TBR 4Q10 Apple Inc. Report

Download TBR 4Q10 Apple Inc. Report

Post on 17-Oct-2014




0 download

Embed Size (px)


Technology Business Research is a different kind of research company. Our bottoms-up approach provides a look at the technology industry unlike anything youve seen before. We analyze company performance in professional services, networking and mobility, computing and hardware, and software on a quarterly basis, leveraging our data to create industry benchmarks and landscapes that provide a business perspective on leaders and laggards and their business plans. We are experts in the business of technology. Apples 4Q10 performance, with significant gains across all geographies and across all product lines except iPods, positions the company for continued rapid growth at high margins, despite CEO Steve Jobs illness.


<p>Technology Business ResearchAccelerating Customer Success Through Business Research </p> <p>2012 Technology Business Research Inc.1Apple Inc.COMPUTER BUSINESS QUARTERLYSMPublish Date: Feb. 14, 2011Author:Ezra Gottheil (ezra.gottheil@tbri.com),CBQ Senior AnalystContent Editor: John Spooner, Director, Computers and StorageFourth Calendar Quarter 2010First Fiscal Quarter 2011 Ended Dec. 25, 2010TBR OUTLOOK POSITIVETBR SCORE (0-10 SCALE)6.39 Apple 4Q10 | Computer Business Quarterly2011 Technology Business Research, Inc.#Company Analysis3Executive Summary10 Strategy Overview13Corporate SWOT Analysis16 Financial Model Strategy20 Go-to-Market &amp; Services Strategies23 Alliance &amp; Acquisition Strategies24 Geographic Analysis25 Resource Management Strategy27 Organizational Structure28 Future OutlookCompany Data Models29Income Statement 30Balance Sheet31Segment Revenue Model32Unit Shipments &amp; ASP Model33Operating Expense Model34Revenue by Customer Model35PC Revenue Model36 Geographic Model37Financial Strategy Graphs39Resource Management Graphs 41Future Outlook Graph42Alliances Table 43Product Portfolio Table46About TBR</p> <p>Contents Apple 4Q10 | Computer Business Quarterly2011 Technology Business Research, Inc.#Executive SummaryKey DevelopmentsGrowth far, wide and going forwardApples products, services, marketing, reputation and retail presence in the exploding smartphone and tablet market ensure continued rapid growth through 2012, and help drive market share growth for its PCs. The new devices have also broken through for Apple in emerging markets, driving Mac sales, as well.iPhone, welcome to VerizonWhile iPhone sales have spiked over the last two quarters, so have sales of phones based on Googles Android operating system, eroding Apples market share in the smartphone market. One reason for Androids traction is Apples exclusive deal with AT&amp;T, keeping iPhone out of more than half of the largest smartphone market in the world, the U.S. In signing a deal with Verizon, Apple has more than doubled its potential U.S. market, and much more than doubled the part of the U.S. market it has not already penetrated. TBR expects iPhone unit sales and revenues to lurch upward as many Verizon customers have their first opportunity for an iPhone.The company has been able to break out of exclusivity without reducing the approximately $400 subsidies carriers pay for iPhones. Confident that iPhones will continue to bring Apple more than $600 apiece, TBR believes that the company will continue to pack them full of attractive features.Apple will stay strong while Jobs recoversOn Monday, Jan. 17, Apple reported CEO Steve Jobs was taking an indefinite medical leave. COO Tim Cook will be acting CEO, and TBR believes Apple will run smoothly in Jobs absence. Contrary to perception, Apple is now conservative and slow-moving, as is appropriate for a company enjoying a long string of successes; the iPhone and the iPad were clear Apple opportunities well ahead of their announcements. The company has strong top management, a solid culture and a clear strategy. Considering these circumstances, we believe Apples trajectory over the next three years will be similar whether or not Jobs is at the helm.Apples dominance in smartphones and tablets ensures continued growth and high margins Apple 4Q10 | Computer Business Quarterly2011 Technology Business Research, Inc.#Executive SummaryiPad and iPhone sales exploded in the holiday season, driving record revenue and profits prior to an expected 1Q11 boost from VerizonTBR Position:Apples 4Q10 performance, with significant gains across all geographies and across all product lines except iPods, positions the company for continued rapid growth at high margins, despite CEO Steve Jobs illness.TBR believes Jobs absence, whether short-term or permanent, will not significantly affect Apples performance through 2012, and the company will continue to perform well going forward.The long-expected announcement of a Verizon iPhone will propel another surge in iPhone sales and will open up other CDMA carriers to Apple. The deal ensures continued high carrier subsidies without exclusivity, driving iPhone improvements.Apple revenue from Asia Pacific, excluding Japan, surged, showing that the iPhone and iPad are opening up emerging markets for Apple. Mac units also surged, demonstrating a halo effect.Mac annual unit growth and revenue growth were greater than 20% during a tough quarter for most PC vendors. The new MacBook Airs were popular, helping Apples PC ASPs bounce back sequentially. TBR believes Apples ASPs have hit bottom.The iPod touch helped iPods deliver 1% revenue growth despite declining unit sales.Apple Corporate StrategiesDominate awareness with innovative products and aggressive marketing: Apples reputation for products and service drives growth and margins. Maintain a premium market position in all product lines: Apple competes in the higher end of each market for PCs, handsets, tablets and media players. The companys prices slowly follow the market down, but retain their high-end positioning.Be a retail leader: Apples retail presence is far more than a sales channel; it is a strategic differentiator, driving sales and margins and strengthening strong relationships with long-term customers.</p> <p> Apple 4Q10 | Computer Business Quarterly2011 Technology Business Research, Inc.#Executive SummaryQuarterly Segment PerformanceSegmentKey Changes &amp; Drivers4Q10RevenueGrowth Y/YKeep on the RadariPhonesiPhone sales reached 16.2 million units, driven by growth in Asia and Europe.$10.46 billion87.7%iPhone sales will increase and supply will be limited as Verizon customers drive demand.MacsInnovative designs pushed Mac sales to 4.1 million units during the holiday quarter.$5.43 billion22.0%TBR believes Apples digital hub of products will drive new user Mac sales, as OS X looks more like iOS.iPodsThe iPod market continues to show maturity and saturation, with a 7.3% decline in unit shipments year-to-year.$3.43 billion1.0%iPod touch and consumer refresh will continue to make the segment profitable, but with limited growth.PeripheralsPeripherals increased 26.4% compared to the year-ago quarter, driven by Apple TV and iPad peripherals.$593million26.4%TBR expects peripheral revenue will continue to grow through strong iPad sales and iPhone carrier expansion.iPadsInternational expansion and holiday demand drove Apple iPad consumer sales, which totaled 7.33 million by the end of December.$4.61billionn/aTBR believes Apple iPad revenue will continue strong growth into 1Q11 as it begins distributing to 15 more countries for a total of 60.Apples diversification across product categories ensures ongoing growth Apple 4Q10 | Computer Business Quarterly2011 Technology Business Research, Inc.#The iPad and iPhone are rapidly increasing their presence in theeducation and professional arenas, but consumer growth is fasterSegmentKey Changes &amp; Drivers4Q10RevenueGrowth Y/YKeep on the RadarCommercialApples revenue growth from business and creative professional customers continued a trend of acceleration in 4Q10, reaching 64.3% during the quarter, compared to 70.5% total revenue growth.Apple reported at the close of 4Q10 that more than 80% of Fortune 100 companies were deploying and testing the iPad, compared to 65% in 3Q10.$5.32billion49.2%TBR expects the Mac App Store, which opened in January, to help drive Apples FY 2011 commercial revenue. The store is available in 90 countries and offers more than 1,000 apps around categories including education, design, productivity and utilities. Apple reported more than 1 million downloads for the first day that Mac App Store was online.TBR believes Apple will continue aligning resources and alliances to capitalize on the consumerization of enterprise technology driven by apps and mobile devices.ConsumerMac consumer revenue rose 32.4% year-to-year, as compared to 7.2% Mac commercial revenue growth.While iPhone and iPad are driving rapid commercial revenue growth, they are driving consumer revenue growth faster.$21.42 billion76.8%TBR estimates consumer revenue growth will continue to be driven by strong demand for the iPad and iPhone 4 during 1H11, with consumer iPad purchases outpacing commercial purchases indefinitely.Executive Summary Apple 4Q10 | Computer Business Quarterly2011 Technology Business Research, Inc.#Multiple successful products, broadening geographic coverage and increasing brand power drove explosive growth in 4Q10TBR Assessment of Apples PerformanceThe synergies of Apples multiproduct digital hub strategy helped drive broad-based growth across product lines and regionsRevenue growth in every product line produced a record quarterThe power of the Apple brand was visible in 4Q10. Each products success helped drive sales of Apples other products. Apple did more than set records in 4Q10; it demolished earlier high marks. Revenue of $26.7 billion was 31.5% higher than 3Q10, the largest prior quarter, and the $7.8 billion operating profit was 43.7% greater than 3Q10, also the companys best earlier quarter. The company set records across every line of business except iPods. iPhones, iPads, Peripherals, desktops, notebooks, iTunes and software and services all had record quarters.Decreasing component costs helped drive profit growthComponent prices began to fall in 3Q10 and fell further and faster in 4Q10. Memory prices fell rapidly, and all Apple products are memory-intensive. Apples gross margin improved 160 basis points from 3Q10 to 4Q10, despite an increasing proportion of iPhone 4s in Apples product mix. To drive growth Apple added features to the iPhone 4 that made it have lower gross margins than its predecessor, making it a more attractive product and causing corporate gross margins to be 240 basis points lower in 4Q10 than in 4Q09. At 38.5% in 4Q10, Apples new, lower gross margin is still very high for a hardware company.The iPhone helped Apple expand its geographic footprintApple also set new revenue records for each of its five geographic regions, including retail. The greatest gain was in Asia-Pacific, with $5.0 billion revenue, 82.5% more than 3Q10, the largest earlier quarter for the region. iPhone led the charge in Asia-Pacific, but Apple also sold a record number of Macs in the region, demonstrating the halo effect, by which the success of one Apple product drives sales of other products. Greater China, including China, Hong Kong, and Taiwan, produced $2.6 billion in revenue, four times greater than 4Q09 revenue.Executive Summary Apple 4Q10 | Computer Business Quarterly2011 Technology Business Research, Inc.#RevenuesRevenue grew 70.5% year-to-year to $26.7 billion. Sales were driven by strong iPhone, Mac and iPad demand.Mac, Software, Services and Peripherals revenue increased 22.7% to $6.8 billion.iPod, iPad and iTunes revenue rose 107.8% to $9.5 billion.iPhone revenue grew 87.7% to $10.5 billion.Apple sold 4.1 million Macs, 16.2 million iPhones and 7.3 million iPads.</p> <p>ExpensesIn 4Q10, SG&amp;A expense increased 47.2% while R&amp;D expense rose 44.5%.Due to the companys expanding retail presence, total headcount reached 51,000 employees.</p> <p>MarginsGross margin dropped to 38.5%, declining 240 basis points from 40.9% in 4Q09 due to higher iPhone 4 and iPad COGS. Gross profit of $10.9 billion increased 60.6% year-to-year.Operating margin declined to 29.3% compared to 30.1% in 4Q09, while operating profit increased to $7.8 billion.</p> <p>Apple sets new records for revenue and operating profit, while gross margins increase sequentially despite iPhone 4s higher COGS</p> <p>Executive Summary Apple 4Q10 | Computer Business Quarterly2011 Technology Business Research, Inc.#Apples rapid revenue growth and strong inventory management drive high CBQ scores despite increases in operating costsRapid revenue growth and strong customer demand across Apples product portfolio enabled the company to come out ahead of CBQ peers in the financial, go-to-market and resource management metric categories in 4Q10.Key Represents an area where Apple is currently challenged versus peers Represents an area where Apple is outperforming its peers Represents an area where Apple is neither significantly outperforming nor underperforming its peers</p> <p>Executive Summary Apple 4Q10 | Computer Business Quarterly2011 Technology Business Research, Inc.#FunctionKey StrategiesTBR AssessmentOverallDrive rapid growth of a loyal customer base for premium products with a broad range of personal computing devices.iOS 4.0 and an increasing base of App store client devices will provide a core around which Apple can build additional digital hub products, diversifying its revenue stream. While Macs have their own OS, Apple is driving greater success by making them look and feel more like iPads.FinancialApple is engineering margin declines in iPhone and iPad to increase its customer base, driving revenue and unit growth.Apples margins remain very high. The companys operating margin will not fall below 20% again unless there is another major recession. Margins increased in 4Q10 because of improved component prices, but Apple aims to sacrifice margins to some extent to drive growth.Go to MarketApple uses its ever-expanding chain of retail stores to provide an attractive sales and service environment that increases customer identification with the company.Apple stays focused on the consumer market and allows consumers to pull its products into businesses.The new iOS features in OS-X are intended to increase cross-selling from iOS devices to Macs.The retail effort builds sales, cross-sales and customer identification and delivers real value in training, service and support, for which customers are willing to pay premium product prices.Apples product-oriented advertising, aimed at consumers, is also intended to appeal to very small businesses (VSBs) to drive commercial growth.Strategy OverviewApples iOS devices, iPhone and iPad propel growth across all product lines Apple 4Q10 | Computer Business Quarterly2011 Technology Business Research, Inc.#FunctionKey StrategiesTBR AssessmentAlliance &amp; AcquisitionApple forms alliances and, to a lesser degree, makes acquisitions to remain competitive, delivering comprehensive product ecosystems and serving customers.Apple is forming partnerships to serve large enterprise customers of the iPhone and iPad.TBR believes Apple seeks tuck-in acquisitions to bring in technology and technologists that strengthen its core product portfolio.Apple avoids large acquisitions that would disturb its culture.Operations &amp; Global Delivery ModelApple works with suppliers and ODMs to deliver products, including a comparatively large number of custom and customized components. Its large volumes help drive favorable deals.Apples tight control of SKUs helps the sales and branding process and enables immediate availability with minimal inventory.Outside the Americas and EMEA, Apple relies on providers for iPhone sales and the channel for othe...</p>