As the company prepares to report earnings Tuesday after grappling with a stock plunge, the company must prove that it is not just a hardware business but a software one too. Jessica Lessin reports on The News Hub.
Apple Inc. AAPL+1.84% is facing an identity crisis on Wall Street.
As Apple prepares to report what analysts project may be the company's first year-over-year quarterly earnings decline in a decade on Tuesday, it is also grappling with jittery investors and a recent share-price plunge that has wiped about $280 billion off its market capitalization since its stock reached a high of $702.10 last September.
Much of the investor nervousness is rooted in how Wall Street is treating and valuing the Cupertino, Calif., company as a traditional hardware maker. One camp of analysts and some investors said there is strong evidence that Apple should be viewed in a different light: as a software-hardware hybrid.
The distinction matters. If it continues to be seen as a hardware business, Apple's streak—driven by products like the iPhone and iPad—could run out quickly as smartphones and tablets get commoditized and consumer tastes change. It is a lesson learned by companies like BlackBerry-makerResearch In Motion Ltd., BBRY+2.43% whose tech hardware was quickly eclipsed by products from Apple itself.
If Apple is classified as a software-hardware hybrid, the company could be valued more like Internet and software makers that have recurring revenue streams and that often trade at higher price-to-earnings ratios than hardware firms.
"The market views Apple as a consumer hardware company tied to product cycles that drive volatile revenue and earnings streams," says Morgan StanleyMS+4.35%analyst Katy Huberty. But that view isn't complete, she says, since "Apple customers buy into a brand that offers ease of use similar to companies like Amazon.comAMZN+2.03% or enterprise companies like NetApp."
An Apple spokesman declined to comment ahead of Tuesday's earning report.
With Wall Street categorizing Apple as a hardware maker, investors value the company—which made an astounding $13 billion in profits in the quarter ended in December—at 8.6 times expected earnings per share for the next 12 months. Investors are currently valuing Hewlett-Packard Co., HPQ-0.56% which made $1.2 billion in profits during its most recent quarter, at a price-to-earnings ratio of 5.6. Troubled PC maker Dell Inc., DELL-1.17% whose stock price inflated after signing a buyout deal earlier this year, trades at a P/E ratio of 8.5.
Apple's gross margins are around 40%, an important measure of the company's efficiency at making money. That is roughly twice as high as H-P's and Dell's.
Apple has characteristics that differ from many other hardware businesses. Its customers often upgrade their Apple products annually, far more frequently than the four-year PC upgrade cycles typically found at tech hardware businesses including Hewlett-Packard or Dell.
While H-P and Dell have tried beefing up the enterprise software side of their business, Apple's operating system and iTunes software is already ubiquitous. Apple also has more than 500 million accounts for its App Store tied to credit cards—and a customer base to sell new services to—giving it a recurring software and services revenue stream. Apple took in revenue of $3.7 billion from iTunes and other software and services in its last quarter, or 7% of its total revenue.
That gives Apple at least some properties of enterprise software companies like storage hardware and services company EMC Corp., EMC+2.33% which has a P/E ratio of 11.4. Some analysts are urging a comparison to cable companies likeComcast Corp., CMCSA+1.06% which also enjoys steady revenue from subscriptions. That company has a P/E ratio of 16.4.
At Apple, Chief Executive Tim Cook has been lobbying Wall Street to change its hardware-centric views.
Even if Wall Street shifts its view on Apple as a software-hardware hybrid, the firm's woes aren't over.
At an investor conference in February, Mr. Cook said "because we're not a hardware company, we have other ways to make money and reward shareholders." He added that unlike other hardware businesses, "we don't look at the sale of a product as our last part of the relationship with the customer. It's the first."
Even if Wall Street shifts its view on Apple as a software-hardware hybrid, however, the company's woes aren't over. The history of hardware companies that stayed on top through software is short.Sony Corp., 6758.TO+0.31% for instance, lost its supremacy to Apple when the Walkman couldn't compete with iTunes and the iPod. RIM enjoyed huge sales spurred by its email service, only to have that eclipsed by Apple and its App Store.
Now, some say there are signs Google Inc. GOOG+0.97% may do the same to Apple with online services. Piper Jaffray analyst Gene Munster says Apple builds great software, but gets a "C" on software services like data syncing service iCloud.
And while customer loyalty to Apple remains high with 80% to 90% of U.S. iPhone users saying their next phone will be an iPhone, the clock is ticking, Mr. Munster says. "People love their Apple products and want to buy them but they have six months. There has to be something cool coming."
Many analysts believe Apple's next big software play will be payments—a sticky service that could keep users buying Apple products in the same way iTunes and the App Store have. Still, that could take years to reach fruition and Apple faces pressure to boost profits now.
For the second fiscal quarter, analysts surveyed by Thomson Reuters expect the company to report 8% revenue growth to $42.3 billion in the quarter. Apple's earnings are projected to be $9.5 billion, down from $11.6 billion a year earlier.
Leadership is a tricky thing. Is it innate or learned? Who needs it the most? What traits define a strong leader?
The fact of the matter is that everyone needs leadership. Entrepreneurs and business leaders of all industries must have sound leadership abilities. Even if you have a strong team driving your business forward, it won’t get you anywhere without the proper leadership, guidance, and principles. Even if you don’t currently hold a managerial title, an affinity for leadership is likely to take you far in your career.
Maybe some leaders are born, but the rest of the population must learn and grow throughout their careers. The transformation into an effective leader doesn’t happen overnight -- it takes various experiences and often the guidance of others.
Not everyone has someone directly influencing their transformation into a better leader. This is why I find quotes from some of the most influential leaders to be beneficial to the process.
In need of a bit of inspiration? Use the following quotes to transform yourself as a leader:
1. "To lead people, walk beside them ... As for the best leaders, the people do not notice their existence. The next best, the people honor and praise. The next, the people fear; and the next, the people hate ... When the best leader's work is done the people say, 'We did it ourselves!”— Lao-tsu
2. "Leaders must be close enough to relate to others, but far enough ahead to motivate them.” — John Maxwell
3. "Dictators ride to and fro upon tigers which they dare not dismount. And the tigers are getting hungry.”— Winston Churchill
4. "Control is not leadership; management is not leadership; leadership is leadership. If you seek to lead, invest at least 50% of your time in leading yourself—your own purpose, ethics, principles, motivation, conduct. Invest at least 20% leading those with authority over you and 15% leading your peers." — Dee Hock, Founder and CEO Emeritus, Visa
5. "All of the great leaders have had one characteristic in common: it was the willingness to confront unequivocally the major anxiety of their people in their time. This, and not much else, is the essence of leadership.”— John Kenneth Galbraith
6. "If a rhinoceros were to enter this restaurant now, there is no denying he would have great power here. But I should be the first to rise and assure him that he had no authority whatever." — G.K. Chesterton to Alexander Woollcott
7. "The task of the leader is to get his people from where they are to where they have not been.” — Henry Kissinger
8. "The task of leadership is not to put greatness into humanity, but to elicit it, for the greatness is already there." — John Buchan
9. "Leadership is the art of getting someone else to do something you want done because he wants to do it.” — Dwight D. Eisenhower
10. "The best is he who calls men to the best. And those who heed the call are also blessed. But worthless who call not, heed not, but rest." — Hesiod, 8th Century BC Greek poet
11. "Never give an order that can't be obeyed." — General Douglas MacArthur
12. "Leadership must be based on goodwill. Goodwill does not mean posturing and, least of all, pandering to the mob. It means obvious and wholehearted commitment to helping followers. We are tired of leaders we fear, tired of leaders we love, and of tired of leaders who let us take liberties with them. What we need for leaders are men of the heart who are so helpful that they, in effect, do away with the need of their jobs. But leaders like that are never out of a job, never out of followers. Strange as it sounds, great leaders gain authority by giving it away.” — Admiral James B. Stockdale
13. "Great leaders are almost always great simplifiers, who can cut through argument, debate, and doubt to offer a solution everybody can understand." — General Colin Powell
14. "Men make history and not the other way around. In periods where there is no leadership, society stands still. Progress occurs when courageous, skillful leaders seize the opportunity to change things for the better.” — Harry Truman
15. "Leadership is intentional influence." — Michael McKinney
16. "The leader is one who mobilizes others toward a goal shared by leaders and followers. ... Leaders, followers and goals make up the three equally necessary supports for leadership." — Gary Wills, Certain Trumpets: The Call of Leaders
17. "All Leadership is influence.” — John C. Maxwell, Injoy, Inc.
18. "You cannot be a leader, and ask other people to follow you, unless you know how to follow, too." — Sam Rayburn
19. "Your position never gives you the right to command. It only imposes on you the duty of so living your life that others may receive your orders without being humiliated." — Dag Hammarskjöld
20. "The final test of a leader is that he leaves behind him in other men, the conviction and the will to carry on." — Walter Lippmann
21. "The function of a leader within any institution: to provide that regulation through his or her non-anxious, self-defined presence." — Edwin H. Friedman, A Failure of Nerve
22. "People ask the difference between a leader and a boss. The leader leads, and the boss drives." — Theodore Roosevelt
23. "Humans will probably always need the help of especially gifted moral leaders in order to extend the bonds of caring and trust beyond the easy range of the family and the face-to-face community. Such bonds have become essential to the future of humanity." — Paul R. Lawrence, Driven To Lead
24. "You don't lead by pointing and telling people some place to go. You lead by going to that place and making a case." — Ken Kesey
25. "The first responsibility of a leader is to define reality. The last is to say thank you. In between, the leader is a servant." — Max DePree
26. "Management is efficiency in climbing the ladder of success; leadership determines whether the ladder is leaning against the right wall." — Stephen R. Covey
27. "As a leader, you're probably not doing a good job unless your employees can do a good impression of you when you're not around." — Patrick Lencioni
28. "Leadership is not magnetic personality, that can just as well be a glib tongue. It is not ‘making friends and influencing people,’ that is flattery. Leadership is lifting a person's vision to higher sights, the raising of a person's performance to a higher standard, the building of a personality beyond its normal limitations." — Peter F. Drucke
29. "Leadership is the ability to establish standards and manage a creative climate where people are self-motivated toward the mastery of long term constructive goals, in a participatory environment of mutual respect, compatible with personal values." — Mike Vance
30. “Never tell people how to do things. Tell them what to do and they will surprise you with their ingenuity.” — General George Patton
31. "A leader is a dealer in hope." — Napoleon Bonaparte
32. "Lead and inspire people. Don't try to manage and manipulate people. Inventories can be managed but people must be lead." — Ross Perot
33. "When the conduct of men is designed to be influenced, persuasion, kind, unassuming persuasion, should ever be adopted. It is an old and a true maxim, that a "drop of honey catches more flies than a gallon of gall." — Abraham Lincoln
34."My own definition of leadership is this: The capacity and the will to rally men and women to a common purpose and the character which inspires confidence." — General Montgomery
35. "High sentiments always win in the end, The leaders who offer blood, toil, tears and sweat always get more out of their followers than those who offer safety and a good time. When it comes to the pinch, human beings are heroic." — George Orwell
What’s your favorite leadership quote? Share below!
Summary: Move over, doom and gloom. Apple beat analyst expectations for its second-quarter earnings, despite not announcing or releasing anything during the three-month period. But the third quarter, with announcements on deck, is what will show real stagnation — if any.
Apple didn't release or announce a thing for three months, but it still beat expectations in its second-quarter earnings.
Apple CEO Tim Cook (Image: CNET)
Apple's second quarter was not expected to be a shiner. Why? Nothing happened. In spite of this, Apple put its entire range of products out for pasture while it was readying its next generation of software and hardware products.
That risky bet paid off. The company's second quarter ending March 31 didn't disappoint — and that's accounting for the fact that the second quarter had one week less than its other quarters. And yet, Apple still beat Wall Street estimates. (ZDNet's Rachel King has more on today's numbers).
Though Apple has very few lemons in its hands, it's still churning out batch after batch of lemonade.
Its various business divisions, separated handily by product, only saw losses in its iPod and Mac business, which is no surprise, considering the state of the PC market and the continued cannibalization of the Mac as a result of the iPad's popularity.While February and March could have been the time when Apple announced at least two major products for the desktop and mobile like it did last year, the company didn't announce a thing. No new iPad, no new iPhone, no new mobile or desktop software, and still nothing on the long-awaited Apple iTV or iWatch.
The only place where Apple fell down was its gross margin figure, estimated to be between 37.5 percent and 38.5 percent. The company reported a 37.5 percent margin compared to 47.4 percent on the same quarter a year ago. While this is likely due to the lower margin for the iPad mini, slowing sales in its Mac division are hardly helping this crucial number.
For Apple, its profit isn't a problem. Its revenue isn't something to be concerned about. Its sales may slow over time, depending on the fiscal quarter and the timeline of its releases. But above all, the company's profit margin needs to keep in check.
While sales figures for the second quarter were far from record breaking — which was expected, seeing as sales are generally slower following the post-December holiday quarter — the company did well in iPhone and iPad sales, the firm's two largest business divisions.
Here's what it looks like:
(Images: Adrian Kingsley Hughes/ZDNet)
The company can effectively take a back seat on producing anything public for three months, and only suffer at the hands of subjective and often very varied analysts' expectations. The maker of shiny rectangles has put its various business divisions out to pasture for the last quarter while it focuses on getting the next product ready — and right.
With the technology giant keeping mum on its next-generation range of products, it's no wonder analysts were expecting the company to see its first profit dip in 10 years.
But in that 10 years, it's worth pointing out a few things. Enter ZDNet's Larry Dignan, from this morning:
Apple is doing the rational thing: Milking its existing products as it plots out its product road map. Keep in mind that the iPod launched in 2001, iTunes in 2003, iPhone in 2007, and the iPad in 2010. In other words, Apple is due for a new product line, but not way overdue.
It's expected that June, when Apple typically holds its Worldwide Developers Conference (WWDC), is when we will see a steady stream of products — first off, iOS 7, and then OS X 10.9 to follow. With a new iPhone and iPad on deck for later this year, we can expect something significantly new to roll off the company's production lines in 2014, based on this timeline.
While Apple's second quarter was effectively stagnant and holding the fort, the third quarter is the one that is really going to show if there's any real indication of trouble.
The purpose of the talks: to make more Yahoo-branded apps default apps on the iPhone.
Already, there are two Yahoo-branded apps on every iPhone – "Stocks," and "Weather."
We spoke to a source familiar with these talks, and learned some details.
They are:
The WSJ was probably a bit early on this one. Yahoo and Apple are talking, sure. But Apple is talking to everyone. Nothing is imminent.
Apple likes partnering with Yahoo because unlike the other big consumer Internet companies – Facebook, Google, and Amazon – Yahoo doesn't have a rival mobile operating system or anything like one to push.
The kinds of apps Yahoo is talking about making for Apple would pull content from Yahoo Sports, Yahoo Finance, and Yahoo News.
The Weather Channel, which supplies the data for the "Weather" app that has Yahoo's branding on it, is working very hard to convince Apple to ditch the Yahoo branding.
The fact that Yahoo is involved in these kinds of talks at all is a good sign for the company.
It doesn't hurt that Yahoo's current CEO, Marissa Mayer, is more plugged-into the Silicon Valley scene than her predecessors.
In January, we found out she went to a "CEO dinner" with a bunch of high profile executives from other companies, including Apple's design boss, Jony Ive.
Does your company have a definition for success? Without one it may be hard to effectively turn over projects.
When you run a project-based business like mine, there are often a variety of obstacles that come with the successful completion of a project. But not knowing when you’ve actually finished can be one of the most damaging.
You, your employees, and your clients likely to have varying definitions for success. Starting projects without any criteria to verify success can cause teams to doubt the progress, so eliminate this by setting a standard. It may be after the client signs off or upon the completion of the entire scope of work. Defining this will ensure efficiency and effectiveness within your organization.
Setting your standard for success often comes with trial and error. I previously generated a few factors for measuring success of a project, but I wanted to add a few more:
Communication.The successful production and completion of a project isn’t possible without the proper chains of communication. Direct communication should be taking place between everyone working on the project, along with the customer. How will you know the status of the project without regular updates?
Objectives. Does your finished product meet all of its business objectives? This often goes beyond customer satisfaction. Unmet objectives may be a sign of insufficient resources or work. To be sure all objectives are met after completion, reach out to the end users of this product and verify their feedback.
Timeline. Success is often meeting a deadline. It’s possible the schedule of the project relates to either a budget or product launch date, so timing is an easy way to define terms for success. Sometimes clients come to us with a hard deadline, and other times they’re just looking for the end product. Either way, my team always have a schedule we need to meet.
Scope. What’s your timeframe? Even if it’s just a list of features or a simple idea, your scope of work should be driving force of your project.
Evaluation. The honest evaluation of a project is key to understanding where you are and how far you have to go in terms of success. Evaluation should take place throughout the timeline of the project. Is the project satisfactory? Are you within budget? Reach out to your project managers, employees, and even your customers during your evaluation.
Budget.Money is typically the most important factor for many projects. Did you stick to the budget? For your business to remain profitable, it’s always good to keep budget in mind throughout a project--especially if you’re hoping to come out under the expected budget.
Team satisfaction. Project management often leads to taking your team for granted. This can happen when you’ve become accustomed to working with them for so long. Focus on keeping your team happy to ensure the best results on all of the projects that you’re working on.
Customer satisfaction. It’s your job to figure out what your clients are looking for in order to ensure their happiness. Tracking client satisfaction isn’t always easy. Ask them to rate it on a scale of 1 to 10 every week or so, and analyze and review your findings. This will give your team a better idea of how to meet their needs.
Quality of work. Keeping track of the quality of your team’s work is highly important in indicating success. The quality of one project often affects another. Having a consistent track record for your projects will produce a level of client satisfaction that could possibly generate new client referrals.
Follow-up. Projects are often passed off to clients never to be heard from again. Radio silence doesn’t always mean satisfaction. Reach out to your previous clients and evaluate the adoption of the work you provided them with. Are things still going smoothly? If not, ask what changes are necessary. This will likely create a chance for other business opportunities.
Creating a definition for success will help you and your team ensure all around satisfaction on the completion of projects. Make sure the standard is known throughout the company.
The fact of the matter is that everyone needs leadership. Entrepreneurs and business leaders of all industries must have sound leadership abilities. Even if you have a strong team driving your business forward, it won’t get you anywhere without the proper leadership, guidance, and principles. Even if you don’t currently hold a managerial title, an affinity for leadership is likely to take you far in your career.
Setting your standard for success often comes with trial and error. I previously generated a few factors for measuring success of a project, but I wanted to add a few more: