Monday Before Open Clear Channel Outdoor (CCO): Q2 EPS of $0.23 beats by $0.04. Revenue of $915M (+9.3%) vs. $864M. [PR] Today's Markets Asian markets closed mixed on Monday: Nikkei +1.99% to 13,431. Hang Seng -0.12% to 21,859. Shanghai -5.21% to 2,470. BSE +2.22% to 15,504. European markets at midday: London +0.81%. Paris +0.47%. Frankfurt +0.35%. U.S. futures are slightly higher at 7:15 AM. Dow +0.08%. S&P +0.08%. Nasdaq +0.23%. Crude +0.89% to $116.22. Gold +0.56% to $862.60. Monday's economic calendar: 6:00 Fed Survey on Bank Lending Notable pre-open earnings: CNO, HYGS, LINTA, PEIX, RDN, RTK, SYY, VRX Notable post-close earnings: AOB, BE, EXM, FLR, HPT, LDK, MDR, NUAN, POM, SONS, TWTC Seeking Alpha editor Rachael Granby contributed to this post. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

  • Wall Street Breakfast: Must-Know News

    UBS posts Q2 loss, plans to restructure. Swiss banking giant UBS (UBS) reports a Q2 net loss of CHF358M ($329M), including $5.1B in writedowns. Looking ahead to the second half, UBS says it doesn't expect any improvement "in the adverse economic and financial market trends that affected this quarter's results," adding, "UBS will continue its program to reduce personnel levels, costs and risk." As anticipated, UBS said it will begin separating its troubled investment bank from its wealth-management unit - but said it has not plans to sell the I-bank. UBS continued to cut back on its exposure to toxic debt: Subprime holdings fell to $6.7B from $15.6B while Alt-A exposure dropped to $6.4B from $17.1B. Shares rose 2.8% in overseas trading. Cuomo drags three more banks into ARS melee. NY AG Cuomo sent letters to JPMorgan (JPM), Morgan Stanley (MS) and Wachovia (WB), warning them to get on board with auction-rate securities settlements. Morgan Stanley's $4.5B ARS offer fails to impress Cuomo. Morgan Stanley (MS) said it is willing to buy back $4.5B in auction-rate securities, following similar settlements by Citigroup (C), UBS (UBS), and Merrill Lynch (MER). NY Attorney General Andrew Cuomo called Morgan Stanley's (MS) buy back offer "too little, too late." Cuomo is expected to press for fines on top of a more substantive settlement. After you finish reading Wall Street BreakfastSeeking Alpha's Market Currentswill keep you current all day long. IEA breathes a bit easier. The IEA (International Energy Agency) says tight global oil supply that has seen crude rise to record heights this year is easing - but cautions that heavy China consumption and geopolitical tension still have the potential to send prices back up. "In terms of oil fundamentals, crude and product supply tightness has eased," it said. But "we continue to stress the supply uncertainty that's out there. The events over the past week in Georgia and Turkey have only reconfirmed that." The IEA dropped its global demand growth forcast by 100K barrels/day due to a major demand pullback in the U.S. (-3.1% this year and -2% next year). (.pdf) JPMorgan hit with $1.5B writedown. JPMorgan (JPM) warned that credit-market turbulance forced it to take a $1.5B writedown on mortgage-backed assets in July. The firm says mortgage market trading conditions have substantially deteriorated since the beginning of July. Bankers are saying July was the worst month for mortgage-backed bonds since the crisis began. Mitsubishi UFJ plans UnionBanCal buy out. Mitsubishi UFJ Financial Group (MTU) plans to spend $3B to buy out minority investors in U.S. commercial-banking unit UnionBanCal (UB). At $63 per share, Mitsubishi UFJ's offer represents an 8.3% premium on UnionBanCal's Monday closing price. Mitsubishi UFJ has made it clear that it wants a bigger presence in the U.S., and plans to take part in future consolidation of the U.S. banking industry. The bid is the latest in a series of multi-billion dollar deals in the U.S. by Japanese companies that have emerged relatively unscathed from the subprime crisis. Middleby buying TurboChef for $200M. Middleby Corp. (MIDD) announced an agreement to acquire TurboChef Technologies (OVEN) for approximately $200M. TurboChef shareholders, who need to approve the merger, will receive a cash-stock payout combination of $3.67 in cash and 0.0486 Middleby shares for each TurboChef share. TurboChef has greatly expanded its customer base in recent years and is a leader in speed cook technology, a field Middleby believes is in the beginning stages of gaining broader market acceptance. 3M iPhones in first month. After just one month, iPhone 3G (AAPL) sales reportedly top 3M - way ahead of expectations. "They are seeing unprecedented demand," Michael Cote of the Cote Collaborative says. While not commenting on Cote's estimates, Apple did disclose it sold 1 million iPhones during the first three days; it took Apple 74 days to hit the one million mark with the original iPhone. Germany mulls limiting foreign investment. The German government will vote on August 20 on a bill that could be used to prevent foreigners from buying 25% or more in German companies deemed crucial to the country's security. Opponents say it will deter foreign investment. (ETF: EWG) Airlines soon profitable? Airline stocks extended their rally Monday after Morgan Stanley said there's a chance the industry could return to profitability by 2009 if the price of oil stays down. The broker says recent moves by carriers to reduce seats and increase fees could ultimately be a positive for the battered sector. UAL +10%. AMR +8%. CAL +8%. UAUA +5.4%. Fed Survey on Bank Lending. 65% of banks said they tightened credit-card lending, car and consumer loans during the last quarter. 70% say they'll tighten standards on commercial real estate loans. Major loan categories were tighter across the board. Toyota mulls exporting us gas guzzlers. Trying to stay ahead of the auto industry downturn, Toyota (TM) said it is considering downsizing U.S. manufacturing jobs, and may start exporting U.S.-made U.S. pickups and SUVs abroad. Some analysts were puzzled by the proposal; the larger vehicles are not big sellers outside of U.S. borders. Precious metals plunge again. Gold, platinum, and silver hit 7-month lows on concerns of reduced demand for raw materials. Commodities descend Monday into bear territory, with S&P's GSCI index off 22% from its July 3 highs. Blue Chip economists sour on H2 and 2009. They now see Q3 GDP growth of 1.2%, down 0.1% from previous estimates, and Q4 growth of just 0.3% - down 0.3%. Year-end unemployment is seen at 6%. 56% think the U.S. economy is in recession. India production up 3.4%. India's production in six key industries, accounting for a quarter of the country's industrial production, grew 3.4% in June from a year earlier. (ETFs: INP, EPI) Inflation pulls back in China. China's inflation slows to a ten-month low, allowing the government a chance to focus on sustaining economic growth instead of fighting rising prices. (ETFs: FXI, PGJ) Earnings: Tuesday Before Open Fossil (FOSL): Q2 EPS of $0.36 beats by $0.11. Revenue of $353M (+15.2%) vs. $347M. [PR] JA Solar (JASO): Q2 EPS of -$0.01 vs. consensus of $0.15. Revenue of $180M (+170.7%) vs. $170M. [PR] Earnings: Monday After Close Fluor (FLR): Q2 EPS of $0.87 beats by $0.05. Revenue of $5.77B (+36.8%) vs. $5.18B. Sees full-year EPS of $3.39-3.54 vs. $3.29. Shares +3.9%. [PR] LDK Solar (LDK): Q2 EPS of $1.29 beats by $0.87. Revenue of $442M vs. $282M. Sees 2008 revenue of $1.65-1.75B vs. $1.16B. Shares +25.3%.[PR] Napster (NAPS): FQ1 EPS of -$0.10 misses by $0.01. Revenue of $30.3M (-6%) vs. $30.5M. Shares -1.1%. [PR] McDermott International (MDR): Q2 EPS of $0.77 in-line. Revenue of $1.79B (+26.4%) vs. $1.85B. Shares -8.1%. [PR] Safe Bulkers (SB): Q2 EPS of $0.82 beats by $0.21. Revenue of $51.4M (+48.1%) vs. $49.6M. Shares +3.6%. [PR] TravelCenters of America (TA): Q2 EPS of -$0.69 beats by $0.23. Revenue of $2.28B vs. $2.15B. [PR] TW Telecom (TWTC): Q2 EPS of $0.00 misses by $0.01. Revenue of $290M (+2.7%) in-line. [PR] Verasun Energy (VSE): Q2 EPS of $0.15 beats by $0.13. Revenue of $1.01B (+498.7%) vs. $925M. [PR] Today's Markets Asian markets closed lower on Tuesday. Nikkei -0.95% to 13,304. Hang Seng -1.0% to 21,641. Shanghai -0.52% to 2,457. BSE -1.88% to 15,213. Europe at midday: London +0.2%. Paris +0.05%. Frankfurt -0.05%. U.S. futures at 7:10 AM: Dow -0.08%. S&P -0.04%. Nasdaq +0.15%. Crude -0.74% to $113.63. Gold -0.65% to $822.80. Tuesday's economic calendar: 7:45 ICSC Retail Store Sales8:30 Trade Balance8:55 Redbook Chain Store Sales10:00 IBD/TIPP Economic Optimism10:00 Job Openings and Labor Turnover10:30 Fed's Gary Stern on CNBC2:00 PM Treasury Budget5:00 PM ABC Consumer Confidence Index Notable pre-open earnings: CNO, FOSL, GOL, JASO, TJX, UBS, VSE Notable post-close earnings: AMAT, BZP, CREE, DNDN, MELI, NVDA Seeking Alpha editor Rachael Granby contributed to this post. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

  • Apple reports highest Mac Sales EVER

    Apple just issued the press release for their 3rd Quarter Financial results, and things couldn't be going any better for Macs. Revenue is up 38% year-over-year, and Mac Sales are at an all time high. Apple shipped 2,496,000 Macs during the quarter, representing 41% growth from the previous year. That's absolutely amazing. Full press release after the jump. CUPERTINO, Calif., July 21 /PRNewswire-FirstCall/ — Apple(R) today announced financial results for its fiscal 2008 third quarter ended June 28, 2008. The Company posted revenue of $7.46 billion and net quarterly profit of $1.07 billion, or $1.19 per diluted share. These results compare to revenue of $5.41 billion and net quarterly profit of $818 million, or $.92 per diluted share, in the year-ago quarter. Gross margin was 34.8 percent, down from 36.9 percent in the year-ago quarter. International sales accounted for 42 percent of the quarter's revenue. Apple shipped 2,496,000 Macintosh(R) computers during the quarter, representing 41 percent unit growth and 43 percent revenue growth over the year-ago quarter. The Company sold 11,011,000 iPods during the quarter, representing 12 percent unit growth and seven percent revenue growth over the year-ago quarter. Quarterly iPhone(TM) units sold were 717,000 compared to 270,000 in the year-ago-quarter. “We're proud to report the best June quarter for both revenue and earnings in Apple's history,” said Steve Jobs, Apple's CEO. “We set a new record for Mac sales, we think we have a real winner with our new iPhone 3G, and we're busy finishing several more wonderful new products to launch in the coming months.” “We're extremely pleased with the growth of our business and the generation of almost $5.4 billion in cash in the first three quarters of fiscal 2008,” said Peter Oppenheimer, Apple's CFO. “Looking ahead to the fourth quarter of fiscal 2008, we expect revenue of about $7.8 billion and earnings per diluted share of about $1.00.” Apple will provide live streaming of its Q3 2008 financial results conference call utilizing QuickTime(R), Apple's standards-based technology for live and on-demand audio and video streaming. The live webcast will begin at 2:00 p.m. PDT on Monday, July 21, 2008 at www.apple.com/quicktime/qtv/earningsq308/ and will also be available for replay. This press release contains forward-looking statements including without limitation those about the Company's estimated revenue and earnings per share. These statements involve risks and uncertainties, and actual results may differ. Risks and uncertainties include without limitation potential litigation from the matters investigated by the special committee of the board of directors and the restatement of the Company's consolidated financial statements; unfavorable results of other legal proceedings; the effect of competitive and economic factors, and the Company's reaction to those factors, on consumer and business buying decisions with respect to the Company's products; war, terrorism, public health issues, and other circumstances that could disrupt supply, delivery, or demand of products; continued competitive pressures in the marketplace; the Company's reliance on sole service providers for iPhone in certain countries; the continued availability on acceptable terms of certain components and services essential to the Company's business currently obtained by the Company from sole or limited sources; the ability of the Company to deliver to the marketplace and stimulate customer demand for new programs, products, and technological innovations on a timely basis; the effect that product transitions, changes in product pricing or mix, and/or increases in component costs could have on the Company's gross margin; the effect that product quality problems could have on the Company's sales and operating profits; the inventory risk associated with the Company's need to order or commit to order product components in advance of customer orders; the effect that the Company's dependency on manufacturing and logistics services provided by third parties may have on the quality, quantity or cost of products manufactured or services rendered; the Company's dependency on the performance of distributors and other resellers of the Company's products; the Company's reliance on the availability of third-party digital content; and the potential impact of a finding that the Company has infringed on the intellectual property rights of others. More information on potential factors that could affect the Company's financial results is included from time to time in the Company's public reports filed with the SEC, including the Company's Form 10-K for the fiscal year ended September 29, 2007; its Forms 10-Q for the quarters ended December 29, 2007 and March 29, 2008; and its Form 10-Q for the quarter ended June 28, 2008, to be filed with the SEC. The Company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market with its revolutionary iPhone. (C) 2008 Apple Inc. All rights reserved. Apple, the Apple logo, Mac, Mac OS, Macintosh, iPhone and QuickTime are trademarks of Apple. Other company and product names may be trademarks of their respective owners.

  • Forbes' Fake Steve Jobs Is Also Fake On Apple

    Daniel Eran DilgerDaniel Lyons is the author of the Fake Steve Jobs blog and a columnist at Forbes. After developing a reputation for attacking bloggers, open source, and any alternatives to Microsoft, Lyons has shed his skin to escape from one scandal while at the same time squirming into position to choke the truth out of his next victim: Apple.Reader Marc Elson sent in a link to Lyons' “Snowed by SCO,� an article Lyons wrote to both apologize for and marginalize his years of articles in Forbes that misrepresented the issues in the SCO Groups' attack on Linux. He blamed his reporting on bad information he'd been fed by SCO. It's easy to backtrack now that SCO is toast; in fact it's rather impossible not to. However, neither Lyons nor Forbes can erase the years of false information and misleading spin they published, which not only idealized SCO but also lambasted any individuals critical of the company. He described anyone supporting Linux as religious folk "convinced of their own righteousness."While fighting for SCO, Lyons also attacked “bloggers� in a front page article in Forbes that screamed, “they destroy brands and wreck lives. Is there any way to fight back?� as if everyone who writes on the Internet operates as a class that can be summarily judged and dismissed at once. [Snowed By SCO - Forbes]Daniel In the Lyons Den Again.Lyons' lack of hesitation in throwing out poorly conceived attacks is getting him into trouble again. He seems to be working frantically to spin together a bizarre new tale of how Apple is going to simultaneously be torn apart by the can-do-no-wrong Microsoft while also turning into a shadow of the evil monopolist itself, threatening us with its fearsome dominance.Lyons resurrected the identical, wholly illogical conundrum of a paradox posited last year by Windows Enthusiasts, principally Paul Thurrott, who spoke in fear of a threatening monopoly position achieved by Apple's iTunes while--puzzlingly--also describing Apple's music business as a pitiful failure that could never withstand the market dominance of Microsoft. Is it part of a new Forbes campaign? Lyons' new work echos other regular articles from Forbes writers, all attacking Apple and reality in the same breath:Presenting Apple TV a supposed flop, despite its profitably outselling the TiVo this year without incurring the tens of millions in losses TiVo has suffered in the last quarter and in every one of the last several years.
Promoting MusicNet Digital's failed Microsoft partnership in selling music against iTunes and describing the Zune as something other than a spectacular failure. Even the most giddy Zune fan sites are appalled by Microsoft's lack of support in providing updates and fixes for the Zune's major failures. How is Forbes framing it as some kind of sleeper hit?[The iTunes Monopoly/Failure Myth][Scott Woolley Attacks Apple TV in Forbes, Gets the Facts Wrong][Forbes Prints Insanely Self Serving Attack on iTunes by MediaNet CEO Alan McGlade]When Cost Is No Object: Microsoft Media Center.Reader Robert de Bie forwarded a link to Lyons' breathless accolades over Microsoft's Media Center software, which opened with the line, “Guess who's got the slickest software for handling TV, movies and music? Not Apple.�Lyons compared using a Mac and Apple TV with a PC running Vista Ultimate with Media Center features and an Xbox 360 to relay content to a TV. He raved that the Microsoft solution “can do things with digital media that even Apple can't match.� That's true, as Media Center is principally a DVR, a software version of the TiVo; Apple doesn't sell anything the works like a TiVo to record TV. However, Lyons only noted in passing that “Microsoft charges $400 for Vista Ultimate--$300 too much,� failing to add up that a Mac comes with free Front Row features. Apple TV hardware costs $300; it supplies ultra fast 802.11n wireless and, at a minimum, a 40 GB hard drive.In contrast, an Xbox 360 with a 20 GB hard drive costs $350, and another $100 for slower 802.11b/g wireless. So as a wireless media extender, the Xbox 360 costs $450 (50% more), but gives you half the disk capacity and slower networking.Additionally, the required Media Center software that costs another $400 in Vista Ultimate doesn't magically provide you with a TV tuner, so you still have to buy one.In other words, all the money you throw at Microsoft only gives you software that is otherwise free. Without having to pay for all that software licensing, you can go buy whatever TiVo-like TV tuner for the Mac fits your needs, and solve the problem for hundreds of dollars less.Of course, what Apple wants you to do is go without a TV tuner and an expensive cable subscription and simply buy the TV and movies you want to watch from iTunes. Of course, that's not necessary to use Apple TV; you can also rip your own DVDs or even use it to manage your home movies and free podcasts, something Media Center isn't really designed to do because there's no money in it. Don’t forget that there are more fees involved with Xbox Live services, and that TV downloads are more expensive. You’ll also need to pre-purchase Microsoft’s points, converting your cash into Microsoft Live currency that’s subject to change. And once you buy Xbox Live TV shows, don’t expect them to play on your Zune or Windows Mobile phone the way iTunes content plays on Apple’s iPods and iPhone.Of course, when Microsoft sends writers all this equipment to try out for free, then it’s easy to gush over how great it all works and report, "No crashes, no reboots, no blue screen of death. Stunning," as Lyons did. Had he actually been forced to pay the $840 premium to actually use Microsoft’s system, perhaps he’d sing another tune.While Lyons is certainly entitled to his opinion, he should at least present the facts correctly. Outlining any Microsoft product without a consideration of its true cost is always a mistake, because the true cost is almost always hidden. Lyons also wrote “Microsoft's system supports high-definition video; Apple TV does not,� a line that isn't true. Content from iTunes isn't yet available in HD, but the Apple TV does support HD video from other sources and comes equipped with support HDMI, which only the newest Xbox consoles have. Considering that Microsoft has barely sold any new Xbox 360 units this year, fewer than 20% of installed Xbox users even have HDMI outputs. [Windows XP Media Center Edition vs Apple TV][Forrester Research: Epic Terror of iTunes and Apple TV]Big Brother Says: Apple is the New Microsoft.Since publishing that “Media By Microsoft� article a couple weeks ago, Lyons has ramped up his attack on Apple into a web of false information that approaches his SCO shilling. He even exploits his popular Fake Steve Jobs blog for dramatic effect.Lyons starts his newspeak reporting, ironically enough, in an article titled “Big Brother,� with a comical juxtaposition of Apple's 1984 Macintosh ad and a modern screenshot of Jobs presenting the new 3G iPod Nano against a huge video screen of his own image. Lyons had earlier published the images on his Fake Steve Jobs blog after a reader had submitted them.This is funny stuff, because in both images, there's a greying white man with glasses on a huge TV screen talking. But in 1984, the man is talking about universal ideology to a numb audience, while in the modern scene, Jobs was talking about changing the market for mobile video with a 6.5mm device, and the crowds were enthusiastically applauding.There was one other amusing similarly however: shortly before eating the hammer thrown by the Macintosh girl in orange hotpants, the 1984 Big Brother screen says, “Our enemies shall talk themselves to death and we will bury them with their own confusion. We shall prevail!�In 2007, Jobs has said some similar things about Microsoft, but the Macintosh hammer is actually being thrown at Vista. So while it’s not exactly the same thing, it is a funny coincidence. Along those lines, Lyons provided some examples of how, as an enemy of Apple, he can talk himself to death and be buried in his own confusion.[Big Brother - Forbes]Here's What You Believe.So far, we've just covered the photos on the article. Once Lyons started writing, it was like SCO all over again. He says early iPhone buyers “were threatening to take to the streets again--only this time with pitchforks and torches. They were furious because Apple Chief Steve Jobs slashed the phone's price to $400 from $600, making early adopters look like suckers.�If Lyons really wants to make up garbage and rewrite history, he should confine himself to Wikipedia where he can't do any damage. The people complaining about getting what they paid for were a whiney minority amplified by a desperate press trying to find something wrong with the most successful electronics product launch in history.Anyone who thinks buyers who paid $600 for the iPhone to get the hottest new device available--and who ended up with a phone that cost less overall than even the $99 Motorola Q, and further got a $100 refund credit--are “suckers� needs to reevaluate what being a sucker might mean. Perhaps paying Microsoft $850 for the equivalent of a $300 Apple TV with less storage and a slower network, and then still needing to buy a TV tuner is a better example of being a “sucker.�The only difference is that Lyons didn't get a free iPhone from Apple, but did get a bunch of Microsoft Media Center stuff to try out without having to pay for any of it as the rest of us would have to do, were we inclined to let Microsoft control our TVs.[Ten Fake Apple Scandals: 1 - Phony Rage About iPhone Price and Profits]The SCO Shill Lines Up Behind Microsoft, AT&T, and the RIAA.It might not be a surprise that a writer who identified SCO as safe to cheerlead for because of its seemingly legitimate corporate position would similarly jump at the opportunity to weep crocodile tears for some of the other most reviled companies doing business on the planet. Lyons is apparently not very smart about picking corporate favorites.“It looks like an anti-Apple backlash has begun,� Lyons wrote, noting that NBC Universal pulled out of iTunes to partner with Microsoft's Windows Media DRM-based Amazon UnBoxed store. He didn't mention that NBC also partnered with Fox in setting up a joint Microsoft store, and then went solo on its own website trying to offer ad-encrusted, Microsoft DRM-ed, exploding content. No doubt all of those efforts are going to work out well for NBC.Lyons also said “Vivendi's Universal Music Group also reportedly won't renew its contract with Apple,� without clarifying that only refers to its long term contract; Universal music hasn't budged from iTunes. He also cites unhappy noises from Hollywood about Apple's desire to lower prices to make content more desirable to consumers, who can already obtain movies and TV programming free over the air or via unauthorized downloads.Omitted from Lyon's one-sided overview of the iTunes Store is CBS executives' comments that they are very happy with its deals with Apple, and that both CBS and Fox are offering free season premieres through iTunes.And what about Viacom billionaire Sumner Redstone, who was recently cited by BU reporter Jessica Ullian as saying that “iTunes has 'resurrected the music industry' by creating a legal, affordable, instantly gratifying purchasing system for fans. The challenge now is for the film industry to catch up, he said, and for competing companies to work together to establish new standards and practices.�[CBS and Fox offer free TV through iTunes US - iPod/iTunes - Macworld UK][How iTunes Saved the Music Industry - BU Today]Pity the Poor AT&T.Lyons wrote that “Jobs isn't known for treating partners well,� noting that the iPhone doesn't sell AT&T's worthless media services or overpriced ringtones. That's really an example of Jobs treating the customer well, and the Fake Steve Jobs should know that. Why repeat the “Apple can’t partner myth?� AT&T is making a major turnaround, funded by record numbers of headlines fawning over the iPhone. Apple has propelled Cingular from a middle of the road brand into its new AT&T name, which the company purposely rolled out in conjunction with the iPhone to benefit from the excitement surrounding it. Should we be aghast that Apple declined AT&T's own overpriced MEdia Net TV clips and ringtones? Is AT&T even worried about it?The service provider reported that the iPhone has outsold any phone it has ever introduced. Does that make Apple a bad partner? Would it be better if Apple really was the New Microsoft, extending its support and then yanking it back in a PlaysForSure/Zune style move? Does Lyons really have the extra credibility to burn in making such ridiculous comments? [How AT&T Picked Up the iPhone: A Brief History of Mobiles]More of the New Microsoft Meme.After noting some of Apple's recent successes, Lyons wrote, “the flip side of Apple's success is that Apple has started to seem scary.� Scary, uncertain, and doubtful! “No longer is Apple the plucky underdog out to save the world,� Lyons fears. Oh really? Has evil been vanquished? Is there not still the inky black bile of Windows Media DRM dripping from every alternative store in the universe? Does not Microsoft still have the remains of that $50 billion it took in last year from its monopolies--real monopolies, not the imagined fantasy kind pinned on iTunes by the media? You know, the monopoly in PC desktop operating systems held by Windows, the monopoly in servers, and the monopoly in desktop Office software? The monopolies that earn Microsoft overall profit margins as high as 81% on products that are over a half decade old? From that perspective, Apple could really turn evil over the next twenty years and still not compare to the wrongs we've suffered from Microsoft. Even so, Apple really isn't doing wrong by its consumers. If the best Lyons can do is to suggest that some RIAA labels and Hollywood executives are miffed by Apple's push for low prices, he'd better scramble to find something more problematic than that. I like low prices in content. I don't long for access to AT&T's expensive ringtones.iPhone Price Problems.Apple's iPhone was a better deal at $600 than Microsoft's Windows Mobile Motorola Q at $99, because Apple twisted AT&T's arm to provide lower priced service, making the iPhone around $200 cheaper across two years of use. Apple then dropped the iPhone's price by another $200, making it now almost $400 cheaper than the nearly free phones on the market.Is this wrong? Did Apple harm those of us who recognized value in the iPhone back in June? Did Apple defraud a million people who bought the iPhone at a good price when it lowered the price afterward? [Apple's iPhone Price Cut Unleashes Complaints]Apple TV Only A Flop For Forbes' Frauds.Lyons repeats in passing--without any factual backup--that the Apple TV is a flop. Oh really? Is that because it profitably sold a quarter of a million units with little advertising? Incidentally, that's nearly double the number of new customers TiVo signed up, as reader Timothy Bandy pointed out. He noted that “TiVo-owned subscriptions totaled 1.71 million, up 136,000 on an annual basis compared to the year ago-period.�If Apple sold 250,000 units of the Apple TV, “it's already doubled the amount of new customers Tivo made last year,� Bandy wrote, “or to put it another way, they already have 1/7th of Tivos' customer base without hardly trying. And as you pointed out, I doubt they've lost several million bucks in the process.�TiVo lost $19 million in the last quarter, and $50 million last year. Apple sells the Apple TV at a profit, although not much of one. That's because the company is working to sell content that works on the Mac, and Apple TV only serves as a contributing part of that strategy. Apple is working to expand the market for fair priced Internet downloads, in opposition to high-DRM, high-priced alternatives.Microsoft has lost billions in its consumer electronics products, including the Xbox 360 that Windows Enthusiasts like to compare against the Apple TV. Microsoft also stomped on efforts by Linux users to recycle the old Xbox as a media playback system. Where's the outrage? Where's the “suckers� blubbering? Where's the reporting that “Microsoft regularly betrays its partners?� It's certainly not in the pages of Forbes. [Brent Schlender's Apple TV: Fortune Dud or Fortune FUD?]It's all Downhill From Here.Lyons then complained that iPhone sales must be fading because Apple dropped the price, neglecting to account for the fact that Apple met its million unit sales goal three weeks early. “The next version of OS X, called Leopard, has suffered delays,� Lyons wrote, again failing to compare its 6 month delay to the six year delay of Vista. I guess Apple isn't the New Microsoft after all.Lyons begged for forgiveness after beating on Linux users for years and glorifying a bunch of greedy SCO investors trying to exploit intellectual property rights the company didn't even own. In describing his partnership with Rob Enderle, I downplayed his SCO role after he pleaded for evenhanded coverage of his past, noting that he did publish some correct information after the writing was on the wall for SCO.However, for his shameless attempts to present the same kind of one-sided, half-truth, negative-spin that praises the worst corporations on Earth while reviling the only company that seems to share any interests and values in common with its customers, Lyons has lost the bits of credibility he begged to retain. Shame on him, and Zoon on Daniel Lyons' head. [Daniel Lyons: Fake Steve Jobs and the SCO Shill Who Hated Linux]Thanks to John Schmidt for the “Big Brother� link.What do you think? I really like to hear from readers. Comment in the Forum or email me with your ideas. Like reading RoughlyDrafted? Share articles with your friends, link from your blog, and subscribe to my podcast! Submit to Reddit or Slashdot, or consider making a small donation supporting this site. Thanks!

  • Scott Woolley Attacks Apple TV in Forbes, Gets the Facts Wrong

    Daniel Eran DilgerScott Woolley of Forbes tried his best to paint Apple TV as a colossal failure, but his article is based on supposition and false comparisons, and demonstrates he doesn't know much about the video distribution industry he writes about. Woolley described Apple TV as a flop, comparing his own unit sales estimate against the record breaking sales launch of the iPhone. Of course, lots of successful products might look like a flop compared to what appears to be the most successful consumer electronics product launch in history. Apple TV Sales.Woolley estimated sales of 250,000 Apple TVs, but he really doesn't know how many have sold, because Apple doesn't isolate sales numbers and it counts revenues of the Apple TV over a subscription basis like the iPhone. Apple rarely isolate product sales for any individual items, a competitive game played by most manufacturers. Instead, the company has typically reported revenue buckets for computers and iPods, and only occasionally breaks down sales for specific models or classes of models, such as laptops and desktops. It's therefore no surprise that Apple isn't publishing Apple TV figures. Woolley is doing his readers a disservice to speculate that "apparently the truth is too humiliating." Either he doesn't understand basic marketing, or he knows he's presenting a false angle to whip up a frenzy of ignorant sensationalism. As evidence of the Apple TV's "lack of sizzle," he only cites the fact that some Circuit City employee had "trouble locating the product's small kiosk," and that at a nearby Apple Store, the Apple TV had been "shoved aside" to make room for more iPods. Hobbies and Jobs.Jobs has described the Apple TV as a 'hobby' several times, once in talking to employees about his vision for Apple's future business. He described the Mac and iPod as two legs of a chair, and hoped the iPhone would act as a third leg. The Apple TV, he noted, might work out as a fourth leg in the future, but until then it was being run as a hobby and the focus was on establishing the iPhone.A hobby is something you do primarily for fun or experience, not as a profitable exercise, although hobbies can turn into big business. Thirty years ago, Steve Wozniak's hobby was wiring together electronics. Steve Jobs' hobby seems to be taking ideas and turning them into profitable businesses, as he did with Woz's computer design (Apple is now worth $120 billion), NeXT (sold to Apple in 1996 for over a half billion), and Pixar (sold to Disney for $7.4 billion in 2006). So when Jobs says he has a hobby, he's not talking about painstakingly putting ships into bottles. Lots of people dismissed the iPod in 2001; that product did take a few years to get established, but has since attained explosive growth. Many pundits also announced that Apple would become the iPod company and let go of its Mac sales, but Apple has also dramatically increased Mac sales over the last two years, in large measure due to the move to Intel processors[Inside Apple TV]Success Is Failure, Up is Down.Woolley says Apple execs ignored the product in its last quarterly earnings reports. Apple did spend its time talking about the iPhone, record Mac sales, and improved gross profit margins. Apart from the highlights of what it wants to talk about, what Apple executives say in earnings reports conference calls is largely based on what analysts on the call ask them.In the previous quarter, Tim Cook answered a question about Apple TV sales by saying, "we just started shipping on the third week in March. We're off to a very good start and we're going to continue investing in this area. We're very, very excited about the long-term potential of the product," but added, "we're not releasing the exact unit shipments."Apple never bragged that it would sell millions of Apple TV units per quarter, as it did with the iPhone. The company isn't making big money on the Apple TV. Its price--compared to the components inside it--indicates Apple knew the box wouldn't be a high demand seller, or it would logically set a higher price target. There's little money to be made in selling and supporting a $300 box full of nearly $250 in hardware. Instead, Apple offers the unit as an alternative way for consumers to make use of the developing video market in iTunes. [RSS: How Apple Will Change TV in 2007]Sustainable Platform Development.This slow growth strategy requires the playback pieces to be in place while the content lines up. Assembling both ends of a platform and distribution chain is the classic catch-22: which comes first, the eggs or the frying pan? Do you crack open eggs and let them sit out while you set out to obtain a frying pan, or put the pan on the flames and then go to the store to find eggs? Ideally, you have them both lined up before things get cooking.Apple had already added TV content to iTunes, and was selling respectable numbers of shows to users with 3" iPod screens or hunched over their PC. When it added movies, it couldn't really market the idea of rapid growth in iTunes without a TV-centric playback system. Apple is still working to add movie content to iTunes, but now it has a marketable way to sell them. [Brent Schlender's Apple TV: Fortune Dud or Fortune FUD?]Measuring Success By Accomplishment. Apple doesn't have to make fantastic money on the Apple TV for it to be a success, just as Sony and Microsoft can afford to actually lose money--billions in the case of Microsoft--if only sales of their game consoles take off at some point and establish a critical mass of a platform. That being the case, why would Forbes tear into Apple TV for not outselling the iPhone? The simple answer is that finding problems with Apple's ongoing strategy is so difficult that only a cheap shot that skirts reality can even hope to make the company look bad.Apple TV exists as a product to legitimize the company's movie strategy. Expanding sales of movies and TV content will help sell the iPod and retain a commercial availability of legal content for Mac users. Really, the main point of the iTunes Store is to save Apple from being ostracized by Microsoft in a dystopian world where all media is tied to Windows. Apple didn't have to destroy the market for Windows Media to establish iTunes as a success; that was just a nice bonus. After just short of a year of existence, iTunes certainly isn't the best movie selection on the web. However, while its easier to find more movies elsewhere, those sources don't offer the benefits of Apple's tightly integrated and well conceived ecosystem. [Universal vs Apple in the iTunes Store Contracts]Apple TV vs Netflix.One of the best options today is Netflix; it has nearly everything, but it involves waiting for days to get the DVD you request. If you get an unplayable DVD, you have no recourse but to wait out a few more days to get a replacement. Netflix has recently moved to offering subscribers instant playback over the web for a good variety of titles, but the service is Windows only and offers very low quality. It's a great way to watch a documentary or slapstick comedy, but it's not a cinematic experience, it's a YouTube experience. That leaves Netflix a very good option for people who like to watch lots of movies. For less than $20 per month, you can cycle through several movies a week and always have at least a couple DVDs available to watch. You pay a monthly fee whether you use the plan a lot or not, so if you go without updating your queue or are busy with other things, you pay for content you're not watching, just as with a cable subscription.The downsides to Netflix--and DVD rental in general--is that DVDs can't easily be accessed on demand, or kept in a digital library that's available to any TVs in the house or any iPods for portable playback. [Apple TV: Using DVDs and other Video Sources]Pulling the Woolley.Forbes' Woolley didn't mention Netflix. Instead, he boasted up TiVo, the Xbox 360, Slingbox, a yet to be delivered product from Poloroid, and Vudo, a small startup that sells downloadable movies for $20 each. All are apparently in far better shape than the Apple TV hobby, which is a great flop of a failure, according to Woolley. Except that he withheld the truth:the staggering, multibillion dollar losses of Microsoft’s Xbox every year over the last half decade.the regular, multimillion dollar losses at Tivo over the last several years--it lost $52 million last year, and another $19 million in the most recent quarter ending in July.Polaroid Corporation went bankrupt half a decade ago. Its name is being licensed by a holding group.
Vudo is an interesting box offered by a group of WebTV and TiVo refugees. It's a $400 box with very similar features to the Apple TV. It also features rentals and has hardware support for 1080p and Dolby Digital surround. It demands a 3 Mbit Internet connection. 
Slingbox is a streaming device that transmits a video signal over a network. It has nothing to do with Apple TV.So Wolley paraded out some real failures, some vaporware, a promising potential rival, and something completely unrelated. That's proof of the Apple TV's great failure? In contrast, it looks like Apple is among the few companies with a viable plan for video distribution, and stands among the minority who can actually earn any profit at all.[Ten Myths of the Apple TV: 5.1 Audio][Ten Myths of the Apple TV: Xbox and Hardware][Apple TV: Turn DVI into HDTV; HP Drops Microsoft]Wholly Weaselly Woolley.Not content with simply blowing out some ignorant misinformation, Woolley then went on to castigate Jobs for choosing to "shut out millions of Web downloads on YouTube" with the release of Apple TV in a "parochial and proprietary approach" that forced users to get all their content from the iTunes Store. Except that isn't the truth at all. Is every feature Apple adds to is products now going be described as a "freedom previously withheld by Jobs' arrogant tyranny" in retrospect? What a weaselly, desperate spin! Woolley also stated that "NBC Universal scrapped its deal to sell movies and shows via iTunes, making Apple TV even less appealing." While admitting that Apple backed out of negotiations with NBC Universal after the studio made absurd demands, Woolley called Apple "sulky and pious" for doing so. Sounds like Woolley couldn't find a story and had to make one up with the help of a thesaurus. One should expect more from Forbes. For his sloppy efforts in crafting a sensationalist headline, Scott Woolley gets a Zoon.What do you think? I really like to hear from readers. Comment in the Forum or email me with your ideas. Like reading RoughlyDrafted? Share articles with your friends, link from your blog, and subscribe to my podcast! Submit to Reddit or Slashdot, or consider making a small donation supporting this site. Thanks!

  • Why Dan Frommer and Scott Moritz Are Wrong on iPhone Sales

    Daniel Eran DilgerSilicon Alley Insider's Dan Frommer says Apple's announcement of reaching its million mark goal in iPhone sales three weeks early is actually bad news for Apple and is convolutedly "below plan." He also says the announcement only props up the speculative conjecture by Scott Moritz of the Street that Apple's iPhones sales are somehow woefully below expectations. They're wrong, here's why.The PremiseFrommer wrote that Apple isn't selling iPhones as fast as planned and is set to only sell around half of its 2008 goal.His premise revolves around the idea that if Apple were selling iPhones at "a constant rate," a million phones in 74 days would be five million per year. However, because it sold over a quarter of those in the opening day and a half at the end of June, Frommer calculates that sales of the remainder in the 72 days since the first of July mean that Apple is only hitting a "3.6 million annual run rate."By the end of 2008, that would only result in 5.8 million units instead of the ten million goal Apple. [Silicon Alley Insider: Apple's iPhone: 1 Million Is Below Plan]Strike One: The Run Rate Myth.The most obvious problem with that idea is the fact that devices don't sell at a constant “run rate." Apple's iPhone sales took off at launch much faster than the original iPod due to the fact that a swell of early adopters were ready to buy it after being convinced over six months of anticipation. At the same time, many potential buyers held off on plans to buy the iPhone until they could read reviews and get a real sense of how it worked. Many were also locked into contracts with Verizon or Sprint. With only six months of advanced notice, it will still be a few more months before the majority of buyers who want an iPhone even get the chance to buy one without having to pay outrageous fees to cancel their existing mobile contract. iPhone sales are also now taking on the network effect of the iPod, as early adopters show their friends. All these factors have difficult to estimate impacts upon sales that make trying to figure a static “run rate� a very simplistic and pointless exercise.However, there is another factor that simply blows the entire idea of a static “run rate� out of the water. Last November, I predicted that sales of the Zune would bomb that winter because Microsoft had failed to critically examine Apple's historical sales patterns. Sure enough, the Zune was thrown against the rocks by Apple's riptide. Frommer's idea ignores that same reality by imagining that iPhone sales will schlep along at a linear pace. Had Frommer tried to calculate an "annual run rate" for the iPod based on a portion of third quarter sales at any point over the last half decade, he would never have been close to accurate. That’s because Apple’s iPod sales roughly triple every winter quarter.In 2002, it sold nearly as many iPods in its winter quarter as it did the first three quarters combined: 219,000In 2003, it actually sold more iPods in its winter quarter than in the first three combined: 733,000In 2004, it again sold more iPods in its winter quarter than in the first three: 4,580,000In 2005, it sold more than 4 million units every quarter, but still sold nearly three times as many in the winter: 14,480,000.In 2006, it sold more than 8 million units every quarter, and then sold over 21 million in the winter quarter.In 2007, it has maintained quarterly sales between 10.5 and 9.8 million per quarter.[Strike 3: Why Zune will Bomb this Winter]Strike Two: The Have it Both Ways Myth.One particularly annoying bit of analysts' talk about Apple's expectations is that they can't seem to decide if Apple's projections are bad because they are conservative lowballs, or if they are bad for being overly enthusiastic figures the company won't be able to reach. They often try to describe them as both, loading contempt on both sides of the scale. This makes them look very foolish. Do they think we have no memory, or are they just changing their stories back and forth in sheer desperation?Frommer tried to argue both sides at once in the same article. Recall that Apple only ever gave two iPhone sales goals: one million by the end of the first quarter of sales, and ten million by the end of 2008. In his piece, Frommer suggests Apple will only be able to sell 5.8 million iPhones by the end of 2008, based on that fallacious "run rate." That would be just over half of Apple's ten million goal. However, he then says that Apple's immediate short term goal was an unimpressive low ball, no doubt because Apple reached it three weeks early.Apple's stated goals must be a greatly frustrating logical conundrum for Frommer, because even at a “run rate" of one million in a quarter, Apple could only ever hope to sell six million iPhones by the end of 2008, another five quarters later. No wonder he's faced with trying to say that the immediate goal was too low and the longer term one is too high! Frommer needs to stop trying to pound round facts into square holes just so they can be stacked up like bricks the way he would like them to be.Strike Three: The Market Bearing Price Myth.While Frommer and Moritz are enamored with the idea that iPhone prices could only be cut if sales were in crisis, a variety of obvious market realities don't support that simpleton idea. Between now and the end of 2008, Apple has just two holiday seasons. If it wants to dramatically exploit its historical potential for selling roughly three times as many gadgets during the winter season, it makes sense to trade off unit pricing for volume sales, even if it could perhaps sell fewer at a higher price and make more short term profits doing so.Such a strategy isn't unique. Microsoft and Sony currently lose money on their new game consoles in desperate bids to establish their gaming and HD video playing platforms. Even so, this year they both cut prices again to accelerate volume demand. Nintendo purposely aimed low to capture volume sales using a more attractive price point. Given high demand for the Wii and extremely constrained availability, Nintendo "should" seemingly raise its console price and profiteer. It hasn't. While prices are clearly linked to demand, it is a common fallacy to think that the "right price" is always the highest the market will bear. Jobs' 99 cent pricing in the iTunes store is clearly not the top price consumers will pay for downloads. Music labels are fuming that other licensees such as Verizon will collect $2.50 or more for portions of a song sold as a ringtone. Jobs wants media prices low to induce volume sales and attract buyers to the legitimate market for music and movie downloads. Labels and studios want "market pricing," in part so they can jack up the price of popular music to exploit consumers, and in part so they can exploit artists by threatening to release their work at lower tiered prices and signal to the market that their careers are over.[Universal vs Apple in the iTunes Store Contracts][Nintendo Wii vs Microsoft Xbox 360 and Sony PS3]This All Happened Before.Dial back the clock twenty years, and you'll discover that Steve Jobs also fought with Apple CEO John Sculley over the price of the original Macintosh. The desire to use an expensive but pioneering amount of RAM and a futuristic new processor had inflated the price of the Mac, but the design team was still able to deliver it at a fairly attractive price point of $1,995. Scully determined that the Mac would still sell at $2495, delivering high profits to fund splashy advertising. Nothing on the market was really similar to the Mac apart from Apple's $9,995 Lisa. VisiOn for the PC similarly cost nearly $10,000 and did far less. Sculley thought that the market would bear anything Apple might charge. Andy Hertzfeld recalled on Folklore.org that in October 1983, "Steve Jobs strode into the software area one evening, looking angry. 'You're not going to like this,' he told us, 'but Sculley is insisting that we charge $2495 for the Mac instead of $1995, and use the extra money for a bigger marketing budget. He figures that the early adopters will buy it no matter what the price. He also wants more of a cushion to protect Apple II sales. But don't worry, I'm not going to let him get away with it!'"Jobs fought Sculley over the price increase, but Sculley prevailed. Sure enough, Macs did sell well out of the gate to early adopters at the higher price, but sales then began to stall. While Jobs couldn't cut the price for the original Mac to induce wider adoption in the mid 80s, he could choose to cut the price of the iPhone early and use interest in the iPod Touch to ramp users toward the iPhone. That price cut will dramatically boost sales this winter, just as iPod price cuts and feature refreshes do every year.Apple will earn less profit on individual hardware sales of the iPhone, and may even earn slightly less money overall this quarter than it might have selling the iPhone at $599. However, a $399 iPhone will dramatically boost the company's sustainable subscriber revenues and devastatingly cut into stationary rivals like Palm and the Windows Mobile licensees, giving them little opportunity retool and strike back with copycat products.  [Price Fight - Folklore.org][Office Wars 3 - How Microsoft Got Its Office Monopoly]Strike Four: The Myth of Unlimited Availability.Another problem with idea that iPhone sales were in crisis--and that a price cut is a conspiracy to hide the truth--is that Apple sold out of iPhones in many of its retail stores throughout the first three weeks on sale.Carl Howe of Blackfriar's Communications tracked iPhone availability every day through July, and then animated the results in a movie that depicts just how constrained iPhone inventories in Apple's retail stores were. So not only did Apple meet its 94 day goal 20 days early, but it did so despite having no or few iPhones to sell in many of its stores during the first 21 days. Price isn't just related to demand, but also to supply.That also demonstrates the fallacy of Scott Moritz' assertion that Apple secretly planned to sell a million iPhones in a day and a half, and was sorely disappointed after failing to do so. How could Apple have planned on selling a million units in one day when it didn't even have a million units on the shelves of its stores during the first month? Remember, Moritz wasn't saying Apple had a delivery problem in getting enough units to stores as Nintendo is experiencing with its constrained supplies of the Wii. Instead, he tried to suggest that interest in the iPhone was far below Apple's estimates, and buyers were leaving it on the shelf like Windows Vista. The result, he claimed, was that "rivals were rejoicing."The only real rejoicing by rivals was that Moritz was volunteering to repeat the talking points handed to him by Verizon shill Roger Entner of IAG Research. Just hours before Apple announced it had sold a million units, Moritz tried to get some traction out of the idea that Apple had dropped the price in desperation to find another half million or so customers over the next three weeks. Apple isn't the typical tech company being run by visionless bean counters. It it were, it would have continued selling $600 iPhones at least through the end of September and then announced that it had sold its million. Apple had to push out new iPods in early September and fit the iPhone into the price range because next month it will be rolling out Leopard and a series of new software updates. Apple feeds the press in small, consistent, and regular feedings so reporters know what to write. If Apple were a big stupid company such as, say HP, it would parade out a mix of dozens of consumer and business products all together in one big event, and nobody would ever hear about any of it. HP did.[Why a million iPhones in 74 days is better than you think- Blackfriars][HP's marketing this week: fashionable but ineffective - Blackfriars][Unraveling Anti-Apple Panic: the iPhone Launch Success] [More on Scott Moritz and the Jim Cramer Misinformation Engine]Strike Five: It's Too Late to Deny the iPhone.The most comical part of Frommers’ analysis is that he’s trying to stuff a cat back into a bag and explain that there was never really any cat, long after everyone in the room heard the purr and pet the thing. Sorry, but the windows of opportunity to doubt the iPhone have long since closed.Real Windows Enthusiasts were aware of the need to deny the iPhone well before its release. They all chimed in with reasons why the iPhone wouldn't work, wouldn't offer what consumers want, and wouldn't sell well, all hoping that their non-stop misinformation campaigns would act as a self-fulfilling prophesy. They failed miserably.John Dvorak began his smear campaign immediately, appearing on CNBC to say that the iPhone was "trending against what people are really liking in phones nowadays, which are those little keypads.� He explained, “The BlackJack, the Samsung, the BlackBerry obviously pushes this kind of thing. The Palm, all of these. I guess some of these stocks went down on the Apple announcement, thinking that Apple could do no wrong. But I think Apple can do wrong, and I think this is it." Reader Jim Barrow sent in a link to a MarketWatch article from March, where Dvorak scribed a rambling diatribe entitled "Apple should pull the plug on the iPhone." He offered no factual basis for worrying that the iPhone might not work out apart from the offhanded comment that "there is no likelihood that Apple can be successful in a business this competitive," words which echoed Dvorak's 1984 observation that "the Macintosh uses an experimental pointing device called a 'mouse.' There is no evidence that people want to use these things."In April, Dvorak inflamed his 'pull the plug' rhetoric further in a TWiT podcast, where he reported to an audience of hundreds of thousands that the iPhone only delivered "40 minutes of talk time" and "the interface fouls up constantly.� Dvorak said that his inside information on the iPhone came from a "guy at Cingular who’s testing the product," adding, "he’s telling me confidentially and I shouldn’t be telling anybody."[John Dvorak: How Wrong Can One Guy Be?][Readers Write: Don't Write About John Dvorak Anymore]It'll Be the Death of You.Dvorak was joined by Rob Enderle, who called the iPhone “damned� and “not a very good phone� at every opportunity in the months before its launch, despite not really knowing anything about it, or even ever offering any rational criticism. Instead, Enderle appealed to fantasy fears of sexual assault, murder, and the violent death of children, all of which he suggested might somehow be related to the iPhone. Unaware that a password protected iPhone--or even a unauthorized unit without a configured service plan--can still be used to make emergency phone calls, Enderle wrote about, "an emergency situation where, say, a woman was being raped and couldn’t call for help because she didn’t remember her iPhone password." As I understand, with a Windows Mobile phone, even if the unit crashed while trying to place the call, at least the victim could use it like a brick as a blunt weapon. Enderle also feared that being unable to take out the battery would somehow making recharging it impossible, resulting an a scenario where one might end up on “the wrong side of town� with a dead iPhone and be murdered because of it. Being on the wrong side of town was apparently the source of most murders prior to the arrival of the cell phone, which somehow made it safe to be in bad neighborhoods. For those who unfazed by the prospect of one's own own grizzly death in relation to the iPhone, Enderle appealed to his readers to please think of the children, particularly the potential for their brutal decapitation in an iPhone-related collision. "If you are buying this phone for a child or another member of your family," Enderle warned, "please emphasize that entering data on this phone while driving is dangerous." In contrast, operating the slide out keyboards of an HTC brick phone, or using both hands to thumb type on a BlackBerry may or may not save your children as they drive off an embankment, but at least you'll know they didn't die at the hands of Apple's "damned" iPhone.[SCO, Linux, and Microsoft in the History of OS: 1970s][Mac OS X vs Linux: Third Party Software and Security]Pure Concentrated Evil with a Multitouch Screen.Brian Lam of Gizmodo published an impassioned plea to boycott the iPhone shortly before its launch, due to the fact that Cingular had purchased the AT&T name, a brand Gizmodo's writer correlated with "monopoly tactics" in the late 70s. Gizmodo hasn't ever called for the boycotting of Verizon Wireless, which is well known for its anti-consumer tactics and which shares just as much blood with the old AT&T as its Baby Bell sibling Cingular, nor has it ever urged the boycott Microsoft products due to "monopoly tactics." Gizmodo also failed to boycott any other GSM phones that are tied to AT&T.Gizmodo's Lam and Enderle then teamed up with Slate's David Sessions in an article purporting to expose Apple's rated battery life for the iPhone. Sessions complained about the attention the iPhone was getting, and tried to dismiss Apple's announcement of a two fold increase in battery life over what was originally advertised. Unbelievably, Sessions and friends could only explain away the iPhone's jump in talk time by crediting its glass screen, saying that "glass transmits light more efficiently than plastic." That and some witchcraft.However, all of these individuals sharply reduced their squirt rate of false information after the iPhone's successful launch. In day and a half, Apple sold 270,000 iPhones compared to the 500,000 Palm OS Treos, 1.03 million RIM BlackBerrys, and 1.51 million Windows Mobile phones that were sold worldwide in the first 90 days of 2007.Apple has since nearly matched highflying RIM in sales during July, despite being limited to a single carrier and only offered for sale in the US. At this point, denying the iPhone is like saying the Earth is flat. It might be fun to do at a Renaissance Faire, but pretending to seriously doubt reality is not a good career move unless you work for the Street--or perhaps Rupert Murdoch, as Dvorak does.[Secret iPhone Details Lost in a Sea of Hype and Hate][iPhone Sales vs Zune, Palm, RIM, Symbian, Windows Mobile]And Now: a Warning.Let it be known that anyone who publishes further misinformation or blows out similar inanity will risk being instantly awarded a Zoon on the spot. No complicated voting, no tedious application process. New Zoon nominees will be rubber stamped with the same effortless fast tracking as the ECMA declaring Microsoft technology as an international standard.In fact, I’m going to totally Zoon Dan Frommer and Scott Moritz right now, as well as John Dvorak, Rob Enderle, Brian Lam, David Sessions, and even Roger Entner. And John Sculley. And while I’m handing out an intellectual property construct that costs me nothing to distribute, I will also award Steve Jobs with a Zoon for the whole two month “just kidding� iPhone pricing situation, although I might take half of it back if I get a $100 coupon that doesn’t force me to spend $500 to actually use it. So let that be a warning to you out there on the Tubes thinking about how to linkbait an article at the expense of the progress of technology. I have a rapid firing gun full of Zoons and I’m not shy about cranking them out. Be sure to post any nominees.What do you think? I really like to hear from readers. Comment in the Forum or email me with your ideas. Like reading RoughlyDrafted? Share articles with your friends, link from your blog, and subscribe to my podcast! Submit to Reddit or Slashdot, or consider making a small donation supporting this site. Thanks!

  • End Game

    This is my 603rd and last column for pbs.org. If you want to continue reading my work, please visit http://www.cringely.com, which is also in this week's links. Thanks for your support. Everybody in my line of work writes prediction columns for the coming year, but I wonder how many we will see this time around? The world is unsettled. It's not just this damned financial nightmare we have to deal with but also a sense of between-ness, like something has just ended yet still lingers slightly though it is obvious that something new is about to arrive. But will it be a good something new? That's hard to tell. So for this reason I think the prognosticators will mainly keep their heads down this year. Except, of course, for me. I'm too stupid to shut up. So let's get on with this experiment in humiliation. You know the drill. We begin with a look at last year's predictions to see how I did then jump into my predictions for 2009. If you care to follow along you'll find last year's predictions column in this week's links. For a real laugh you can find my predictions from many previous years in the archive. I wrote a year ago that we'd see the beginning of a shift away from PC-centrism with other platforms beginning to supercede the venerable PC. This is a slow process as I said it would be but generally I think I was correct. Sales growth for PCs slowed in general while growth for smartphones and netbooks increased. I never said PC sales were going in the toilet but it seems clear that the action these days is elsewhere, so I'm going to claim this one. I said the Digital TV conversion would be a nightmare, though the greatest pain would be felt in 2009 when the analog transmitters are actually turned off. I think this is correct. Poll your friends and you'll find most are in denial. While everyone has seen a DTV commercial, there are millions of people who still don't know what's happening. Free converter boxes are sold out, which ought to be good, but expected DTV sales have not met forecasts, so I say there are 10-15 million people who are going to wake up mad as hell in February. So I got this one right and claim it for 2009, too. While it may seem quiet now, February and March are going to be ugly. I wrote that Cisco would acquire Macrovision, which didn't happen. Two right and one wrong. I still think Macrovision has to find a landing place somewhere or the company is doomed. I predicted that venture capitalists would sour on start-ups with revenue models based solely on advertising, citing Facebook as an example. This one is hard to call because the general tightening in the economy has led VCs to push all their companies toward multiple revenue models and much tighter books. Still, I probably got this one wrong, though I'd say it is still coming. I predicted that Google would bid and win the 700 MHz spectrum auction. They bid, true, and made a good effort at shaping the deals that resulted, but Google didn't win so this was wrong. I am not worthy. I predicted that IBM would have bad earnings, would try to sell Global Services, and failing that might fund the sale itself. Wrong, wrong and wrong. IBM's earnings were saved by the weak dollar or I would have been right. They couldn't sell Global Services because no company was stupid enough to buy. But they didn't have to finance anything because the credit crunch came and it was clearly not going to happen. I'm the loser here. If you are keeping score it is pretty dismal, down to two right and four wrong. I said Microsoft would indefinitely extend the life of Windows XP. I might well claim this one but -- like Wall Street -- I may as well take all my losses while I can. Yes, you can still get XP, but if you are an individual it requires downgrading from Vista so you have to buy Vista anyway. In the long run this strategy really hurts Microsoft because the made-for-Vista computers that are being downgraded to XP don't work as well and Microsoft's reputation suffers even further, if that's possible. Redmond sees this as a clever success on their part, too, which says a lot about the company. Of course I had to say that Steve Ballmer was going to retire, too, though now I see him not following Gates for another 2-3 years. In the long run, though, he's toast, simply because things are going to get uglier and uglier for Microsoft. Two right and six wrong. Maybe it IS time for me to retire. I said Apple would embrace multi-touch pointing in its computers. They did. Whew! I said a 3G iPhone was coming. Yes! And an Apple subnotebook/tablet. No! This latter device remains in the wings, however. Four right and seven wrong. Apple didn't license ANYTHING, much less its embedded OS X. Silly me. Let's get this over with quickly. Apple DIDN'T license the Windows API, DIDN'T dump Akamai for Google (ironically Google became an Akamai customer), and Season 2 of NerdTV never appeared. Final score four right and 11 wrong -- my worst outcome EVER and the first time I dropped below 50 percent. Obviously I have to start making vaguer predictions or move into pizza delivery -- probably the latter. So, having lost all credibility, let's just leap into my predictions for 2009. Who knows, I might see a miracle and actually get one or two right. These are in no particular order, by the way. The economy and its many problems will clearly dominate 2009. We're in a recession that will last at least through the middle of the year and maybe longer. They way we'll buy our way out of it will affect the nation for decades to come. It is NOT a happy time. 1) The good news is that most recessions mean new IT platforms. The minicomputer hit its stride in the early '70s recession, the PC in the early '80s recession, client-server computing in the early '90s recession (notice these things happen every 10 years or so?), the Internet in the 2001 recession, and now we're about to see mobile take over in an even bigger way. Desktops will survive but most of the growth will be in mobile devices. 2) This one isn't what you'd expect. In 2009 there will be several HUGE cyber thefts as well as companies admitting huge cyber thefts that happened in previous years but were kept secret. The former will happen because the security infrastructure on the Internet is more fragile than ever while the latter will happen because companies -- especially banks -- will want to get every write-off they can while the news is so generally bleak. Who will care if they report losing $1+ billion or so to some guys from Russia or Nigeria three years past? 3) IT layoffs are going to happen, putting tens of thousands of technical people on the streets, yet STILL the big employers will be pushing for unlimited H1B visas to bring in technical people from South Asia. This mean-spirited and blatant age discrimination might be successful, too, unless the Obama administration does the right thing. 4) Intel will continue to dominate while AMD slowly suffers, but I don't see AMD being acquired in 2009. 5) Death of daily newspapers will accelerate and many papers will fail outright. When the Detroit Free Press announces it is ending home delivery on most days as they are expected to, well that's it. I thought this process would take longer but it is likely that half the daily newspapers in America will be gone in three years. 6) The next Yahoo CEO will dismember the company and sell it piecemeal, made possible by the fact that only the Internet companies have much real cash. The Yahoo name will survive but the company will not. 7) Microsoft will peak in 2009. By this I don't mean the company's shares will reach a peak value by any means, but its aggregate peak of wealth and influence will be reached and everything will be slowly downhill from here, accelerated primarily by the efforts of Apple. Microsoft hasn't been able to find a franchise to replace the PC. Games are big but not profitable enough. Mobile is too crowded. Content they simply aren't good at. That leaves Enterprise and Microsoft can dominate that only as a smaller company, so smaller it will become. 8) The catalyst for Microsoft's decline will be when the world's most influential IT analyst, Walt Mossberg of the Wall Street Journal, writes sometime this spring that he can no longer see any reason to own Microsoft products. He could have written that story a year ago but it is taking Mossberg time to get up his nerve, but he eventually will. 9) Not only will Microsoft peak, Google will, too! Oh Google will continue to grow for another decade or more, but as a technology leader Android is probably the peak. The company is too fat and happy to be a technical leader for much longer. It's still a good investment, though. 10) If Microsoft and Google are down then what's up? Apple! This could play out a number of ways. Apple will certainly continue to grow its Macintosh market share. iPod growth may be softening but the iPhone will make up for that. Still, faced with Android I think Apple will drive its content business through an acquisition in the cheap-or-free networking space (remember it was Apple that came up with WiFi in the first place) to stake some claim on the last mile. But even more importantly, at some time next year Apple will take the gloves off and go head-to-head against Microsoft Office, driving margins down for Redmond and generally making trouble. 11) My last prediction for 2009 has to do with venture capital. While investments in technology will continue, the really smart VCs will realize there is a much better and more certain way to make a ton of money in the short term: start a bank. Look for the rebirth of community banks, in this case backed by VCs. Work with me on this one. There is no credit available because the big banks won't lend. But it takes only about $20 million to start a very fine little bank that WILL loan money because the cash can be acquired from the Fed for almost nothing and lent at high rates to technology companies that can pay it back. By creating banks the technology industry will become self-funding. And when the big banks finally stop being frozen with fear and want to take back the lending business, they'll have to buy all those little banks for at least a 10X multiple. It's not like starting Cisco or Dell, but a 10-bagger business model that can be replicated over and over again while actually helping the nation can't fail. That last one was my gift to you, America and the world. Thanks for 11 good years.

  • Analysts starting to realize Apple has a brand new source of revenue

    Bloomberg posted an article yesterday noting that iPhone service fees are prompting analysts to revalue Apple's earnings. Those who have been reading my Analyzing Apple reports will already be up on this trend, but apparently some financial analysts are just now realizing that yes, wireless carriers really are selling their souls to Steve Jobs to carry the iPhone, and that those tributes are going to bolster Apple earnings over the next few years. Now I've got to apologize to readers for my lateness in posting the July Analyzing Apple report and getting the October/November one published (they're both coming -- really!), but even if you go back and read the June Analyzing Apple report, you'll see this little bit of info at the end:Hidden revenue justifies a higher P/E ratio. Apple announced in April that it would recognize revenue from the iPhone and Apple TV hardware sales over 24 months. This means that iPhone and Apple TV sales will largely appear on Apple’s balance sheet for the next couple years instead of in its income statement. Blackfriars believes that this hidden and guaranteed future revenue justifies raising the P/E ratio that we use to calculate target stock prices to 35 from 30. We fully expect Apple stock to reach those new targets of $131 in FY07 and $161 in FY08.And as you can see by those low price targets, that was before Apple's highly-successful US iPhone launch, blew out its Q4 FY07 quarter, and forecast a rosier-than-expected Q1 FY08.So are those $250 price goals ridiculous? Well, here's a pretty good clue from a Dow Jones report today titled "Consumer electronics seen taking share in holiday spending":"We believe this Christmas season could be dominated by three major categories within the consumer electronics space: flat-panel televisions, videogames/accessories, and Apple-branded products," said Credit Suisse analysts in a recent note to clients.They see a similar pattern unfolding as in 1998, when the popularity and affordability of the personal computer likely stripped away demand for more traditional holiday items such as apparel and accessories.This year, it is the desirability, variety, and pricing of such items as flat-screen TVs, Apple Inc.'s latest iPod models and its iPhone, and videogaming systems that could create a consumer electronics-skewed holiday season, according to Credit Suisse.The fact that Apple-branded products show up -- the only consumer electronics products specified by name -- in the top three most in demand consumer products suggests that Apple's holiday sales will be above what many expect. And with November iPhone launches occurring in the UK, Germany, and France, and the Euro-to-dollar exchange rate rising, Apple is developing a recurring revenue stream that no one really has historical data for, yet we believe that this revenue stream will add billions of dollar to its balance sheet each quarter.So here's a rule of thumb I've come up with to provide a handle on Apple earnings, based upon my own models.In very rough numbers, each million iPhones sold adds about $0.02 per share to annual earnings, $2 to Apple's target stock price, and $350 million to its balance sheet.Looked at this way, if Apple sells ten million iPhones next year, just those iPhones will have added $0.20 to its earnings, $20 to its stock price, and almost $3.5 billion to its cash horde to pay for future earnings. And of course, the iPhone is only one -- and currently the smallest -- of Apple's four lines of business. So unless Apple stumbles somewhere along the way, those $250 price goals that analysts are quoting aren't ridiculous; they're just based on revenue streams and deferred revenue that aren't immediately obvious.Full disclosure: Despite the nearly 10% drop so far today, the author still owns Apple stock. And for those investors agonizing over that drop, here's some encouraging news: the queue to buy iPhones in the UK tomorrow has started forming at the Regent Street store in London, 24 hours in advance of sales.Technorati Tags: Analyzing Apple, Apple, Finance, Financial analysis, iPhone, Projections

  • Microsoft's Mojave Attempts to Wet Vista's Desert

    Daniel Eran Dilger Nearly two years after Windows Vista was finally released, Microsoft has remained unable to shake off its reputation as being slow, incompatible with existing hardware and software, and generally a poor and overpriced product that nobody wants. Microsoft is now trying to reverse Vista's bad reputation by insisting that the software's problems are not technical but rather just the fault of ignorant customers duped in part by Apple's “Get a Mac” campaign. What's Vista's real problems, and will Microsoft's “Mojave Experiment” help solve them? Blame Apple! Microsoft CEO Steve Ballmer has joined Windows Enthusiast pundits in theorizing that Vista's image problems are primarily the result of Apple's advertisements that regularly poke fun at the problems in Vista. The company has now taken aim at shooting at the messenger with a $300 million ad campaign. In July, Brad Brooks, Microsoft's VP of Windows Vista consumer marketing, addressed the company's business partners at its Worldwide Partner Conference, saying, “We've got a pretty noisy competitor out there. You know it. I know it. It's caused some impact. We're going to start countering it. They tell us it's the iWay or the highway. We think that's a sad message.” Another sad message Brooks had to deliver was that Vista's problems aren't really the fault of Apple. “We broke a lot of things,” Brooks admitted. “We know that, and we know it caused you a lot of pain. It got customers thinking, hey, is Windows Vista a generation we want to get invested in?” Vista: Pay it Forward! Brooks also noted that “Windows Vista is an investment in the long term. When you make the investment into Windows Vista, it's going to pay it forward into the operating system we call Windows 7.” Pay it forward? Is Windows 7 going to be a free upgrade to Windows Vista users, in the same way Apple is expected to offer the next Mac OS X 10.6 Snow Leopard release to existing users of 10.5 Leopard? That's highly unlikely, as Microsoft can't sustain its egregious profits collected through the Windows monopoly by giving away updates for free. Windows Vista raised the price of Windows, putting a new definition on the phrase “pay it forward.” Myths of Snow Leopard 7: Free?! Microsoft Admits Windows Vista Mistakes, Criticizes Apple Ads - InformationWeek Reality Impairment at Microsoft Talking out one's ass appears to be a job requirement for all Microsoft executives, starting at the top. A serious case of reality impairment has resulted in the paradox of the company both admitting that Vista is flawed and “broke a lot of things,” while at the same time maintaining that Vista's reputation is entirely the fault of stupid customers and a comically unflattering portrayal by its competitor. In the “Mojave Experiment,” Microsoft plans to dispel the notion that Windows Vista is problematic and incompatible by publishing a series of videotaped interviews with users who arrived with negative impressions of Vista and left excited about the new operating system. This was achieved by presenting the users with a demonstration of “Mojave,” a new operating system that Microsoft later revealed to be Vista, much to the surprise of the interviewed users who'd heard so many bad things about it. However, the Mojave Experiment is so full of false information and saccharine gloss that it couldn't possibly appeal to anyone smart enough to turn on a PC. Even setting aside the fact that the ad experiment basically seeks to blame users for being dumb, the attempt by Microsoft to paint over Vista's problems is transparent and flawed, for a number of reasons. What's wrong with Mojave. Microsoft can't seem to decide whether it wants to admit that Vista has problems or not, and its waffling back and forth just makes the company look increasingly disingenuous. Is Vista a poorly launched, flawed product that the company is working to fix as quickly as possible, or is it awesome and wildly successful and just the victim of bad press? Microsoft tries to tell both stories at once, which is purely dishonest. In contrast, Apple said from the start last year that its Apple TV product was a “hobby” attempting to break into a difficult market. Critics lambasted it for not immediately taking over the market like the iPod had or iPhone later did. Apple's more recent problems in launching MobileMe were quickly noted by the company along with the intent to address complaints about it rapidly. Microsoft isn't alone in being able to stumble, but its complete lack of candor makes it hard to understand if the company realizes that it even has problems to solve. With Vista, Microsoft has issued a flurry of giddy press releases claiming widespread adoption based on the number of licenses sold and naming it “the fastest selling operating system in Microsoft history,” ignoring the fact that Windows sales are increasing simply because they are tied to PC sales. Microsoft has no competition in the PC operating system market due to its monopoly position, so it could release Windows Wet Toast and still sell it faster than XP and ME and 98 Special Edition and every other version of Windows in the past that was tied to an increasingly younger and smaller hardware market. Vista Sales to Non-Users. Many of Vista's “sales” were free vouchers distributed with PCs sold in the holiday season prior to its launch. Even more than a year and a half later, PC makers continue to put Windows XP on their systems, even those sold with a Vista license, while corporate users almost always remove the default Vista to install an earlier version of Windows. There's also a busy third party industry developing around removing Vista for consumers. In late July APCMag cited Jane Bradburn, a manager for commercial notebook sales at HP, as saying, “From the 30th of June, we have no longer been able to ship a PC with a XP license. However, what we have been able to do with Microsoft is ship PCs with a Vista Business licence but with XP pre-loaded. That is still the majority of business computers we are selling today.” The arrangement is supposed to end by January 2009, but HP is trying to extend the deadline because customers simply don't want Vista installed. EWeek also noted that between April 2007 and May 2008, its survey of business users indicated that Vista climbed from 2% to 5%, but that Windows XP jumped from 74% to 83%, three times the adoption of Vista. That growth came from migration from older versions of Windows. Even in its wildest projections, EWeek says Vista will only reach 28% adoption in businesses by the end of 2010. CNET reported that a Jully 2008 survey by systems management appliance company KASE found that 60% of companies surveyed have no plans to deploy Windows Vista, a ten percent increase in disinterest from late 2007. A full 42% were actively exploring Vista alternatives, and 11% had already made the switch to Mac OS X or Linux. Microsoft is simply lying about the level of Vista excitement, and it's gotten too obvious for the company to continue to do so. XP still killing Vista in sales volume: HP 60 percent skipping Vista, so Ballmer looks to Apple | The Open Road The Truth Is… oh Look a Distraction! At the same time, Microsoft notes on its Vista website “we know a few of you were disappointed by your early encounter. Printers didn't work. Games felt sluggish. You told us—loudly at times—that the latest Windows wasn't always living up to your high expectations for a Microsoft product.” That's some brutal honesty for a company with a knack for spinning wild fantasies about fictitious product enthusiasm for a product never actually put to use in many cases. At the same time however, in trying to refute away Vista's real problems, Microsoft uses a variety of tactics that just return to blind fantasyland. Microsoft is a Marketing Company, not a Tech Company. The company plays its Mojave Experiment hand on a new website, incidentally designed using Adobe Flash rather than the company's own Silverlight. Despite the site's oddly designed, usability-impared interface, it's still possible to pull out lots of details from the experiment that say as much about Microsoft's crafty, misleading marketing as they do about its technical problems, underling the simple fact that Microsoft is first and foremost a marketing company that flogs third rate technology products. Mojave took 140 people and asked them to score Windows Vista. The average response was 4.4. After demonstrating Vista SP2 under the name “Mojave,” respondents ranked Vista at 8.5, a stunning improvement. But what were they ranking? Microsoft notes that “many said they would have rated it higher, but wanted more time to use it themselves.” That sounds good at first blush, but it really indicates that the responses were biased by hyped up enthusiasm rather than facts, and that participants realized it, reserving their final judgement until they could actually see more. The “Mojave Experiment” What does Mojave Prove? Mojave tries to represent that Vista's bad reputation is the fault of ignorant consumers who have heard bad things that aren't true about Vista, and have made up their mind without getting the facts. At the same time however, Microsoft also publicly admits that Vista “broke a lot of things” and that specifically, “Printers didn't work. Games felt sluggish.” Did Mojave clear up mistaken notions for participants, or did it just erect smoke and mirrors in a carefully controlled demonstration that skirted around Vista's real problems, including those Microsoft admits? That's a question that answers itself. Mojave didn't send uses home with Vista in a Mojave package and then ask them how well it worked with their existing peripherals and games, or how fast it was in comparison to their existing PC software. This is Not the Droid You're Running Vista On. Instead, Microsoft sat them down in front of a HP Pavillion DV 2000 with 2GB of RAM. That's what HP called its “entertainment powerhouse” laptop, although HP only shipped it with 1GB RAM. Microsoft maxed out the RAM for the purposes of the test, making the laptop a bit more expensive than its usual street price of around $1050. According to Windows enthusiast Joe Wilcox, PC laptops actually cost $700, “half as much” as Apple's laptops. At least that's the Average Selling Price for consumer retail PC laptops according to NPD's Stephen Baker, compared to Apple's $1500 ASP. Wilcox insisted that his spin on NPD's figures couldn't possibly be biased because he wrote his article on a MacBook Air running Leopard. However, his $2,700 laptop did help drive up Apple's stellar ASP for its laptops well above the entry price for Mac Books, discounting his theory that revolved around the assumption that every Mac buyer pays the average price of all the laptops Apple sells. Wilcox and Microsoft are both disingenuously dancing on both ends of the truth. Many consumers are actually buying cheap laptops at Target that can't run Vista ideally, while Microsoft demonstrates its Vista on a considerably better equipped system in the Mojave Experiment to suggest that Vista doesn't have the performance problems that users have heard about from the majority of their peers who bought cheap PCs and are seeing Vista run particularly sluggishly on them. Should You Pay Twice as Much for a Mac? I Did! You Get What You Pay For. The fact that Apple sells more high end laptops to pro users at retail, and that it does not sell anything in the range of the cheap junk being hawked at big box retailers like Wilcox' Target both result in Mac laptops fetching a higher ASP. That fact also means that Mac buyers will be happier with their purchase and have a more favorable impression of Mac OS X because they're running it on a better system. That's all obvious stuff. However, selling people cheap laptops that don't work well, and then demonstrating a fake “new operating system” that appears to work well when running on a faster machine full of RAM is simply a dishonest bait and switch scam. Wilcox does nearly admit that PC makers are already stretching their credibility as they attempt to sell cheap boxes based on price alone, citing Baker as saying, “We aren't seeing any particularly substantive moves down in price on the Windows side, either in desktops or notebooks.” PCs can't get cheaper because they're already unprofitable and consumers are already disgusted with their performance when running the increased overhead of Vista. Wilcox also sets up a tilted comparison between a Dell PC desktop with integrated graphics and an iMac with dedicated graphics and claims a price advantage for Dell, although noting that, while “Dell offers more for less than the iMac,” “that 'more' also means Windows Vista, which won't satisfy some shoppers.” Why Aren't Shoppers Satisfied with Vista? Like Microsoft, Wilcox and his Windows Enthusiast pundit friends can't seem to decide if Vista has any real problems or if it's all just an unfair taint suggested by Apple's Get a Mac ads. However, while Apple has taken shots at Vista's incompatibility with printers and other hardware and its scarce updates that have been few and far between over the last year and a half of its being on the market, Apple also notes in its Get a Mac ads that Macs can run Vista, and can run it faster than PCs. So Apple isn't inventing and publishing false reports on Vista, it's merely advertising its Mac hardware as superior to PCs. The Vista flaws Apple's ads have referenced are flaws Microsoft itself has admitted to its partners, so the Get a Mac umbrage frequently voiced by Windows Enthusiasts is both hypocritical and ridiculous. However, in the Mojave Experiment, Microsoft downplayed those well-known faults by only carefully demonstrating certain features on a high end machine, and without actually exposing Mojave/Vista users to 'a lot of things Vista broke,' 'printers that didn't work', or 'games that felt sluggish.' It Can't Even Print. In response to complaints that Vista doesn't work well with existing PC hardware, Microsoft's Mojave website says that “the Windows Vista Compatibility Center lists compatibility status for over 9,000 products (5,500 devices and 3,500 software programs).” It even notes 2,000 printers, 200 scanners, and 500 cameras specifically. That sounds good until you realize that Apple ships support for over 3,100 printers in Mac OS X Leopard, a product that is targeted primarily toward education and consumers and which is not expected by users to run on any old hardware that might be in use by PC users. Vista is supposed to run on 95% of the world's PCs, and yet it doesn't even match the printer drivers that ship with Leopard, a number which does not include all of the third party drivers available for the Mac. Oh, but there's more. Not only did Microsoft dance around the truth to feed its Mojave Experiment participants a carefully controlled stream of garbage, but it also inadvertently revealed more serious problems related to Vista, which I'll consider in the following article. Did you like this article? Let me know. Comment here, in the Forum, or email me with your ideas. Like reading RoughlyDrafted? 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  • Apple Earnings Sweet in Sour Economic Times

    Mac, iPod and iPhone maker Apple (AAPL) reported a very strong quarter for the 3 months which ended in March. The sheer numbers were staggering: $1.16/share in profit on $7.5Billion in revenue. This compares with analyst expectations of $1.06/share profits on $6.9Billion in revenue. Apple beat on both the top and bottom line but investors aren't yet sure where to go given guidance and a wavering US economy. Apple showed its ability to grow in tougher economic times due to their innovative products, brand value and successful retail integration. A year ago Apple earned $0.87, which represents 33% growth on an EPS basis. The big deal here is over 50% growth in Mac sales to almost 2.3Million units in the quarter. The quarter also included flat iPod unit sales of 10.6Million and very good iPhone sales of 1.7Million units. Margins were good for the company, as memory prices continued to hit lows. The company guided for earnings of $1.00/share for the next quarter amid steady guidance as component costs will continue to be favorable, according to the company. News on the iPhone front? All those shortages we've been hearing about that led to speculation of an upcoming 3G model? Seemed to be just that, shortages due to higher than expected demand. Of course unlocking is a big deal and while the company is using the unlocking argument to peg worldwide demand, the sheer percentage of iPhones being bought to be unlocked has to be very high. Although no numbers are given by the company, some outside analysts and reports have pegged unlocked devices as high as 30% of units. The focus for analysts for this quarter was on Macs and iPhones and according to management, growth rates for both revenue streams are very high. Mac sales of almost 2.3Million units are very strong, coming very close to the record sales number posted by the company for the previous holiday quarter. Sales growth rates in all regions are strong and once again sales of Macs in Apple's retail stores, 50% of the time, went to first time Mac buyers. That old faithful Halo Effect is at work once again. On the iPhone front, the company has added some complications to revenue going forward due to accounting issues. The company will not recognize any revenue from iPhone sales from after the iPhone 2.0 Software upgrade announcement until the software is delivered. Essentially meaning next quarter numbers for the company will include ZERO dollars in iPhone revenue since the company expects to release the software near the end of June. This will put pressure on margins and the top line numbers when doing comparisons, but will add an additional bump to the following several quarters. The company will recognize this window on an adjusted basis for the full 2 years as with normal iPhone purchases. The company reiterated its internal goal of selling 10Million units in 2008 and their strategy of being in Asia this year. On the retail side, Apple continues to be the best revenue per square foot retailer in the world. The company plans to open several high profile stores in the remainder of the year, and its "Store within a Store" concept and increased presence at Best Buy (BBY) stores has grown to 400 stores. When all is said and done, it is another fantastic quarter for the electronics maker. Analysts and traders who are still trying to figure out where to go from here consider that Apple's stock has grown from $120 to $160 in the past few weeks. However, without a shadow of a doubt, this company is continuing to grow, has some very exciting events and products in the pipeline, and has the potential to drastically expand market share in the computer and cellphone business segments. All sign can be used to justify further share price gains throughout the year. The company added about $1Billion in sheer cash, putting its war chest at about $19.5Billion. Not too shabby a rainy day fund I'd say. Disclosure: Author owns AAPL

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