Archive for July, 2010

Apple’s Incredible Results

July 28, 2010

Yesterday while preparing for a class I read through Apple’s third quarter 2010 results.  I was simply astonished.  Three points of note:

1. The overall financial results are impressive indeed.

Apple’s revenues were a record $15.7 billion in the latest quarter, up +61.4% versus year ago.  Profits were $3.25 billion, up +77.6% versus year ago.  Apple wasn’t exactly struggling last year, so this is growth on top of growth.

2. All the core products are doing well.

Apple’s four core product lines all contributed to the growth.  The company increased sales of iPhones by +61% versus year ago and sales of Macs by +33%.  Apple sold an impressive 3.27 million iPads.  Sales of iPods were down, but just a bit despite the growth in iPhone and iPad.

In the earnings release, Steve Jobs observed “iPad is off to a terrific start, more people are buying Macs than ever before, and we have amazing new products still to come this year.”

3. Apple has remarkable financial reserves.

Apple has no debt, $9.7 billion in cash, $14.6 billion in short-term marketable securities and $21.6 billion in long-term marketable securities.  This totals $41.6 billion.

The company generated $4 billion in cash in just the last quarter.  In other words, Apple is gushing cash like BP’s gulf oil well was until recently gushing oil.

It is hard to imagine a better set of results.

The hard part, of course, will be keeping this all going.  The problem with success is that it raises expectations.  Apple will have a very hard time maintaining this sort of momentum in the years to come.

Something Different from Apple

July 20, 2010

The press conference on Friday was an all too familiar scene: a somewhat grumpy CEO making a reluctant apology, noting that the press has blown things way out of proportion and complaining that the company isn’t being treated fairly, since everyone in the industry has similar problems.

The company was:  BP?  Goldman Sachs?  Toyota?  Nope.

As anyone following the news knows, it was Apple.

Now this is something different.  For the first time in a long time, Apple and Steve Jobs are on the defensive, forced to address some very real quality problems.

It is a dramatic shift.  Apple has been on an incredible roll the past several years.  Apple is the company that can do no wrong, the company that everyone admires.  Now, however, Apple has an issue.

It is clear that this is an unfamiliar and unpleasant spot for Apple and Steve.  In his news conference on Friday, Jobs seemed bothered and somewhat angry.  I thought his attitude was a bit: “I’m Steve Jobs.  I’m CEO of Apple.  You are not.  So what makes you think you can point out a problem in my product?”

In truth, this doesn’t seem like a huge issue.  It isn’t a major product flaw and Apple has apparently provided a reasonable solution.

Still, it is clear that Apple is now being held to a very high standard and rightly so.  When people believe you are the finest technology company in the world, the pressure is on.  Small quality concerns quickly become big issues.

I suspect Apple will have a tough time living up to its reputation in the years ahead; this might be just the first of many disappointments to come.

Learning from Playboy

July 12, 2010

Playboy is in the news today, but not because this month’s edition includes a particularly risqué photo spread.  The news today: Hugh Hefner has offered to buy the company’s outstanding shares and take it private.

The surprising thing in the deal is the price.  Hefner’s bid values Playboy at just $185 million.  This is not a lot of money.  Several years ago Bacardi bought the Grey Goose brand for about $2 billion.   Just last week P&G acquired the Ambi Pur brand for about $380 million.

Based on today’s bid the Playboy brand is worth less than 10% of the Grey Goose brand, and less than 50% of Ambi Pur.

Hefner isn’t undervaluing Playboy, either.  Over the past five years Playboy has seen its revenue fall from $338 million to $240 million.  The company lost more than $50 million in 2009 alone.  Playboy is a troubled company and a troubled brand.

There is an important learning point in the collapse of Playboy: brands have to evolve.

Playboy at one point stood for something distinct; it was a unique voice in the industry.  According to Wikipedia, in 1972 the magazine had circulation of over 7 million copies.

Over time, however, the Playboy brand lost its way.  The core problem is that the brand got caught in the middle.  Today people looking for hard-core pornography have many more exciting options; they are not looking at Playboy.  Men looking for funny articles about the male life can read more dynamic publications such as Maxim and Esquire without being accused of looking at porn.

Playboy needed to change as the competitive set shifted, but it didn’t.

So what precisely is Playboy today?  It isn’t clear.  It isn’t porn, it isn’t new and it isn’t fresh.  I suppose it is old, an iconic and faded brand.

It is a brand with great awareness but little value.


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