Now Apple is once again on the hunt for an executive to oversee its retail stores, a keystone of the company’s success. And it can ill afford to make another such hiring mistake.

In the fourth quarter, Apple’s 401 stores worldwide generated an average revenue per store of $11.2 million, and a recent study found that Apple’s retail stores earn $6,050 per square foot, compared to Tiffany & Co., which earned $3,017 a square foot.

So who might Apple look to to fill the shoes of Ron Johnson, the chief architect of its retail strategy, who left the company last year to take the CEO job at retailer J.C. Penney? That’s a conundrum difficult enough to perplex the most skilled of recruiters; recall that it took Apple about seven months to sign Browett, and that was with the help of executive search firm Egon Zehnder International.

An easier task is to determine where Apple might look for candidates with the sort of experience needed to drive its retail ops.

“Apple’s next frontier is to really grow the brand internationally,” Neil Stern, a senior partner at retail consultancy McMillan Doolittle LLP, told AllThingsD. “So brands like Nike, Coach, Burberry and Starbucks spring to mind as being ‘models,’ perhaps, of where an individual might have that experience.”

We’ve been asking around for weeks about possible external candidates for Apple’s senior VP of retail job, and have heard largely the same thing, and a few names to boot*. They are, in no particular order:

• Burberry CEO Angela Ahrendts
• Victor Luis, president, International Group, Coach
• Jeanne Jackson, president, Direct to Consumer, Nike
• John Culver, president, Starbucks Coffee China and Asia Pacific
• Paul Gainer, executive vice president, Global Disney Store

All five are well qualified. They’re working for global brands with a strong consumer focus and broad international presence. Ahrendts has spent years stewarding one of the world’s most iconic global brands. Luis has spent years steering Coach’s international operations and, crucially, served as CEO of Coach China. At Nike, Jackson is working for a company with a culture similar to Apple’s, one on whose board CEO Tim Cook serves; she also used to run Banana Republic and Walmart.com. Culver has played a key role in growing Starbucks’ global footprint in markets that are of keen interest to Apple, and has done a good job of translating the company’s culture internationally, which isn’t an easy job. Gainer has been overseeing the Disney Store since 2008, when the company reacquired it, and now directs a global retail chain that’s in many ways reminiscent of Apple’s. His boss, Disney CEO Bob Iger, sits on Apple’s board.

Good candidates, all. But would any be interested in making the jump to Apple?

Industry sources are divided on that issue. Some say the job is so high-profile that it will inevitably generate strong interest and appeal to the caliber of candidates like those above.

Others feel that the transition that a move to Apple would require of these candidates would be off-putting. “Any one of these people would be terrific for that job,” one source with close ties to Apple said. “But none of them would ever take it. They’re retail people, and Apple is not a true retailer. It’s a consumer-products company.”

Most retail CEOs come out of a merchandising background, setting a vision for the brand and selecting the product lines it will sell; creating the consumer experience and building out the merchandising, marketing, financial and operational columns that support those things is their passion. But running Apple’s retail operations these days doesn’t involve much of that. Instead, it’s about continuing to execute well on someone else’s good idea. It’s about selling the devices you’re told to sell, and selling them effectively in more markets. The real exciting stuff, the big innovation, has already happened. Apple doesn’t need a hotshot, retail problem-solver. And that may temper the job’s appeal.

As one source familiar with Apple’s retail operations said, “I’m not sure people of the caliber Apple is probably looking for would see an opportunity to add much value to the company’s retail operations — certainly not as much as they might find elsewhere.”

So, then, where does Apple turn? Does it look for retail leadership internally?

That’s certainly a possibility. And there are at least three candidates: Steve Cano, Apple’s manager of retail stores; Bob Bridger, Apple VP for retail real estate and development; and Jerry McDougal, VP of retail.

Of the three, McDougal seems the most likely, simply because he holds the VP of retail title already. But sources say that Cano would be a good pick, as well. His name has been bandied about before in relation to this job, and, according to insiders and outsiders both, he’s well-suited for it. As once source said, “Frankly, I was surprised he wasn’t tapped last time around.”

“I think Steve’s probably the best internal candidate,” Needham analyst Charlie Wolf said. “He’s the most well-rounded of those three.”

And that would seem to be the case. Cano started out as the manager of Apple’s first Soho store. Then he transferred to the company’s Ginza store in Japan to manage its opening and early days. Subsequently, he transferred to London to run international retail operations. And now he’s head of all Apple Stores.

In other words, he’s got broad in-the-field experience and, crucially, he gets Apple Store culture. Browett didn’t, and that’s among the reasons behind his ouster.

“[With Browett], clearly, there was not a cultural fit,” Stern said. “Any new head needs to fit into the Apple (and Apple Store) culture.”

And to have a strong vision for how to expand the Apple Store experience internationally, while maintaining one of its hallmarks: Good service. Sure, Apple sells a lot of hardware through its stores, but it also caters to multitudes of customers who visit seeking help at its Genius Bars. And that’s a keystone of its retail success. As one retailer said, “People underestimate just how powerful the Genius Bar is. You walk into an Apple Store with a broken iPhone, expecting a fight with some customer service rep that doesn’t know what they’re doing. But, instead, you get a Genius who diagnoses your problem on the spot. Maybe he even replaces your iPhone. Now how do you feel about Apple as you walk out of that store?”

The point: Whoever Apple taps for this job must do a good job of keeping customers happy as the business grows and work hard to ensure that, more often than not, folks who walk into an Apple Store for help walk out customers for life.

Put all those requirements together and the task of finding a candidate with the skill set to meet them becomes a tall order, indeed. Taller still, given the embarrassment of being forced to sack Browett after less than a year on the job. Apple’s next hire for this job has to be a good one. The repercussions are far too great if it’s not.

And, as Ron Johnson notes, the stakes are too high to rush a decision.

“I think Tim will take his time with this,” Johnson told AllThingsD. “The internal team is very strong and capable of running well until he finds the right person.”

Apple declined comment on its search for a new SVP of retail, noting — as it did in the press release announcing Browett’s departure — that its retail team continues to report directly to Tim Cook.

*The reply most often offered in response to this question: Ron Johnson.

With reporting by Tricia Duryee.

During the June quarter, Mac shipments to business in the U.S. grew 56.6 percent, even as overall PC sales slipped 8.8 percent, according to Needham analyst Charlie Wolf. Meanwhile, Mac business shipments worldwide increased 22.1 percent, amid a 4.5 percent decline in overall business PC sales. That’s significant growth, though the Mac is still far, far outdistanced by its enterprise rivals. In the U.S., the Mac’s share of the business market was just 5.9 percent in June — and that was an all-time high.

But growth is growth, and given the overall decline in the business PC market, the Mac is clearly gaining traction there. There are a few obvious reasons for this. First, Apple’s OS X operating system has become increasingly more business-friendly over the years, and now plays well with Windows applications, thanks to software like Boot Camp, Parallels and VMware’s Fusion. Second, the so-called “consumerization of IT,” which sees the rank and file acclimatizing enterprise to consumer devices like the iPad and iPhone, and opening the door for bigger hardware like the Mac.

As Wolf notes, Mac adoption in the business sector was pretty slow through 2007. But after? “Something did happen around the beginning of 2008 to propel Mac sales in the business market, and it seems reasonable to infer that it was Apple’s other products, most notably the iPhone and iPad, rather than the Mac itself that contributed to the significant share gains,” Wolf explains. “In our opinion, the role of the iPad cannot be overemphasized. Some observers estimate the iPad sales in the business market might represent up to half of all iPad sales.”

Now, Wolf is speculating a bit here, but that speculation seems reasonable, given recent statements from Apple. During the company’s last earnings call, it estimated that the number of iPads in use at the Fortune 500 had tripled over the past year, and the number of iPhones doubled. Said Wolf, “No doubt many mobile professionals purchased an iPhone for their personal use, which cast a favorable light on Apple’s app ecosystem. Arriving in April 2010, the iPad undoubtedly reinforced the more positive perception of Apple products, encouraging some IT professionals to consider the Mac in their purchasing decisions.”

Correction: An early version of this post incorrectly identified Parallels as a VMware product.

In a research note to clients today, Needham analyst Charlie Wolf raised his estimate for iPad sales for the three months ended June from 13.5 million units to 20 million. That’s more than double the 9.25 million iPads Apple sold in the same quarter a year ago. Wolf’s is the most bullish iPad sales forecast I’ve seen to date, and if Apple manages to hit it, it will be a new record, far exceeding the 15 million iPads the company sold during the first quarter of 2012.

So what made Wolf raise his forecast by 6.5 million units? Two things: First, his initial estimate was simply too low. Second: Accelerating iPad adoption in the enterprise and education markets.

“The increase in our estimate of iPad shipments from 13.5 million to 20.0 million units is based … on anecdotal evidence … that the device is invading businesses in ways that could not have been predicted when Apple introduced the iPad in April 2010,” Wolf explains. “It’s also based on the historical trajectory of iPad sales. When iPad 2 was introduced in March 2011, sales increased 97% in the following (June) quarter. Our forecast of 20 million iPad sales in June implies a 70% sequential increase from March. While this number appears aggressive, it must be remembered that Apple has continued to sell iPad 2 at the lower price of $399. A study by Consumer Intelligence Research Partners found that since the introduction of the new iPad in March, iPad 2 has composed 41% of all iPad purchases.”

A nosebleeder of a forecast, to be sure. But according to Wolf, it’s entirely plausible, and there’s plenty of evidence to support it. “The iPad is invading the business market at a much faster pace than the iPhone,” he said. “In our view, it’s only a matter of time before iPad shipments exceed iPhone shipments.”

Apple is scheduled to report third-quarter earnings on Tuesday, July 24.

Buoyed by increasing sales in enterprise and explosive growth in the Asia Pacific, the company’s share of the global PC market passed the 5 percent mark last quarter, for the first time in 15 years, according to analyst Charlie Wolf of Needham & Co.

Mac shipments grew 24.6 percent in the September quarter, a period during which the broader PC market grew just 5.3 percent. It was the 22nd consecutive quarter that the growth of Mac shipments has outpaced the market. And beyond this, shipments for the past year represented 20 percent of the growth in worldwide PC shipments.

The Mac’s got serious momentum.

In the business market, its growth was a staggering 43.8 percent, more than nine times greater than the 4.8 percent growth posted by the rest of the business market.

And in the home market? There, the Mac saw 25.6 percent growth, compared to overall growth of only 4.0 percent.

Interesting, because in the home market, the iPad was expected to cannibalize at least some Mac sales. In fact, during Apple’s third-quarter earnings call, CEO Tim Cook conceded that point. But evidently that cannibalization is minor at most, and far worse for Apple’s rivals. As Wolf observes, Mac sales in the home market have continued to increase, while sales of Windows notebook PCs have slowed.

“The iPad is undoubtedly cannibalizing some Mac sales,” Wolf writes. “But it appears to be cannibalizing PC sales a lot more. In our view, this underscores the power of the halo effect in overwhelming the impact of any cannibalization the Mac might have experienced following the launch of the iPad.”

Which is essentially what Tim Cook said, back in July.

“Some customers chose to purchase an iPad instead of a Mac, but even more decided to buy an iPad over a Windows PC,” he remarked at the time. “There are a lot more Windows PCs to cannibalize than Macs.”

Needham analyst Charlie Wolf notes today that June marked the 21st consecutive quarter that Mac shipment growth exceeded that of the PC market. Mac shipments grew 14.6 percent for the month — more than five times the PC market’s growth rate of 2.7 percent.

Driving that growth tear: The home and business markets and Asia. Mac shipments rose 13 percent in a global home market that declined .3 percent overall. In the business market, they grew 31.5 percent, more than six times the five percent growth rate charted by the rest of the market. And in Asia, they simply blew the roof off the market with shipments that grew 67.6 percent thanks to soaring demand in China.

Wolf figures the region accounted for a jaw-dropping 55.2 percent of the year-over-year growth in worldwide Mac shipments. And this wasn’t the first quarter of double-digit growth there; it was the sixth. Says Wolf, “The growth of Apple’s sales in China represents a perfect storm between an iconic brand and a rapidly growing middle class that’s more brand conscious than consumers in virtually every other region of the globe.”

This is, of course, something of which Apple is well aware. The company’s leadership has consistently mentioned China as Apple’s next major geographic growth opportunity during recent earnings calls, noting the significant untapped demand for its products there.

“China was very key to our results,” Apple COO Tim Cook said during the company’s July earnings call. “[It] has been a substantial opportunity for Apple, and I firmly believe that we’re just scratching the surface right now. I think there is incredible opportunity for Apple there.”

And now a special word from Phil Schiller, Apple’s senior vice president of Worldwide Product Marketing …

According to Needham analyst Charlie Wolf, the iPad will dominate the tablet market for the better part of the next decade. It will end this year with an 85 percent share, and while that percentage will decline gradually over the ensuing years, it will never fall so much that Apple loses the lead it claimed when the device first debuted. In 2015, for example, the iPad will still have a 72.5 percent share, with more than 101 million units shipped.

And in 2020?

Wolf figures the iPad will command a 60 percent share of the tablet market by then, with nearly 140 million units shipped.

How is that possible, given the unceasing cavalcade of new tablets parading to market? Simple, says Wolf: None of those tablets has managed to gain any traction with consumers.

“Future tablets are more likely to steal share from one another than from the iPad,” Wolf explains. “The tablet market has been inundated with new models — the Xoom running on Android’s Honeycomb operating system, RIM’s PlayBook running on the company’s QNX operating system, HP’s TouchPad running on webOS, and many others. All of them have been greeted with a yawn and lackluster sales. None have been able to undercut the aggressively priced iPad, because the iPad’s component costs are materially lower than those of competing tablets. In the case of tablets, the only thing that matters — that turns what’s otherwise a slab into a versatile device — are the apps. And the applications available on the tablets introduced this year number at best in the hundreds. In comparison, more than 100,000 applications are available on the iPad.”

That will, of course, change over time. Still, that’s quite a lead Apple has nabbed, and one that it will undoubtedly continue to extend even as its rivals rush to catch it.

Which is a familiar scenario to tech industry historians. As Needham analyst Charlie Wolf observes, there are precedents for Research In Motion’s quick and brutal deterioration: Digital Equipment and Wang.

“Over the past 30 years, seemingly impregnable technology companies misread or ignored a disruptive event to eventually disappear,” Wolf writes today in a note to clients. “Think Digital Equipment. The company’s management dismissed the personal computer as a fad only to be buried by it. Compaq acquired the company for pennies on the dollar in 1998. Wang was guilty of the same mistake. The personal computer quickly made the company’s word processors obsolete. … Could the same thing happen to RIM?”

It’s certainly beginning to look that way. RIM’s share of the worldwide smartphone market is in decline, as is year-over-year growth in BlackBerry shipments. And the company’s penchant for shipping unfinished products or poorly conceived ones isn’t helping matters. The PlayBook. The Storm. The Torch. These devices haven’t reversed RIM’s deteriorating position in the consumer market, they’ve accelerated its deterioration.

“RIM does not know how to design user interfaces for consumer-oriented smartphones. Despite its assertions to the contrary, what’s a greater sin is that management apparently has no appreciation of this fact,” Wolf says, adding later that the company “is borderline dysfunctional starting from the top.”

Which leaves RIM, if not in the same precarious position that ultimately felled DEC and Wang, at least headed toward it — unless the company can somehow regain relevance in the smartphone space.

Says Wolf, “RIM is not dead. BlackBerry has a lock on the business market where its communications and messaging capabilities still represent the gold standard. But unless the company cracks the code in the consumer market, RIM’s likely to become a shadow of its former self.”

Verizon’s Android users are waiting for the iPhone 5. And when it arrives this fall, they’ll make the switch en masse. That’s the theory put forth by Needham analyst Charlie Wolf, who believes the simultaneous debut of the iPhone 5 on both GSM and CDMA networks will herald the beginning of Android’s share loss in the U.S.

Wolf suspects initial sales of the iPhone 4 on Verizon were less than what they might have been because the device launched on the network eight months after it debuted on AT&T and many VZ subscribers decided they’d rather wait for its next iteration before upgrading — particularly those under contract, who would have had to pay an early termination fee to switch. Why pay a $350 ETF to switch to the iPhone 4, when you may not have to pay one at all if you wait a few months for the iPhone 5? And if you have to pay it anyway, why not make sure you pay it for the newest hardware available?

“It’s reasonable to assume that a material percentage of Verizon subscribers who plan to switch were content to wait until the iPhone 5 arrived later this year,” says Wolf. “One reason Apple delayed the launch of iPhone 5 until September is that it reportedly plans to coordinate the launch of the GSM and CDMA versions of the phone. To do so in June would likely have upset Verizon subscribers who purchased iPhone 4 in the preceding months. It’s our expectation, then, that the anticipated surge in iPhone sales on the Verizon network is likely to occur this fall after Apple launches iPhone 5.”

And that’s when we’ll see some real erosion in Android’s market share in the States. In fact, it’s beginning already. According to Wolf, Android’s share of the U.S. smartphone market fell to 49 percent from 52 percent in the March quarter. Meanwhile, the iPhone’s share rose to 29.5 percent from 17.2.

March marked the 20th consecutive quarter that Mac shipment growth exceeded that of the PC market.

Mac shipments grew 27.7 percent in March, a period that saw a 1.2 percent decline in total PC shipments, according to IDC data reported by Needham analyst Charlie Wolf. And that growth occurred in every single major regional market.

In Europe, Mac sales were up 10 percent year over year, while the PC market was down 17.5 percent; in Asia they were up 69.4 percent, while the PC market was up just 8.8 percent. And in Japan, Macs were up 21.1 percent in a PC market that declined 16.1 percent.

The story was pretty much the same in the PC market’s various segments. Mac shipments to business grew at a “torrid” 66 percent pace in a market that posted just 4.5 percent year over year. Shipments to government spiked 155.6 percent versus the broader market’s 2.3 percent. And shipments to the home market grew 21.6 percent, while those of PCs slipped 6.5 percent.

That’s some extraordinary growth, particularly since it’s largely organic. “… Shipment growth has resulted solely from an outward shift in the demand curve rather than from a relative reduction in Mac prices,” Wolf observes. Interestingly, the average price of a Mac has fallen at just 1.6 percent annually since 2005.

So what’s the engine of all this growth–aside, of course, from the Mac itself?

Apple’s iOS devices and its carefully cultivated retail presence.

“The key drivers of the growth in Mac shipments over the past five years have been the halo effects emanating from the iPod and iPhone,” Wolf says. “The Apple Stores have played an important supporting role in providing convenient destinations and support resources for Windows users new to the Mac.”

And those three things will become even more powerful drivers of Mac sales as Apple extends the reach of the iPhone and iPad with an ever-expanding rollout of international Apple Stores. Says Wolf, “The iPhone is competing in the mobile phone market, one measured in billions of units rather than the portable music player market, one measured in millions of units. Of course, the iPad is waiting in the wings.”

But can the company even build one?

That seems a daunting task, particularly if the intent is to reduce the cost of the device to the point where carriers could subsidize most or all its retail price, while retaining the features that make it uniquely an iPhone.

In other words, can Apple build a mass market iPhone that is still an iPhone?

Needham analyst Charlie Wolf doesn’t think so. “Apple’s designers and engineers would have to pull a rabbit of a hat to accomplish it,” he said, noting that simply reducing the iPhone’s size isn’t really a viable option. “Such a move would dramatically reduce the value of the iPod module for video viewing as well as the size of Web sites accessed through the Safari browser. A smaller screen would also degrade the experience in using some applications.”

Other strategies, like drastically reducing the iPhone’s internal storage, wouldn’t do much good either. Going from 16GB to 4GB would reduce the device’s bill of materials by only about $30. And even if Apple were able to whittle it down further, margins on the device would likely drop to an unappealing level for a company that is accustomed to high ones.

“Bottom line, Apple has a delicate balancing act on its hands,” said Wolf. “It could modestly reduce costs and the iPhone would still be an iPhone. Going beyond that, the iPhone would no longer be an iPhone.”

That’s a reasonable argument if you assume Apple’s strategy is to reduce costs by removing things from the current iPhone.

But what if the company’s strategy is to build an entirely new iPhone for the prepaid market? What if it were to build a feature phone version of the iPhone, one with a mass-produced chip, a lower resolution screen, less on-board storage and no app store, just a handful of built-in apps? That seems a hell of a lot easier than painstakingly removing features from the iPhone 4 or 3Gs to the point where it’s suitable for the prepaid market. And as many an analyst has pointed out a lower-tier iPhone–one free of the required $70+ a month voice-and-data service plan–could be quite the bonanza for Apple.

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[Image credit: Unwired View]

That’s an additional $1 in EPS for 2011–from $22.25 to $23.25.

“Our expectation going into the Match 11th launch of the iPad 2 in the U.S. was that it would be successful, but probably more subdued than the launch of the original iPad a year ago,” Wolf wrote in a research note titled “AAPL: Shock and Awe.” “The launch blew out our expectations…. In our previous forecast of iPad sales, we had assumed that the fourth calendar quarter of 2010, when Apple shipped 7.3 million units, represented a seasonal high and that sales would recede in the seasonally weaker quarters that followed. Our mistake was to assume only modest secular growth in demand. The launch of the iPad 2, especially abroad, suggests that the underlying secular growth rate of sales is much higher than we previous assumed.”

So much so that it may be a struggle for Apple to satisfy demand for the iPad for quite some time. “Based on December quarter sales, it appears Apple can manufacture around 75,000 iPads per day,” Wolf observed. “Nevertheless, the long lines and stock-outs indicate the iPad 2 will probably be supply constrained for weeks, if not months.”

Which isn’t the best place to be–obviously Apple would much prefer a scenario in which it was able to satsify demand. But it’s a good one nonetheless, particularly since there’s not yet a rival tablet that comes close to matching the iPad.

An astonishing spike. And it’s even more astonishing when you break it down by sector. In the global home or consumer market, the Mac posted shipment growth of 17.1 percent, while the broader market posted a decline of .6 percent. In the business market, Mac shipments grew 65.4 percent compared to the market growth rate of 9.7 percent. And in government, they grew 549.5 percent compared to the broader market’s 8.4 percent. Of course, government sales represent only 1 percent of total Mac sales, so that spike appears more dramatic than it really is, but still…

So what’s the engine for all this growth? Needham analyst Charlie Wolf thinks it’s a halo effect from Apple’s iOS device trinity–the iPod, the iPhone and the iPad–particularly, the latter two, which are gaining lots of traction in both the home and business markets (Oddly, Apple suffered a decline in the education segment, where it has traditionally been pretty strong).

“The surge in Mac sales in the business market coincided with the introduction of the iPad in the second quarter of 2010,” says Wolf. “It would be foolish to assign a cause and effect connection between the two events. However, in less than a year, the iPad has been deployed or piloted in 80 of the Fortune 100 companies, and it’s reasonable to assume the device has invaded smaller businesses at a similar pace. It’s likely, then, that the halo effect emanating from the iPad will be far stronger than the iPhone halo effect in the business market if only because the iPad is a kissing cousin of Apple’s family of notebook computers.”

The last time Jobs went on medical leave, in January of 2009, Apple shares tanked, falling some eight percent to $78.50. But in the months that followed, they rose more than 50 percent, despite continued concerns over his health. By the end of June, Jobs was back at work. By September he was appearing onstage at Apple events.

Then came the iPad. And the iPhone 4. By October of 2010 the company’s shares had risen above $300 for the first time ever. And today they stand at $348.48.

In the end, Apple really didn’t miss a beat the last time Jobs stepped away to focus on his health, despite all the hysterical speculation that it might. And it’s not likely to this time, either — regardless of the open-ended nature of his leave and what some folks are describing as a “less optimistic” tone in his message to employees.

“Steve Jobs’s third medical leave raises the possibility, however remote, that he may not return to Apple,” Needham analyst Charlie Wolf told me this morning. “Jobs’s absence should have no measurable impact on Apple’s financial performance for several years, if ever. It took John Sculley, arguably one of the worst managers in the country’s history, three years to erase Jobs’s legacy in the 1980s. Today, starting with Tim Cook, Apple has one of the deepest and strongest managerial benches in this country. Tim Cook has matured into one of the leading managers in this country (see video below). However, no one can replace Steve Jobs, arguably the leading innovator in the past century, beginning with the Mac, then the iPod, iPhone and iPad in the past decade. What Apple loses in Jobs’s absence is the opportunity and ability to disrupt and redefine still other industries.”

Charlie’s point is a good one, though I disagree that Apple risks losing its ability to disrupt and redefine in Jobs’s absence. I think that Jobs baked those things into the company, its culture and executive leadership long ago. In fact, one could argue that it’s Apple, not the iPhone or iPad, that is Jobs’s masterpiece product, a company designed to set the bar for the industry, regardless of whether it’s him leading its day-to-day operations or not.

Below, Tim Cook speaks at Auburn University’s spring 2010 commencement.

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It’s long been popular belief that the biggest loser in a Verizon-Apple iPhone deal would be AT&T. Since the iPhone’s debut in 2007, the device has drawn millions of new customers to the carrier and done much to revitalize its brand. There’s no question that AT&T’s iPhone-exclusivity deal was a strategic coup for the carrier and that its loss will be painful, though perhaps not as painful as some have predicted–according to AT&T, anyway.

But there’s another loser in the Verizon-iPhone deal as well: Google. Verizon is an Android stronghold. And one of the main reasons for that has been the absence of the iPhone on the carrier’s network. That’s going to change on February 10. And when it does, expect to see some migration of Verizon Android users to the iPhone.* And that may tip the scale of competition between it and Android in Apple’s favor, particularly as more and more feature-phone users upgrade to smartphones.

“The installed base of smartphone subscribers is a small percentage of the installed based of mobile phone subscribers in the U.S.,” Needham and Co. analyst Charlie Wolf told me. “Just 23 percent of Verzon’s 83 million post-paid subs (Q3 release)….Where the iPhone will have a dramatic impact is on the brand choices of feature phone users migrating to smartphones going forward. The iPhone will suck the wind out of Android’s growth on Verizon.”

Verizon’s original motivation for embracing Android was to offer its subscribers an iPhone-equivalent. Now that it’s able to offer them the real thing, Wolf feels they’ll likely opt for it over competing Android devices.

“With the iPhone soon available on Verizon, we suspect that virtually all of the subscribers migrating from a feature phone to a smartphone will choose the iPhone over one running Android’s operating system,” Wolf explained. “Indeed, the presence of the iPhone on Verizon’s network could accelerate this migration. While phones running the two platforms are priced identically, the iPhone has a brand cachet that overwhelms Android. In addition, the iPhone App Store not only carries a much wider selection than does the Android Marketplace, but the applications themselves are also superior.”

*Interestingly, Verizon’s iPhone FAQ specifically notes that subscribers can exchange recently purchased devices for the iPhone. Makes you wonder how many Christmas-given Droids will be swapped out for iPhones in the days ahead.

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Consider this: In 2009, HTC, Samsung and LG accounted for 67 percent of Windows Mobile shipments. In the third quarter of 2010, those same companies accounted for 44 percent of Android handset shipments. Motorola and Sony Ericsson, also longtime Windows Mobile licensees, accounted for an additional 30 percent.

With Android commanding that kind of OEM attention, Microsoft is going to have to work harder than ever to rewrite the weak mobile story it’s written for itself over the past few years.

“To ensure Window Phone 7’s success, Microsoft must sign up virtually all of the name brand smartphone vendors who deserted Windows Mobile for Android when Microsoft failed to modernize the operating system for three years,” says Needham analyst Charlie Wolf. “Microsoft has signed up three of them and has two to go. Google would argue that it has the upper hand in this tussle because it licenses Android for free while Microsoft charges a licensing fee (albeit a small one compared to its PC licensing fees). But Microsoft simply has more at stake.”

And it knows it. Which is why it’s putting so many marketing dollars into Windows Phone 7.

Says Wolf, “We suspect the company will devote a material portion of [its marketing budget] to buy the support of the leading smartphone manufacturers.”

Another interesting tidbit from that Charlie Wolf note I mentioned here yesterday, this one concerning Nokia and the deterioration of its market share in regions where it used to have a stranglehold.

While the company has managed to stabilize its share of the worldwide smartphone market, it has not managed to do that in some regional markets that were once strongholds. In the key Western European region, for example, Nokia’s share fell from 59.4 percent in the June quarter of 2008 to 39.8 percent in June 2010–a decline of nearly 20 33 percent. And in the Asia Pacific market, the company’s share slipped from 74.8 percent in June 2009 to 64.5 percent in June 2010–a decline of more than 10 percent.

That these declines are occurring in markets where Nokia (NOK) is strongest really highlights the crisis the company is facing. Unable to keep pace with the fast-growing smartphone segment, Nokia has been losing share in its core markets to the iPhone, the BlackBerry and Android phones. And the incursion from those devices has only just begun, which doesn’t bode well for Nokia, as Wolf notes.

“Nokia?’s competitive position could deteriorate further,” he writes. “The major Android smartphone manufacturers have only recently invaded Europe. And they?’re taking aim at Asia Pacific and the Rest of World regions, two Nokia strongholds. Moreover, RIM is not far behind Android in this regard. Nokia has vowed to catch up with smartphones running on Symbian 3, the latest version of the Symbian operating system, and MeeGo, a new operating system it?’s developing with Intel. Unfortunately, in an increasing software centric market, Nokia suffers from the fact that the company?’s expertise lies in designing hardware, not software.”

But Needham analyst Charlie Wolf says that’s impossible, because the smartphone market lacks the necessary conditions for a winner-take-all outcome. For one thing, the smartphone market doesn’t yet have a so-called killer app, a modern-day Lotus 1-2-3 that would tip it toward a single platform. For another, there’s little applications lock-in. Most smartphone apps have very little learning curve and are far too inexpensive to tie their users to any one platform. There is no Microsoft Office or Adobe Creative Suite whose high price almost guarantees loyalty to the platform on which they run. Finally, wireless carriers oppose a winner-take-all outcome because it would diminish their control of the market and currently they are pretty much the smartphone’s sole distribution channel.

So if the smartphone market isn’t going to evolve into a winner-take-all situation with Android the winner, how will it evolve?

“We believe that Google?’s land grab strategy should enable Android to end up with a 40%+ share and that the iPhone?’s share could reach 25% as Apple (AAPL) signs up additional carriers,” says Wolf. “Nokia?’s (NOK) share is likely to fall from 39% currently to 20%, although over time it could fall even further. BlackBerry?’s share should also fall to around 10% while Windows Mobile share should remain around 5%. The wildcard in our forecast is Windows Mobile. If the launch of Windows Phone 7 is successful, the platform?’s share of the smartphone market could climb far higher. Most of the gains would likely come at the expense of Android, since Google (GOOG) and Microsoft (MSFT) are competing for the attention of the same smartphone manufacturers?—most notably HTC, Samsung, LG and Motorola (MOT).”

Impressive, considering the growth rates of each market. The Mac’s growth in enterprise was three times that of the rest of the market’s 15.7 percent, and in government it was 16 times the market’s 12.1 percent (click images to enlarge).

Could these spikes be an anomaly? Possibly. They are significant and oddly abrupt. Perhaps Apple (AAPL) nailed down a major government contract during the period. That said, quarterly growth of home Mac sales also exceeded those of the rest of the market, 31.4 percent vs. 25.2 percent. Overall, Mac sales grew 31.5 percent year-over-year, well ahead of the 20.9 percent posted by the PC market as a whole.

“Whether the June blip was a one-quarter phenomenon or something more enduring should be revealed in future quarters,” says Wolf. “Notwithstanding its premium prices, the Mac should continue to grow faster than the market thanks to the multiple halo effects that are now driving Mac sales–first the iPod, then the iPhone, and now the iPad.”

The engine driving those rising revenues? The iPad, whose launch generated a 38.7 percent increase in visitors per store, a 52.9 percent increase in same-store revenues, and a stunning 106.3 percent increase in non-Mac revenues (click image to enlarge).

“Steve Jobs, Apple’s CEO, has often said the company is built on three legs–the Mac, the iPod, and the iPhone,” Wolf wrote in a note to clients. “We previously argued that the Apple Stores represented the fourth leg of the stool, given their outstanding success in building the Apple brand and in attracting Windows users to the Mac platform. However, with the launch of the iPad, Apple just added the fourth leg of the stool.”

Or it began building a second stool.

Gene Munster, Piper Jaffray
While Apple had yet another stellar quarter, investors will wonder if the pace of growth is sustainable. We believe it is, given Apple has small market share in large, growing markets. We estimate that if Apple meets our Mac, iPhone, and iPad targets in 2011, the company will have only about 5 percent market share in the phone and computer markets, a number that will likely grow over time.

Mike Abramsky, RBC
Apple is now benefiting from what we are dubbing a “Cascade of Cool”–three strong, synergistic product cycles–iPhone, iPad and Mac, combining together synergistically to drive the strongest outperformance in 4 years–with more to come, as Apple remains well positioned against large, addressable markets. Additional drivers/catalysts expected include international rollouts, voice to Smartphone adoption, PC to Mac migration, enterprise adoption.

Chris Whitmore, Deutsche Bank
While current quarter results were very impressive, we see open runway for the 3 major product cycles ramping in C2H10 and beyond which should drive continued momentum. The iPad is off to a very strong start with demand characterized by Apple as “amazing” with widespread appeal to the mass market (i.e. already moved beyond “early adopters”). iPhone 4 demand is outstripping supply despite widely publicized antenna concerns (which we expect to dissipate). Both products continue to ramp internationally (iPhone with 154 carriers in 88 countries) while iPad will be available in 9 additional countries by July 23rd. Finally, we expect the recently refreshed MacBook lineup (and future updates) to perform well in the back-to-school and holiday seasons.

Yair Reiner, Oppenheimer
We were expecting Apple to deliver a strong F3Q10. But we hadn’t girded ourselves for a mammoth revenue forecast, and neither, we believe, had the Street. To those (like us) who fretted that Antennagate might hamper iPhone sales, Apple’s guidance seems to say “antennagate schmantennagate.” Apple is seeing a swell of demand across its product lines and increasingly compelling evidence that the iPhone has unleashed a halo effect in the international markets. These are facts on the ground that even Apple’s stubbornly bearish guidance can’t resist.

Charlie Wolf, Needham and Co.
This is the Apple story in a nutshell. The company remains a small fish in some very large ponds. Despite a quadrupling of shipments over the past several years, the Mac, the major surprise in the third quarter with record shipments of 3.5 million, still commands a small share of the PC market. The iPhone’s share of the fast growing smartphone market is likewise comparatively small. And while the iPad is in a class of its own, it’s beginning to cannibalize the much larger netbook PC market. Indeed, the iPad has jumped to the mainstream market, passing through the early adopter market in an instant.

Maynard Um, UBS
Guidance was much stronger than expected as the rev outlook of ~$18b was uncharacteristically higher (by $1bn) than Street ests. We believe AAPL typically guides to a conservatively achievable target, making guidance all the more impressive. With AAPL selling nearly every iPad/iPhone 4 produced, key variable to magnitude of pot’l upside will likely be the pace of capacity increases.

Katy Huberty, Morgan Stanley
The market underestimates the earnings power of Apple’s mobile Internet devices. We view the combination of new product launches, broader distribution (carrier, international, enterprise), more attractive pricing and strong upgrade rates as the key demand drivers over the next two years. Additionally, we believe iPhone, iPod Touch and iPad margins will remain above the corporate average, driving EPS upside as mix improves.

As you can see, Apple’s financial performance has sent the analyst community into paroxysms of praise. Not a week after its Antennagate press conference, the company already seems to have extricated itself from the public relations quagmire surrounding the iPhone 4’s reception woes.

As RBC analyst Abramsky quipped, there’s no deodorant like success.

Needham & Company analyst Charlie Wolf thinks the latter is more likely. In a lengthy investor note this week, Wolf writes that while Nokia (NOK) may long hold on to its commanding lead in the feature phone market, its fate in the smartphone market is uncertain at best.

Why is that? The company’s Symbian OS is simply far too dusty to stand up to competing operating systems, and that’s having an ugly effect on its share of the smartphone market (click chart to enlarge).

“Nokia’s problem is that the Symbian operating system, the platform on which Nokia phones run, is a generation behind the iPhone and Android smartphone operating systems,” Wolf writes. “With Nokia’s heritage in low cost, volume manufacturing, not software development, it’s unlikely the company will ever catch up with the companies that are redefining this market.”

A reasonable point, given complaints about Symbian 3 failing to match Apple’s (AAPL) iPhone and Google’s (GOOG) Android operating systems. That said, there’s still a chance that the MeeGo OS Nokia has been developing with Intel (INTC) will succeed where Symbian has stumbled. But will it be enough to reinvent the company’s fading smartphone line? Wolf isn’t so sure.

“In our opinion, it’s an open question whether Nokia’s efforts will be successful in meeting the ‘modern’ operating system challenge,” Wolf writes. “Where the company has fallen behind is in building a compelling third-party applications portfolio presumably because its software development tools are difficult to use. As the iPhone has demonstrated, a diverse and deep catalog of applications is becoming an increasingly important consideration in smartphone purchasing decisions.”

Remarking on Palm’s gruesome third quarter during an earnings call yesterday, CEO Jon Rubinstein called the company’s performance “extremely disappointing to me personally.” This sentiment seems to be widely held among investors, who are dragging the company’s shares through the mud today–at $4.66, Palm is down 17.52 percent as I write this–and among analysts questioning whether Palm can ever pull off the turnaround for which it’s striving.

Analysts issued a handful of research notes on the company this morning and they are all viciously negative. The headlines proclaim that Palm’s brand value has collapsed, its financial performance is a disaster, and its execution missteps in a business as competitive as the mobile market have left its prospects dubious.

Over at Canaccord Adams, Peter Misek essentially threw in the towel on the company: “We believe that Palm’s troubles will only accelerate as carriers and suppliers increasingly question the company’s solvency and withdraw their support,” he wrote.

“With what appears to us to be roughly 12 months of cash on hand, an accelerating burn rate, a complete lack of earnings visibility, and substantial debt and preferred equity,” Misek added, “we no longer see any value in the company’s common equity. As such, we are reiterating our SELL recommendation and reducing our target to US$0.00 (previously US$4.00).”

Then there was this from Kaufman Bros. analyst Shaw Wu: “While we believe PALM has some value with its webOS and tight integration of hardware and software, we are unsure of the company’s prospects as an ongoing concern.”

And this from Morgan Keegan analyst Tavis McCourt: “It is certainly looking less likely that Palm can execute this turnaround on its own, but the company has at least one more chance with new hardware later this year to try and create some real consumer demand for webOS.”

And finally, this from Needham and Company’s Charlie Wolf: “Palm appears to be in a no-win situation. The company could invest even more in marketing the Pre and Pixi. But it’s unclear whether Palm could ever spend enough to reach a position where Pre and Pixi sales were sufficient to cover its marketing bill and return the company to profitability.”

Wolf concludes that “In the mean time, time is running out. Supported by an increasing number of smartphone manufacturers, the Android juggernaut is continuing to gain steam. And the day when Microsoft (N/R) launches Window Phone 7 and rejoins the spending party is drawing closer.”

If it’s true that bad news begets bad news, Palm is in for a very rough time of it in the months ahead. The company has already lost half its market value since the year began. Time for a takeover? Perhaps, though Rubinstein seems intent on staying the course.

“There’s all kinds of speculation out there that we are going to get bought, that we are not going to get bought,” Rubinstein said on the earnings call Thursday. “We’re not going to comment on any of those. Obviously, we are a public company. And if there’s a reasonable proposal, of course the Board has to consider it. But, that being said, our focus since the day I arrived here, and that’s almost three years ago now, is to build a great company with a great mobile platform and great products. And that has been our focus.”

FURTHER READING:

• Palm Pileup: Weak Smartphone Sales and a Gruesome Q4 Forecast
• Could Be Worse, Could Be Raining: Palm’s AT&T Launch Delayed?
• Could WebOS Licensing Be Palm’s Salvation?
• Palm’s Salvation? Less Push, More Pull.
• And if Palm’s Project JumpStart Doesn’t Work Out, There’s Always “Project Defibrillator”
• Double Face-Palm: Analysts React to Palm’s Lowered Guidance
• Time to Start Looking for a Buyer, Palm?
• 2010: Year of the Palm? Maybe Not…
• Analyst: Palm May Be Acquired in the Next Two Years

Certainly, Palm’s (PALM) carrier partners haven’t viewed it that way. If they had, Palm wouldn’t be sending hundreds of “Brand Ambassadors” out to Verizon stores in the hopes of juicing sales.

According to Palm CEO Jon Rubinstein, that campaign has met with some success. But it has clearly been hard going against heavily promoted Android devices like the Motorola (MOT) Droid. And it’s only going to get more difficult when Google’s (GOOG) Nexus One smartphone goes live on Verizon (VZ) in the next few months.

So what’s Palm to do? Over at Needham & Company, analyst Charlie Wolf suggests the company redouble its efforts to build out the webOS ecosystem.

“The effort to push the Pre in the carrier channel has not worked because of reluctance of carriers to promote the brand against the Android juggernaut,” Wolf writes. “In our view, then, Palm’s only hope is to adopt a pull strategy; that is, to focus on its software developer program to build a library of compelling applications for the WebOS platform.”

As Wolf sees it, “This effort could prove successful because WebOS’s development tools are already familiar to Web developers; and the developer environment itself is arguably superior to that on Android.”

Worth a shot, right? One of Android’s biggest weaknesses right now is a paucity of good apps. Same thing with Research in Motion’s (RIMM) BlackBerry. If Palm were to drum up some serious developer support and differentiate itself on that level, perhaps it might win a bit more of the market’s attention.

With that and a new gotta-have-it “hero” device, the company might gain at least some of the traction it needs to hold its own in a market that’s being hit with a wave of new Android devices and soon, presumably, a new Apple (AAPL) iPhone as well.

Otherwise, Palm may further languish, or worse. Says Wolf: “Unfortunately, if this [pull] strategy does not work, Palm could be assigned to oblivion.”

With Apple (AAPL) inking multiyear Mac contracts with a number of school districts, it’s growth in edu is on the rebound. And now, with the iPad and its promise of hand-held education just a few weeks from market, Apple could be poised to see significant growth in higher ed.

Obviously, it’s impossible to predict whether the iPad will be the digital device to transform the classroom, but some analysts are enthusiastic about the possibility. Among them: Needham & Company’s Charlie Wolf. Reflecting on Apple’s performance in the U.S education market in a note to clients this morning, he suggests there may be big things ahead for the company.

“The soon-to-be-introduced iPad has the potential to change the buying dynamics in both the secondary and higher education markets,” Wolf writes. “At $500 before typical education discounts, the iPad is price competitive with all the PCs schools now purchase.”

That’s not all. Wolf continues: “And the device has the potential to go much further if, as it appears certain, education content is customized for the iPad to exploit its unique multimedia capabilities. It is not difficult to imagine classrooms where the iPad takes center stage, capturing a significant percentage of the school market in the process.”

Not difficult to imagine at all, though it may take some time to get there. As my colleague, Peter Kafka, reminds me, the iPad-as-textbook is likely quite a way off given that it requires buy-in from educational publishers, not to mention school boards and academia. Beyond that, there’s the need for applications that really take advantage of the portability and breadth of use that the iPad offers and to position it as a true an educational tool.

“To be successful in the secondary ed market, the iPad will need content and application developers to write applications that exploit the unique form factor and features of the iPad–content and apps that materially improve the ‘educational experience’ in the classroom,” Wolf told me in a brief email interview this morning. 

“If that doesn’t happen,” Wolf added, the iPad could enjoy some success. But it would be far less than that which would occur if the iPad becomes a unique educational tool.”

Wolf believes higher ed will be easier, though. “Again it will depend on content developers–the publishers–exploiting the dynamic features of the device to enhance the educational experience,” he said. ”Simply formatting text books for the iPad will be OK, but it would eliminate any chance of a hockey stick of adoption.”

[Image credits: Needham & Company, Adam Tow]

It remains to be seen whether Apple (AAPL) has created an entirely new computing category with the iPad. But at the very least, analysts seem to believe the company has created an enduring growth engine.

• Charlie Wolf, Needham & Company
  “Because Apple is defining a new category of devices, sales of the iPad are likely to ramp slowly. But the $500 starting price point is low enough to attract a sizable portion of the early adopter crowd, consisting of iPhone and iPod owners. It’s noteworthy that the iPad’s initial price is below the iPhone’s initial price and not much higher than the price of the first iPod, introduced in 2001. Our best guess at this time is the Apple could sell four million iPads in its initial year on the market, which translates into at least $2 billion of revenue.”
• Gene Munster, Piper Jaffray
  “Originally we were estimating sales of 2m units in the first calendar year at a price point of $600-$800. With the actual $499/$629 price point, we believe Apple will sell 3m-4m units in the first 12 months….After using the iPad, we believe it will cannibalize iPod touch sales, but not Mac sales. The gadget is a premium mobile device, not a computer; as such, we see some iPod touch buyers stepping up to the iPad, but consumers looking for an affordable portable computer will likely stick with the MacBook lineup.”
• James McQuivey, Forrester
  “The iPad is a grown up iPod Touch. Apple has taken the safe route of offering its existing customers an option that goes beyond today’s iPod Touch in size and capability, but it has not offered a new category of devices that tackles the 5-6 hours of media we each consume every day. With no integrated social media for sharing photos, recommending books, and sharing home video, the iPad misses a big piece of what makes media so powerful. As it stands, by relying on the App Store as the single most important draw of the device besides its attractiveness, the iPod Touch is a significant step toward making tablets respectable. But making tablets respectable should have been the least of Apple’s ambitions. It had (and still has) the opportunity to create a new media experience in consumers’ lives. As it stands, a quick, well-structured response from Amazon in the next version of Kindle could easily be a contender here. That’s why I say that the iPad is priced lower than expected because it is less revolutionary than expected.”
• Mike Abramsky, RBC
  “Like the first iPod and iPhone, uptake may in time surprise as future versions improve and costs decline. The iPad’s intuitiveness and simplicity at key tasks (browsing, email, media, watching videos, games, reading, working) may appeal to consumers for whom existing PC experiences are intimidating, inadequate, delivering 90%+ of the features of traditional PCs with less complexity than traditional PCs. Uptake however may require in-store demos to truly experience the richness of iPad’s experience.”
• Tavis McCourt, Morgan Keegan
  “The iPad has been long anticipated so we are not shocked by the lack of stock movement. Given the price point, we suspect initial sales will be strong (this is Apple, and there are many enthusiasts), and then simmer down a bit after a few months. The ultimate success of a new product category will be the unique apps developed for this device, and with the SDK just going out today, it is hard to know how impressive they will be. However, the good news is that aside from maybe modest iPod Touch cannibalization, we doubt that the iPad will cannibalize any revenues from the massive margin pools within the iPhone and Mac product categories.”
• Craig Moffett, Bernstein Research
  “Longer term, the iPad offers the potential to redefine the boundaries between print and video, turning formerly passive media into active ones, and in the process making what are currently low bandwidth applications (say, reading a newspaper) become much more bandwidth intensive (e.g. by embedding video rather than still pictures).”
• Mark Moskowitz, J.P. Morgan
  “iPad is not for everyone, and the first-generation product is sure to have its critics given the prelaunch buzz. In our view, the iPad is a smart, nimble device for heavy content users–Apple’s core customer. iPad is a hybrid of sorts, marrying select benefits of the smartphone and notebook. We expect the market to be small at first, but the gamer and education verticals should construct a meaningful growth ramp longer term.”