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Apple Continues to Execute on Steve’s Product Roadmap

Posted on Monday, Apr 30th 2012

Nothing seems to be stopping Apple’s growth path, as the company regained the title of the most valuable company in the world. Their strong product line-up helped them surge past market expectations on all fronts and quash analyst doubts of whether the company would be able to deliver after the loss of their visionary founder. Their products continue to gobble up market share. According to Nielsen’s research, while Android devices continue to lead the smartphone market share in the U.S., Apple’s devices are catching up. Android devices accounted for 48% of smartphone users in the market, while Apple’s iPhone was owned by 32.1% of users. Blackberry users were a distant third with an 11.6% contribution. However, a survey conducted on the users who purchased smartphones over the three-month period December 2011 through February 2012 saw that 48% of the buyers bought Android devices, while 43% chose the iPhone. The increasing popularity of the iPhone will help narrow the gap between them and Android devices.

Apple’s Financials
Apple’s (Nasdaq:AAPL) second quarter revenues grew 59% over the year to $39.2 billion, shattering the market’s targeted $36.81 billion. EPS grew 92% over the year to $12.30, significantly ahead of the Street’s projected earnings of $10.04 per share.

Impressive revenue and earnings growth was driven by sales of their most popular device, the iPhone. It has been five years since its launch, and the iPhone is still their biggest product as they sold 35.1 million units, compared with 30 million projected by the market. Apple saw revenues from the iPhone and its related products and services grow 85% over the year to contribute 58% of the quarter’s revenues. iPhones are now available in more than 100 countries and Apple has tie-ups with 230 wireless carriers. A year ago, the phone was available on 186 carriers in 90 countries.

Their other products are also going strong. Demand for the iPad remains stronger than supply, causing the company to miss analyst expectations. iPad sales during the quarter grew 151% over the year to 11.8 million units, yet fell short of the 13 million that the market targeted. Revenues from iPad and accessories grew 132% over the year to $6.6 million. Mac sales also grew 7% over the year to 4 million units but were short of market-projected sales by 400,000 units.

Only iPod sales during the quarter registered a sharp decline. Apple sold 7.67 million iPods, recording a 15% decline over the year. Despite the decline, Apple was the leader in MP3 players in the U.S., with 70% market share in March. Needless to say, the iPhone is cannibalizing iPod sales.

Apple’s China Expansion
Apple’s growth is also defying market concerns about debt crisis and slow economic growth. Revenues in the Americas grew 41%, while Europe saw 46% growth over the year. Asia stole the show with sales in Japan growing 91%, and in China revenues grew 114% over the year.

Apple is focusing on expanding their presence in China. During the past quarter, revenues from China grew three times over the year and contributed 20% of Apple’s revenues. In 2010, China accounted for a mere 4.5% of their revenues.

They are also working with China Mobile to become a wireless carrier for the iPhone. China Mobile has more than 660 million users in the country and is thus the largest mobile operator in the world. But growth in China will not be easy. Apple will have to deal with the high instances of piracy in the country and stronger regulations, which have made giants like Google rethink their China growth strategy.

Apple’s iPad Focus
Last quarter, Apple released their much-awaited latest iPad. They priced the new iPad at $499 for the 16 GB Wi-fi only version – the same price at which they were selling the iPad 2.0 16 GB Wi-fi version. To help boost sales, Apple also lowered the price of the iPad 2.0 by $100 so that buyers can now have an iPad at a cost of $399. Besides getting more consumers to buy their iPads at a more attractive rate, iPad also opened their doors to the education sector. According to their management, the $399 entry-level iPad has evoked interest from education customers for classroom use.

Apple is also focusing on getting organizations, including businesses, educational institutions, and government bodies to deploy the iPad. They claim that 94% of Fortune 500 companies are either testing or deploying iPads on their networks. Players like Bechtel, and Daiichi Sankyo are using them for project management and as mobile sales tools.

Apple is trading at $603.60 with a market capitalization of $564.36 billion. It touched a five-year high of $644 earlier this month. Analysts believe that there is no stopping for the stock. Apple is expected to launch iPhone 5 in fall 2012 and the much awaited iTV by next year. The continuing product upgrades should continue to take their stock to new highs in the coming quarters. Note that Apple is executing a product roadmap that Steve Jobs was intimately involved in chalking out. It will be a few years before that changes.

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