Following Apple's executives in the most recent conference call left the impression that this scenario won't change anytime soon. How far can Apple go - and who can compete with it?
Apple's Fiscal Q3 (calendar Q2) numbers are truly stunning. $28.6 billion in sales. $7.31 billion net profit. $28 billion in cash reserves. A market cap of $358 billion. This is the same company that Michael Dell told in 1997 to close its doors and give its shareholders back their money. To put those numbers in perspective, Apple is now reporting higher sales than IBM (which reported $24.6 billion and profit of $2.9 billion) and there is only HP ($31.6 billion revenue, $1.8 billion profit) ahead of the company at this time. For the first time in its history, Apple is likely to report more than $100 billion in sales this year - about the same as Intel and Microsoft combined.
Much has been written about the success of Apple. However, if we were to structure the rise of Apple 2.0, it really began with the iMac in 1998 and was amplified by the iPod and following music services in 2001, but was fueled tremendously by the launch of the iPhone in 2007 and most recently the iPad in 2010. Prior to the launch of the iPad, Apple reported sales of $13.5 billion and a profit of $3 billion for the first quarter of last year.
Within 12 months, Apple more than doubled its revenue and more than doubled its profit. Instead of 8.4 million iPhones in the second (calendar) quarter of last year, Apple sold 20.34 million iPhones in the second (calendar) quarter of this year. Sales of iPads climbed in the same time frame from 3.27 million to 9.25 million units. In comparison, Apple was also able to sell 3.47 million Macs in the 2010 quarter, but was only able to increase the number to 3.95 million in the second quarter of this year. Not surprisingly, iOS products (iPhone, iPod, iPad) are rapidly gaining Apple revenue share and climbed from about 57 percent in Q2 2010 to 73 percent in Q2 2011 (and those numbers do not include additional revenue from music and app services).
An Operating System Company?
When reading this numbers, I can't help but remember the words of the legendary technologist Alan Kay, apparently a friend of Steve Jobs, who responded to Apple's CEO when he was first shown the iPhone: "Make the screen at least 5x8 and you will rule the world." Given the traction the iPad has, Kay may not have been wrong, and given the frenzy among other companies to build a tablet, he was certainly right. However, it is easy to forget that that the iPhone and the iPad are, in the end, just nicely designed pieces of hardware. The driving force behind the success is not just hardware - it is software, and particularly iOS in this case.
Sure, Apple just announced a new version of Mac OS X with great fanfare to fuel interest in its traditional desktop and notebook computer systems, but iOS is the growth market today. According to Net Applications, iOS already holds a global market share of about 2.63 percent, which is almost half of Mac OS X' share of 5.37 per. It is not exactly Windows territory, but it is a massive achievement for just one company and we know that the share may be climbing even further. So, given the importance of iOS, do we see Apple turning into an operating system company, and not so much a hardware maker anymore? Such a step and focus would be highly unlikely and would not even fit Apple's business model. However, Apple is turning into an incredibly power platform company that has greater reach than any other IT company before it. The combination of its hardware and software expertise as well as its consumer perception have opened doors that others may not be seeing yet.
While PC companies are busy trying to catch up with the iPad and are copying the iPad just as they tried to copy the iPod and iPhone, Apple may already be preparing its next coup. If Apple's game is about the iOS platform, I would bet my money on an Apple HDTV device based on iOS and connected to the iPad and iPhone via the iCloud, followed by a much deeper integration of iOS and Mac OS X.
Is Apple Invincible?
Describing a tech company as invincible is silly. IBM was once thought to be invincible, Microsoft was thought to be invincible and Google was thought to be invincible (in advertising revenues) as well. They all were and still are vulnerable. Apple is a special case, but it is no exception, and lives and breathes through its dedication, innovation, patience and flawless execution. A good portion of Apple's success is also based on the paranoia of its competitors that every new Apple product will sweep the market and the only defense is to build a copycat.
The problem with this strategy is that Apple will always remain one step ahead of its rivals, as long as they rely on Apple for innovation and believe that picking up the crumbs Apple leaves behind is enough. Apple's competition for the iPod was harmless and it is rather harmless for the iPhone as well, if we consider a vendor-vendor comparison. There is no powerful rival for the iPad in sight yet. Apple may remain invincible as long as there is a company that is willing to take an innovative leap and take a substantial business risk with a radical new product.
Or, Apple's rivals can hope that Apple will shoot itself at least once in the foot.