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Apple Hysteria: Focus Instead on Astonishing Numbers and Core Strategy

Oracle

Let’s ignore the latest stock-market gyrations that have sent Apple ’s share price spinning, and focus instead on some of the company’s fundamentals.

This piece has nothing to do with recommending or not recommending Apple’s stock—rather, it’s a look at the company’s underlying core strategy, it’s remarkable and ongoing performance, and the strategic competitive advantage it has created.

Just 26 months ago, Steve Jobs joined Apple’s quarterly earnings call to commemorate the company’s first $20-billion quarter.

And next month, little more than 2 years after what was then a momentous occasion, Apple will announce its first $50-billion quarter!

Now, I know, I know, there are seasonal quantitative differences between the quarter ending Sept. 30 and the holidays-inclusive quarter ending Dec. 31. And if that makes you think that a 27-month hyperclimb from a $20-billion quarter to a $50-billion quarter is just small potatoes, well, I suggest you put your Batman costume back on and tell Alfred to warm up the PlayStation.

The folks over at statista.com have put together an eye-popping graphic that compares Apple’s fiscal-2012 profits with those of the top 5 companies in various industries.

Not just Apple versus a single category leader, but Apple versus the top 5 companies in various industries.

For example, statista.com compared Apple’s profit to that of the combined total for the world’s leading Internet companies for the 12 months ending Sept. 30, 2012. Here’s how they stacked up—first, the various Internet-industry leaders:

* Microsoft : $15.706 billion

* Google : $10.556 billion

* Yahoo : $3.969 billion

*eBay:  $3.839 billion

*Facebook:  $223 million

*Amazon.com:  $40 million

*TOTAL:  $34.332 billion

By comparisonundefined:

*Apple:  $41.773 billion

Bear in mind that conventional wisdom holds that tech companies can’t make money these days on hardware, and that hardware’s purely a commodity business, and that smart companies are ditching their hardware-product lines because hardware involves nothing more than low-cost logistics and assembly work. It’s certainly not strategic, according to conventional wisdom.

So what’s interesting about Apple is that while it sells many tens of billions of dollars worth of hardware each quarter—details just below—Steve Jobs always described Apple as primarily a software company. And that is precisely why Apple can sell all this hardware and still make astonishing margins: because it’s fundamentally a software company. From Apple’s annual earnings report:

  • Total Mac net sales:  $23.221 billion
  • iPod:  $5.615 billion
  • iPhone and related products and services:  $80.477 billion
  • iPad and related products and services: $32.424 billion
  • Peripherals and other hardware: $2.778 billion

How does Apple sell all that hardware and still generate profit margins that groups of industry leaders in non-hardware businesses can’t come close to matching?

Well, Steve Jobs said the answer is simple—not easy, but simple: Apple designs its hardware and its software and its Internet services to work together. It engineers them together from the ground up for optimal performance, optimal user experience, and optimal developer opportunities.

Software and hardware built together. And that approach is going to shape the future of enterprise computing because the needs of businesses today and tomorrow will simply overwhelm traditional computing approaches, as I noted in a recent column called Steve Jobs, The $60 Light Bulb, And The Future Of Technology.

Let’s compare Apple to another sector in which it competes: the media business. First the profits over the past 12 months for the five industry leaders, and then the profit for Apple:

*Comcast: $5.972 billion

*Disney: $5.682 billion

*News Corp.: $2.674 billion

*Time Warner: $2.621 billion

*Viacom: $2.345 billion

TOTAL: $19.294 billion

Now, those are pretty solid numbers for the media industry, which has been undergoing enormous upheaval in the age of not just the Internet and the Web but also social media and the demolition of the old model of limited content-creation opportunities and even more-limited distribution possibilities. Yet they don’t amount to even half of Apple’s 12-month profit of $41.773 billion.

Here’s another example, this one courtesy of seekingalpha.com, showing how Apple leverages the laws—and the physics—of big numbers:

Another key metric comScore found, and one which helps explain what finally pushed Apple into second place, is nearly 52 percent of all subscribers in the U.S. were on smartphones, up 6 percent from the previous quarter. Apple only sells smartphones, so its fortunes rising in lockstep with the decreasing popularity of feature phones makes perfect sense.

Apple has been remarkably consistent over time in its insistence that its objective is to build the best possible products that create the greatest experience for its customers—not the cheapest, not the highest-volume, but the best. And that requires excellence in design and IP first and foremost, and then remarkable prowess is purchasing, logistics, manufacturing, and operations.

And that means that as more and more consumers want smartphones and the escalating intelligence and functionality that they offer, Apple’s sitting in a very sweet spot in the market.

But, some have contended, doesn’t that high-minded approach mean Apple will be isolated in niche markets rather than pursuing the fat part of the distribution curve? Well, see if these numbers from a top industry analyst, as reported by Forbes.com’s Eric Savitz, sound isolated and niche-y to you:

“From our latest supplier checks, we continue to pick up improving yields and availability on iPhone 5 and thus improving profitability,” [Stern Agee analyst Shaw Wu] writes. “From our understanding, this is the key reason why supply will likely be sufficient for a broader global launch starting in South Korea on December 7 and in China and more than 50 other countries throughout the second half of the month. In addition, we have noticed much better availability in AAPL’s retail stores, online store, as well as third-party partners. Triangulating data points, we believe there is likely upside to what looked liked aggressive consensus iPhone expectations of 45-46 million units for the December quarter.”

With 92 days in those three months ending Dec. 31, that works out to about 500,000 iPhone 5’s every single day.

The tech world is moving inexorably toward new approaches to optimizing the power of hardware and software together, and Apple’s astonishing success on so many levels offers powerful and enduring proof that will be very difficult—if not impossible—to refute.

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