Sunday, May 8, 2011

Apple: Still Ripening

After passing Microsoft in market capitalization, then in revenue, Apple has finally passed it in quarterly profit. This comes not in some quirk of seasonal doldrums or in the wake of some unusual charge-down, but in the very quarter Microsoft announced solid quarterly profit buoyed by record expansion of its server and tools business segment. Apple's profit – and MSFT's struggles in Windows OEM licensing (MSFT's profit surge was attributed to the Office franchise, not the the company's Windows division) – appear directly related to Apple's success against Microsoft's offerings in the netbook space. In a related move, Microsoft launched ads seeking to compare Apple's MacBook Air to underpowered Windows netbooks that are being crushed by iPads.

Netbooks aren't Apple's only success. The iPhone business has been cleaning up. In the United States, Apple's share of the smartphone platform market (as measured not by new sales, but by subscribers) was up about half a percent from 25% to 25.5% over the period Dec'10 to Mar'11, but its share of hardware share of all mobile subscribers gained 1.1% of the entire market, from 6.8% to 7.9% (a 16% gain from its position at the end of 2010). Other vendors sell some non-smartphone products, but Apple does not: as the market heads toward smartphones, it grows Apple's addressable market. Over the period, Apple gained on RIM, which lost smartphone share (from 31.6% to 27.1%) but due to shifts toward smartphones, lost only a tenth of a percent in the broader mobile hardware market.

One can look out into the future and wonder what effect some of the major competitive trends will bewhether "free" operating systems will really place hardware competitors in a position to compete with Apple on margins, or whether control of the OS will allow Apple to capture post-sales revenues that otherwise would be lost to the hardware vendors – but the near-term has a pretty clear outlook: Apple is trouncing the competition. Not by lowering prices in a bid for short-term share, but by raising quality to capture the most premium segment of a growing market. Very nice.

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