Apple's Glass Ceiling

In a post called "Noted for Future Gloating," John Gruber from DaringFireball.net calls out Douglas A. McIntyre for this post, where McIntyre says:

"The big wall that Apple cannot knock over is the wall that being in second place erects. The really substantial buyers, corporations, who could move Mac sales toward 15 million or 20 million units, never did buy the Apple product and they won't now. It represents extra work for them, and extra costs. Extra costs are not popular these days.

The Mac has hit is glass ceiling. Apple investors may be hoping that the machine can make it out of the consumer market to keep the rapid growth going, but that is not in the cards."

I think McIntyre is way, way premature with his prediction, but I also agree, there is a glass ceiling for Apple for computer sales. But the reason that McIntyre's statement is worth ignoring from an investment perspective is because Apple's market share in the consumer market is still very small and there is still plenty of room to expand. Gene Munster from Piper Jaffray thinks Apple has 20% of the consumer market in the US and 10% outisde the US. I think those numbers are way too high.

If Apple hasn't even touched the corporate market, which is estimated to be about 70% of all computer sales, then there's also potential for a glass ceiling to be created for that market. McIntyre may be right in that, in this recession, some corporations are not interested in extra costs. But believe it or not, some don't really care. Especially corporate executives. As someone who works for a corporation, I can tell you there are those who toss away several grand a day on silly expenses and wouldn't blink twice toward ordering a MacBook Air on a whim--just to check it out.

Apple remains an investor's dream because surprise growth is what gives stocks really big moves, and Apple over the past few years has been relentlessly expanding into new markets, providing that surprise growth.

The most successful example of Apple invading a market then expanding into the mainstream is the move from the iPod to the iPod Mini, which was introduced at a price point that drove iPod sales to well over 100 million in a relatively short time.

The iPhone is Apple's most recent foray into a ripe mega-sized market and could easily follow the iPod to iPod Mini route. A more subtle move is the software Numbers, Apple's sneak attack at Microsoft Office Excel. Numbers is nudging its way into the consumer market, but it's really better suited for small businesses. Who starts small businesses? Consumers. What do small businesses sometimes grow into? Corporations.

The height of Apple's glass ceiling for their computer line probably defined by the fact that they make premium products. And premium products always start out with a premium price. But if they out innovate the way they did with iPods, one day they can be so far ahead they can release an iPod Mini-like product which is affordable yet still a premium technology-wise over the competition. The MacBook is a step in that direction. If we ever see a $600 MacBook or iMac (sorry the Mac Mini, without peripherals, doesn't count), I think it'd be game-set-match.

Link to Gruber's post.

Link to Fortune's "Analyst: Apple’s U.S. consumer market share now 21 percent."

Apple Now Makes More Money From Selling Music Than Warner Music Group

From a New York Times article:

"Apple sold $881 million worth of music and accessories in the last quarter. That figure rose 35 percent from a year ago. And the NPD Group now counts Apple as the largest seller of music in the country, ahead of Wal-Mart. Apple, in fact, is on track to have greater revenue from selling music (and accessories) this year than the entire revenue estimated for the Warner Music Group."

From the music industry's perspective, you can kind of understand why some are so bitter about Apple's success. While the music industry struggles financially, Apple is making record breaking revenues off hardware that plays their content. Personally, I have no sympathy for the record industry. They essentially shot themselves in the foot through their own greed (and continue to do so every time they sue a music fan for "stealing"). And also, all those years of ripping off artists and overcharging for media like CDs doesn't give them much of a leg to stand on.

The Times: Apple's 3G iPhone Order Is Already In to Manufacturers

British newspaper The Times is reporting that Apple has already placed its order for the 3G iPhone.

"Times Online understands that Apple has placed an order with its Asian suppliers to produce 200,000 of the new 3G iPhones by the end of May, rising to 2 million - 500,000 per week - in June."

It's important to note that the iPhone is not currently being manufactured. The FCC hasn't yet approved the device yet, and due to the public nature of FCC documentation, as soon as it's approved we will know (but not before the actual approval). So, it's possible that Apple has sent over the schematics and has run the numbers past the manufacturers and is now shooting the breeze waiting for the FCC.

Is the iPhone undergoing the FCC approval process right now? If they were, I'd think Apple would have introduced the 3G iPhone already. Since Apple doesn't control when the FCC releases the approval documentation, they could be taking a chance that the documentation would be released before they could announce the 3G phone and place their own marketing spin on it. Of course, maybe Apple doesn't care so much anymore about complete and total secrecy and control now that the initial iPhone has been long released to the world. I wouldn't bank on that though.

Will the 3G iPhone Need FCC Approval?

There's been talk that the release of a 3G iPhone is just around the corner. Most of the rumors come from financial analysts who pay attention to things like the amount of product inventory of stores. Apparently, they've noticed that the availability of iPhones has begun to dry up and claim Apple is clearing out old stock for the new. If true, they say, the 3G iPhone is merely weeks away.

There's one small catch. The FCC needs to approve the phone, as an entirely new radio (3G) is being introduced into it. According to Compliance Engineering Magazine, this process takes a while:

"Depending on the FCC workload, product certification could take from 60 to more than 100 days. "

The initial filing for FCC device approval is not public record, only the FCC's final stamp of approval is. So people trolling through the pages of the FCC's website won't find anything until the iPhone is actually approved. Apple submitted the first iPhone on March 9, 2007 and received approval on May 17, 2007. The process took a little over two months. Apple chose to announce the first iPhone well before they even submitted to the FCC, but whether they'll do the same again is unknown.

Required reading: FCC device approval documentation.

Tom Kravitz on Why Apple Won't Be Going With the Intel Silverthorne Platform

Tom Kravitz from CNET cuts through all the hype and tells why the Silverthorne (Atom) processor is not likely to be in an iPhone soon:

"I'll go out on a limb: Apple is not going to use this generation of Atom in the iPhone or iPod Touch. Atom is a good stepping stone for Intel's low-power design teams, but it's still an order of magnitude away from the power consumption goals Apple requires for those products. Come Moorestown in 2009 or 2010, maybe that's different, but we're not there yet."

I think the door is still left open for a tablet device though. People want a good battery life for their phone, not so much a portable computer.

Link to article.