Once again keeping you in the loop about some of the things happening around Apple this week.
Not as valuable. Apple’s reign as the world’s most valuable company has ended – at least for now. After CEO Tim Cook announced earnings that disappointed investors on Jan. 23, Apple’s shares have plummeted 14 percent. They were trading at $514.01 right before the earnings report. Today they closed at $439.88. That translates into a market capitalization of $413.04 billion – putting Apple behind Exxon Mobil Corp., which at $418.23 billion, reclaimed top honors in market value. But why do I say for now? Because the market is fickle/irrational when it comes to Apple, as anyone who has covered the company knows, and I don’t doubt investor enthusiasm will rise again, especially after Cook releases new iPhones later this year and signs that long-awaited distribution phone deal with China Mobile, the world’s largest carrier. “We are working on some incredible stuff. The pipeline is chock-full,” Cook said during the earnings call. “I don’t want to comment about a specific product, but we feel great about what we have got in store.” Analysts are betting on new iPhones, including a lower-cost model for emerging markets and a version with a larger screen. Personally, I’d like an iPad mini with a Retina display.
Earnings talk. Just what did Cook and CFO Peter Oppenheimer say during Apple’s earnings calls to send the shares plummeting (the replay can be heard at Apple's investor site)? It certainly wasn’t the bit above about new products in the future or Cook’s comment that Apple sold 10 iOS devices per second in the holiday quarter. Investors weren’t thrilled with flat profits from a company that’s delivered burgeoning returns for the past several years. And analysts weren’t keen that Apple’s sales came in below their estimates and that its second-quarter forecast for sales – and gross margin – also came in lighter than they hoped, suggesting that the lower-priced iPad mini is cutting into profitability and that demand for the iPhone 5, the biggest driver of sales and profit, may be slipping. It also didn’t help that Cook seemed to suggest he wasn’t interested in delivering lower-cost or larger-sized iPhones, but since when does Apple telegraph its products plans?
We really mean it now. There were also questions on the call about Apple’s new format for guidance, its prediction on how much sales it will generate in the new quarter. Apple is now providing a range for revenue that it thinks it will actually fall in rather than a single “conservative” number it had confidence it would reach. This was interesting given that Apple has a long history of low-balling its guidance. Even though this is really insider baseball stuff, I enjoyed this exchange between CFO Oppenheimer and Sanford C. Bernstein analyst Toni Sacconaghi.
Sacconaghi: I just wanted to make sure that I fully understand your comments about a guidance in the new guidance range that you’re providing. Are you effectively saying that when you provided guidance before it was uniquely conservative and that level of conservatism no longer exists? We’re actually getting the real planning range for Apple and that this is fundamentally different from how you approached and provided guidance.
Oppenheimer: In the past, we provided a single point estimate of guidance that was conservative, that we had reasonable confidence in achieving. This quarter and going forward, we're going to provide a range of guidance that we believe that we are likely to report within. No guarantees, forecasting is difficult, but we believe that we will report within that range.
Sacconaghi: I'm just comparing the words. So you think you'll report in the range. Before you, I think, on average eclipsed your guidance on EPS by 35%. Was the guidance before something that you felt reasonably confident in achieving? Or was there an implicit buffer in there? Because I'm trying to reconcile the fact that you said you thought it was reasonable before but your historical precedent was you eclipsed it enormously on an ongoing basis, and this time you're saying there's a high likelihood of falling within the range…I want to understand the distinction.
Oppenheimer: I'll go through it again. In the past, we gave you a single point estimate of guidance that was conservative, that we had as reasonable confidence as you can have that we would achieve. We're now providing you a range of guidance that we expect to, as best we can, report within.
Got it?
Chip switch? There've been rumors for a while now that Apple will drop partner-turned-rival-turned-legal adversary Samsung Electronics as the supplier of chips for its iPhone and iPad and turn to someone else for its processors. Someone like the Taiwan Semiconductor Manufacturing Company or TSMC, which “solely makes chips by contract, and probably will never compete with Apple in finished consumer electronics as Samsung has,” the New York Times noted this week after TSMC CEO Morris Chang made some interesting remarks during his company’s earnings report. Chang said the company’s 20-nanometer chip, which goes into full production in 2014, would likely outsell the latest 28-nanometer chip in its first two years. “Enough discussions have taken place, with enough customers who have large requirements (on 20 nanometer), to lead us to believe that the volume will be very large,” Chang said, according to the newspaper. Analysts are betting that Apple is among those customers.
Siri, the “do engine.” Siri, the voice assistant technology introduced in 2010, had many more features than the version Apple introduced after buying the company and incorporating its tech in the iPhone in October 2011, according to an interesting look at the history of Siri in the Huffington Post. “This, after all, was no ordinary iPhone app, but the progeny of the largest artificial intelligence project in U.S. history: a Defense Department-funded undertaking that sought to build a virtual assistant that could reason and learn,” the story found. “At its original debut, in 2010, Siri had been able to connect with 42 different web services -- from Yelp and StubHub to Rotten Tomatoes and Wolfram Alpha -- then return a single answer that integrated the best details culled from those diverse sources. It had been able to buy tickets, reserve a table and summon a taxi, all without a user having to open another app, register for a separate service or place a call. It was already on the verge of “intuiting” a user's pet peeves and preferences to the point that it would have been able to seamlessly match its suggestions to his or her personality…The do engine was designed to be a participant in the life at hand -- one that could anticipate what you wanted before you wanted it, and make it yours before you could ask.”
Labor audit in China. Apple released its seventh annual supplier responsibility report this week and said that audits of its suppliers, particularly in China, once again found wage problems and underage workers as part of the tracking it does for 1 million workers across its supply chain. In the past year, it conducted 393 audits at all levels of our supply chain — a 72 percent increase over 2011 — at sites where more than 1.5 million workers make Apple products. It said it ended its relationship Guangdong Real Faith Pingzhou Electronics Co., which supplied circuit-board components, after finding 74 cases in which underage workers were employed, and discovered that an employment agency forged documents to allow children to work illegally at the supplier. In interviews yesterday with the New York Times and Bloomberg News, senior vice president of operations at Jeff Williams, who took over that job when Cook became CEO, said Apple was committed to drawing attention to the problems it was finding in its supply chain – and cutting ties with violators. “We go deep in the supply chain to find it. And when we do find it, we ensure that the underage workers are taken care of, the suppliers are dealt with,” Williams told the NYT.
Do not hire. Emails to and from Steve Jobs, released in a San Jose, Calif. federal court this week and published at The Verge, confirm that Apple threatened to file a patent lawsuit against former rival Palm if it didn’t agree to stop hiring Apple employees. I say confirmed because the issue first came to light in a story I wrote back in 2009, noting that then Palm CEO Ed Colligan told Jobs he wouldn’t go along with the anti-poaching scheme because it was “likely illegal” and that he wouldn’t bow to Apple’s threats. Colligan was right. In 2010, Apple, Google, Adobe, Intel and a few other companies agreed that they wouldn’t make anti-poaching agreements among themselves after the US DOJ started an investigation.
Happy birthday, Mac. On Jan. 24, 1984, Steve Jobs unveiled the Macintosh at Apple’s shareholders meeting in Cupertino, California. Then CEO John Sculley introduced a “special showing” of the 90-minute meeting and the introduction of a “major new product for this industry called Macintosh.” The meeting, which you can find on YouTube, starts with Steve Jobs, in a suit and bow tie, reading this Bob Dylan poem.
“Come writers and critics , Who prophesize with your pen
And keep your eyes wide , The chance won't come again
And don't speak too soon , For the wheel's still in spin
And there's no tellin' who , That it's namin'
For the loser now , Will be later to win
For the times they are a-changin'.”
iJobs 'totally wrong' and Jobs' nose. The first extended clip from jOBS, the film about Steve Jobs‘ early years starring Ashton Kutcher, was released this week and Apple co-founder Steve Wozniak says the minute-long scene is “totally wrong.” Entertainment Weekly posted the clip on its site, showing Jobs and Wozniak, known as the “Woz” and portrayed by actor Josh Gad, arguing the merits of building a personal computer for home use. Only thing, Woz says it never happened, since it suggests that Jobs invented the personal computer. The movie makes its debut tonight at the Sundance Film Festival and will air in theaters April 19. I’m sure there will be plenty of reviews before then…In other Steve Jobs news, Cult of Mac found an interesting photo of Jobs wearing a Groucho Marx nose, eyebrows and mustache. Photographer Tom Zimberoff tells the story of how the Jobs “nose photo” came to be in a Kickstarter pitch for a book project he’s hoping to put together.
Happy weekend.
