Apple earnings beat the Street but the easy days could soon be over
Oddly enough, this quarterly release could signify the last of the salad days for Apple (AAPL). On the horizon, powerful competitors are massing for a concentrated assault on Apple.
Microsoft (MSFT) is set to release Windows 7, a much improved operating system over the previous disastrous and bug-ridden Vista operation system upgrade. Google (GOOG) and Verizon Communications (VZ), two of the deepest pocketed technology companies, have declared war on the iPhone. Google's mobile operating system, Android, looks sure to pick up steam in coming months and become a more vital challenger to Apple's own OS. Dell (DELL) and other hardware companies are rolling out slick laptops that compare favorably to the beautifully engineered Apple laptop products. In other words, the free ride could soon be over as Apple finally faces a real battle for the hearts and minds of the unconverted.
Though investors paid little heed to Apple's conservative outlook, the company realizes the challenges it faces. Apple said that for its fiscal first quarter, it expects earnings to come in at $1.70 to $1.78 per share on revenue of $11.3 billion to $11.6 billion. That's lower than analyst expectations of $1.91 in earnings per share on $11.45 billion in revenue.
The reason for the disappointing outlook? In markets where Apple plans to shortly enter, Jobs and company will plow into fierce competition. Amazon.com (AMZN) has built a strong lead in the eReader market followed by Sony Corp. (SNE). Even the hub of Apple's previous dominance, the drop-dead easy-to-use iTunes music and applications store, is in the cross-hairs of various powerful entities. For sure, Apple will continue to grow. Its products are too good and its marketing too slick. But the low-hanging fruit has been picked and from here on out Apple has much tougher sledding.
For starters, adoption of Windows 7 is likely to be stronger than perhaps many market analysts had previously anticipated. Why do I think this? In discussions with retailers, they are telling me that people are opting to wait for Windows 7 machines rather than buy Vista machines -- even if the Vista units are sold with free upgrades to 7. Now, some of this is likely due to fears that the upgrade process will be a hassle. This is a somewhat justifiable fear, although less so than in the past. Regardless, the fact that people are even taking into account which Windows operating system they want to buy speaks volumes about the market recognition that Microsoft has received for this operating system upgrade. Then there has been a steady stream of highly positive reviews from influential reviewers such as the Wall Street Journal's Walt Mossberg.
Will the strength of Windows 7 mean that Redmond can steal back market share from Macs? I highly doubt that. Converting Mac users back to Windows is nearly impossible. What's more, some analysts expect Mac to continue gaining market share based on momentum and Apple's very strong laptop product line. All of which may be true but Apple's roaring stock price appreciation has been built on extremely strong growth numbers. All Windows 7 has to do to slow down Apple is compete in a viable fashion, something that appears sure to happen.
Windows-focused PC makers sense the opportunity and are intent on rolling out new laptops that can match or arguably trump Apple's vaunted portable computing line with slick features and sleek silhouettes. Witness Dell's new ultra-thin Adamo XPS, touted as the thinnest ultra-portable laptop on the market. The device is part of Dell's efforts to remake itself as a design-focused purveyor of eye-popping products. It has wowed reviewers with goodies such as a heat-sensing latch that lets owners open the notebook with a finger swipe.
While Apple's iPhone has clearly established itself as the player to beat in the smartphone market due to the prodigious data consumption habits of its customers and the soaring numbers of phones sold, one cannot discount Verizon and Google. In smartphones, the number of available applications is a key to securing customer adoption. Hence Apple's highly successful campaign with the mantra "There's an app for that."
Then, there's the impressive sales channel capabilities of Verizon. The largest wireless carrier has managed to beat competitor AT&T (T) in numbers of smartphones sold quarter after quarter despite AT&T's exclusive deal to sell iPhones in the U.S. Verizon is also perceived to have a superior wireless network. Widespread media criticism of AT&T over the peformance of iPhones and, in particular, iPhone data service, has built public perception that Ma Bell's network is sub-par. Verizon (VZ) is adding to those fears with its DroidDoes campaign, a brutal assault on Apple pointing out the numerous "iDont" failings of the iPhone versus an upcoming Android phone to be launched soon by Verizon. The campaign puts to rest any speculation that Apple might do a deal with Verizon to sell iPhones.
That in and of itself is another significant strike against Apple by limiting potential partners to lesser players in the U.S. market and cementing Apple's reliance on AT&T (funny, it used to be the other way around, right?).
Sure, the upcoming Apple tablet computing or media reader product could help boost sales numbers, as might an Apple netbook designed for Web surfing and at a lower price point than the extremely expensive MacBook Air line. But for the first time in recent memory, Apple will be facing a real run for its money in nearly all of its major growth vectors. The next two years will certainly be far more challenging for Steve Jobs and his crack team of operators than the previous two, as the entire world converges on Apple for a global beatdown of the market leader who has effectively had a free ride for a surprisingly long period.
Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at firstname.lastname@example.org.