Apple Apparently All Right

Gene Munster buttresses his armchair quarterbacking of tech stocks with something we might benefit from more of in analyst writing: data collection. Munster organized a surveillance program involving 25 man-hours of observation in which Apple seems to be increasing Mac sales (following a recent desktop product refresh). Sales of iPhones was below rates observed following the iPhone 3G release last summer, or ahead of the Christmas season, but considering the foreign sales Munster imagines Apple's sales target (4.4million units) is plausible for the quarter. Munster monitored iPods for the first time, and saw twice the rate of sales as on iPhones.

The iPods cost less than phones, but the new Shuffle is arguably Apple's highest-margin hardware. Apple's demand for the flash storage used in its handheld devices (which masquerade as phones and music players though the iPhone/iTouch products are Unix computers with quite sophisticated user interfaces) is so great that product preparation orders from Apple appear to create supply shortages for lower-priority buyers.

Apple's demand for flash may have a salutory effect on consumer access to cheap memory. Just as Apple's unilateral replacement of serial ports with USB created an environment encouraging hardware vendors to support USB (because there was a known user base, and USB wasn't a niche option any longer), leading to near-universal availability of highly-compatible USB devices capable of being connected to machines in large numbers using hubs, Apple's unquenchable thirst for small storage will reassure vendors that researching solutions to this problem will be rewarded with purchases. Apple, after all, was initially criticized for the high ($399) price of its original (5GB) iPod -- which retailed for the same price as the 1.8" hard drive inside it. The premium on the iPod was unquestionably attributable to Apple's willingness to spend more on components that would deliver adequate performance in a smaller, more convenient package. People laughed at the iPod for its price, but its convenience was such that it sold. (The fact Apple is known to prize small storage packages is emphasized by rumors like this.)

Competitors continued for a while to compete on either price (using larger hard drives) or size (using then-miniscule flash storage), but the future was clear: people wanted to carry substantial music libraries in insubstantial devices, and they would pay for the privilege. Apple's later movement into smaller players -- as flash sizes became larger, and Apple realized people wanted to buy even music players from Apple -- helped prevent competitors from obtaining a safe haven at some device size, and offered price points ranging from $50 to the sky.

Apple surely suffers as disposable income wanes in the current depression, but it offers products people want at prices they will tolerate and apparently is suffering along passably well despite everything. Let's hope the next round of Apple devices keeps the excitement up, and will lead the share price in the same direction.

If Intel's Paul Otellini is right, the PC turnaround is at hand and the future will be brighter for Apple and its competitors alike.