Peter Kafka

Recent Posts by Peter Kafka

Apple: Steve Jobs Is Still Fine, and We Still Hate Netbooks

Next to no news from the Apple earnings call this afternoon, which is just the way Apple execs like their earnings calls. Once again, the company provided no information about CEO Steve Jobs’s health except to note that he is still scheduled to come back to work in June. And the company continued to pooh-pooh the concept of netbooks–supercheap, supersmall laptops with very little horsepower that are the hottest part of the PC business right now.

But COO (and temporary CEO) Tim Cook’s dismissal of the netbook market will continue to spark speculation that the company is readying something that sits in between a laptop and an iPhone (which is itself a computer, of course). Silicon Alley Insider’s Dan Frommer got more of Cook’s response than I did so I’ll reprint his quote here:

“When I look at what is being sold in the netbook space today, I see cramped keyboards, terrible software, junky hardware, very small screens, and just not a consumer experience and not something we would put the Mac brand on. So it’s not a space–as it exists today–that we’re interested in, nor do we believe that customers in the long term would be interested in. That said, we do look at the space and are interested in how customers respond to it. People who want a small computer than does browsing and email might want to buy an iPod touch or iPhone. We play indirect basis. Then of course if we find a way where we can deliver an innovative product that really makes a contribution, then we’ll do that. We have some interesting ideas in this space.”


Apple (AAPL) just turned in a strong quarter and followed it up with conservative guidance. A fairly typical performance for the company. Now investors will want to know about new product lines, Steve Jobs’s health and other matters. I’ll be covering the call live. Please refresh this page for the most current information. Click here if you want to listen in yourself.

Joining call now. Tim Cook CFO Peter Oppenheimer going over info that’s already in the release.

Mac products: 2.2 million Macs, a three percent decline year-to-year. Tough comparison from last year. But better than the seven percent drop in PC sales overall. “We feel very positive about our Mac performance.” Began and ended quarter with three-to-four weeks of Mac inventory.

iPod: People still buying ’em! iPod touch selling well, and so are apps. Claims people like the new shuffle player. [Dubious about that]. We own the MP3 player market. [Duh.] Began and ended the quarter with four-to-six weeks of inventory.

iTunes store: 35,000 apps available in store, up from 15,000 a quarter ago. “We are within hours” of one billions app downloaded.

iPhones: Unless I’m missing something, absolutely no new data here. Praising new iPhone 0S 3.0 that’s in the works. Apple delayed the start of revenue recognition of all iPhones sold after the company announced the new OS, which was March 17. Will start up again once OS is released.

Stores: Half our Macs sold to people who had never owned one before. Average revenue per store is down year over year, because the economy is lousy.

Gross margins: Commodity and other component costs lower than expected. Higher-margin sales better are also than expected. Apple also spent less on operating expenses than expected.

Guidance: Forecasting is “challenging” in macroenvironment. Again, noting delay in revenue recognition for iPhones (see above). Excited about new products in pipeline, etc.


Outlook for pricing on component supply? Mostly favorable, but some commodities, like NAND, will increase sequentially. Cook does not expect to see the level of reduction seen in calendar Q1. Will it be down? It will be “in a similar range as last quarter.”

Cash flow issues? Not really, for several reasons: 1) Apple made prepayment to…. [sorry, I didn’t catch who that was]; 2) accounts payable were down, from holiday quarter to spring quarter, which is standard; 3) at $1.3 billion, tax payments were up “significantly” from last year.

Mac business: Desktops selling well, but average selling price down quite a bit. What’s going on? Sales accelerated in March after Apple announced new product launch. Higher-end Pro products sold to professionals are down a bit, which is related to economy for obvious reasons. Education sales also down a bit, for same reasons. Hoping Federal stimulus funds will help with that.

Back to netbooks–why won’t Apple sell them? Cook is still criticizing netbooks. The ones available today are “just not a consumer experience and not something we would put the Mac brand on, quite frankly. It’s not a space today that we’re interested in, and it’s not a space we think that customers in the long-term are interested in.” But… a slight hedge with regard to smaller computers, which are, of course, what the iPhone and iPod Touch are. We “have interesting ideas in this space.” Today’s netbooks really shouldn’t even be called computers, really.

App store: What’s the mix between paid and free downloads and the iPod and iTouch mix? Nope. Apple won’t say. Again, Cook notes that we’re just “hours away” from the one billionth download. Cook: One of the keys behind the growth of iPod has been that sales of the iPod touch “more than doubled year-over-year.” The iPod and iPod Touch have reached sales of 37 million units, a big platform for developers. So there’s a virtuous cycle there.

[Sorry, missed two questions here.]

Why is Apple still doing an exclusive with AT&T for the iPhone? And how’s Steve Jobs? AT&T (T) is the best wireless provider in the U.S. “They have done a very good job with iPhone….We’re very happy with the relationship we have and do not intend to change it.” Structurally, we’re using GSM architecture, and Verizon (VZ) uses CDMA, and we wanted a world phone.

And Steve Jobs? Apple CFO Peter Oppenheimer: “We look forward to Steve returning to Apple at the end of June.” [Translation: No news.]

[Yet another question missing here. Apologies.]

Any info on DRM-free/”iTunes plus” sales? Too early to tell.

How much impact did Wal-Mart (WMT) have on Apple sales? Very key partner for the iPod. The company believes Wal-Mart provides extended reach. Pleased with results, but “early going, and not much to report there yet.”

So many iPhone Apps. How can you make them easier to find on iTunes? (Same problem as music.) Any kind of unusual patterns? Nonanswer here.

Please talk about competition for smartphones–i.e., please discuss the Palm (PALM) Pre. “Difficult to comment on products that aren’t shipping. So there’s nothing intelligent I could say on the Pre.” But “we think we’re years ahead.” We see things through software lens and that has benefited us and customers very well. Power of device and ecosystem enormous and we’re now just scratching the surface.”

What about suing Palm re: patents on the Pre, etc.? “We think that Apple’s innovation is leading the industry by years. We think competition is great; we think it makes all of us better as long as other companies invent their own stuff.”

Latest Video

View all videos »

Search »

There was a worry before I started this that I was going to burn every bridge I had. But I realize now that there are some bridges that are worth burning.

— Valleywag editor Sam Biddle