There’s a saying that the more you have, the more you fear losing it.
Apple’s CEO made a surprise appearance during yesterday’s fiscal 2010 fourth quarter earnings call. Jobs said he couldn’t resist participating, given Apple’s record .34 billion revenue. But he leveled most of his comments at competitors, and in quite defensive posture. Now why is that? Apple’s iPhone blew past Wall Street estimates by as many as 3 million units. The iPad outsold Macs and, according to Gartner and IDC analysts, sucked sales away from Windows netbooks and low-cost notebooks. Apple controls the largest and most successful applications store on the planet. The company sits on a cash horde of more than billion. Then there are the quarterly results, which topped consensus estimates by nearly billion.
Investors punished Apple for its gangbusters quarter. The stock opened at 3.49 today, after closing at 8 yesterday. I’m not surprised by investors’ reactions, which some Wall Street pundits chock up to declining margins. I don’t agree; Apple has warned about declining margins many times before. I blame the CEO. Jobs’ defensive, competitor-attacking comments were unnerving. I felt uncomfortable listening to him rant in kind of a childish way. His comments felt oh-so out of place — and out of control — for a chief executive running a company on a roll. The cheap shots, given from such a position of competitive strength, were unbecoming.
Something else: Jobs’ presence disrupted the earnings call’s flow. Financial analysts seemed more unsure what to ask and to whom. Similarly, Apple’s chief financial officer and chief operating officer didn’t jump in with the kind of aggressive answers that are more typical of Apple earnings calls. If Wall Street has lingering concerns about Apple margins, perhaps it’s because analysts couldn’t ask the questions or didn’t get the answers they needed. Jobs’ presence — and sometimes a bumbling one, at that — proved to be negative.
From one perspective, Jobs laid out the competitive market as he sees it. He asserted that with 14.1 million iPhones shipped in fiscal 2010 Q4 that “Apple handily beat RIM’s [Research in Motion] 12.1 million BlackBerries sold in their most recent quarter ending in August. We’ve now passed RIM, and I don’t see them catching up with us in the foreseeable future.” That may be true, but why does anyone need Jobs proactively asserting this? Surely Wall Street analysts would issue reports with these figures and the news media and Apple fan blogs would report about them. There was a defensiveness to Jobs tone that left me asking: What is he so afraid of when Apple is doing so well?
Gagging on Google
Jobs moved on to Google and recent statements by Eric Schmidt, its CEO and former Apple board member, about there being 200,000 Android activations per day and 90,000 apps in the Android Marketplace. “Apple has activated about 275,000 iOS devices per day on average for the past 30 days” with the number topping 300,000 some days, Jobs asserted. It’s an apple and oranges comparison. Apple isn’t just activating iPhones but iPads and iPod touches, too. Nearly all Androids are phones; for now. It’s a me-too claim that demonstrates Jobs’ fear Android may do to iPhone what Windows did to the Mac during the 1980s and 1990s.
Apparently recent analyst reports and forecasts about Android outselling iPhone bug Jobs, whose reaction seemingly is one of simple denial. “Unfortunately there is no solid data on how many Android phones are shipped each quarter,” he asserted. “We hope that manufacturers will soon start reporting the number of Android handsets that they ship each quarter. But today that just isn’t the case. Gartner reported that around 10 million Android phones were shipped in the June quarter, and we await to see if iPhone or Android was the winner in this most recent quarter.”
To clarify, when Apple asserts X number of items sold, it really means shipped, because there usually is Y number of units in inventory somewhere. Gartner doesn’t measure number of handsets shipped but the number sold. This accounting explains why Gartner’s numbers for iPhone are usually lower than Apple’s. Jobs’ statement ignores recent reports from IDC and other analyst firms clearly showing Android matching or exceeding iPhone shipments. That Jobs doesn’t like the numbers doesn’t mean manufacturers aren’t reporting Android shipments or that analysts are miscounting them.
“Android is very fragmented,” Jobs harped. He observed that HTC and Motorola skin Android with proprietary user interfaces “to differentiate themselves from the commodity Android experience. The users are left to figure this all out. Compare this to iPhone, where every handset works the same.” He went on to assert that Twitterdeck “had to contend with more than a hundred different versions of Android software on 244 different handsets.” Jobs asserted that fragmentation and the number of hardware iterations present application developers with a “daunting challenge.” Now “compare this to iPhone where there are two versions of the software — the current and the most recent predecessor.”
The tech news media and bloggers have written widely about Android fragmentation — and HTC or Motorola skins, which appeal to many mobile customers. Jobs’ unnecessary assertion seemingly reflects his frustration and fear Android will win the smartphone wars. He also asserted that Apple’s mobile app store has 300,000 applications and 200,000 registered developers, which again raises the question: What is Jobs so afraid of? He’s arguing competitors’ weaknesses from a superior strategic position. Apple is renown for successfully selling aspiration; Jobs’ defensive posture undermines confidence in him and in the company he cofounded.
Jobs made many good points, about the benefits of integrated over fragmented, not forcing customers to be system integrators and that Android isn’t as open as Google asserts. “We are confident that [integrated] will triumph over Google’s fragmented approach, no matter how many times Google tries to characterize it as open,” Jobs asserted.
An Allusion worthy of “Saw”
Keeping up the defensive posture, “I’d like to comment on the avalanche of tablets poised to enter the market in the coming months.” He mused about a “handful of credible entrants” and “almost all of them use 7-inch screens as compared to iPad’s near 10-inch screen.” He went on to explain why smaller isn’t better — that the 7-inch “size isn’t sufficient to create great tablet apps, in our opinion.” I laughed. By that reasoning, iPhone’s 3.5-inch display is too small to create compelling apps, too.
I laughed again, when Jobs asserted: “While one could increase the resolution of the display to make up for some of the difference, it is meaningless unless your tablet also includes sandpaper so that the user can sand down their fingers to around one-quarter of their present size.” That allusion conjures up a bloody mess worthy of any “Saw” movie. My question for Steve Jobs: When will you start shipping sandpaper with iPhone and iPod touch?
Apple is shipping the industry-leading tablet, as measured by nearly 7.5 million units shipped during the first two quarters of availability. In a press release issued four days ago, Gartner classified iPad as a media tablet. The analyst firm projects 19.5 million media tablet sales this year. If iPad simply keeps the same sales pace during fourth quarter, the tablet would account for about 65 percent of that 19.5 million units. So why is Jobs so defensive, when iPad is doing so well? What is he afraid of?
Jobs droned on more about tablets and during the Q&A section bumbled through several pointed questions from financial analysts. Nearly every Jobs’ statement effused defensiveness. I expected more confidence from the legendary Steve Jobs. Judging by today’s nip at Apple shares, I’m not the only one.