Five lessons you should learn from Apple's $26.7B record quarter

Apple's record fiscal 2011 first quarter will be the Starbuck's coffee talk of Wall Street today. Apple beat analysts' revenue consensus by about $2.3 billion. Behind the numbers there are lessons to learn about the company and economic opportunities that competitors, non-competitors and partners should be aware.

I've chosen five things, which are presented in no order of importance. As usual, I expect to get whacked aside the head by Apple worshippers who balk at the slightest criticism. For some people, there's only one side to every argument.

1. Apple selectively timed CEO Steve Jobs' medical leave announcement to protect the stock. On Monday, with markets closed, Jobs revealed that he was taking indefinite medical leave. Investors couldn't react until yesterday. Apple shares closed at $340.65 yesterday, off the previous close -- a then 52-week high -- of $348.48.

Andy Zaky, who has one of the best track records predicting Apple quarterly results (typically better than Wall Street analysts), puts some sense to the timing. Yesterday, he observed that "since 2007, Apple has always chosen to report earnings during the last week of the month...If you go back at least 14-16 quarters, Apple has reported during the last week of the month in every one of those reporting periods."

I wondered about the timing last month, when Apple set the date about two weeks earlier than usual. "Now that we have the Steve Jobs news, the reporting date makes a whole lot of sense. Moreover, the fact that Apple chose to release its earnings right after a 3-day weekend in order to give investors time to soak in the news of Jobs' indefinite departure lends support to the idea that Steve Jobs has been planing to take a leave for a very long time."

I've long accused Apple of timing product announcements or leaking information to influence the share price -- that is keep it gong up, up, up. The same could be said about Jobs' last medical leave, which started simply with an announcement he wouldn't keynote Macworld 2009 and ended with the official news about a month later. It's all about managing perceptions. From one perspective, the approach is sensible because every public company's first obligation should be to the real owners -- the shareholders. Apple top executives knew they had bang-up quarterly results to announce. They strategically chose timing the medical leave to minimize share losses before delivering the good news that could boost the stock.

"Apple manipulates even when Steve's health hangs in the balance," rrode74 writes in Betanews comments.

2. China hugely matters to Apple. During last night's earnings conference call, Apple executives couldn't talk enough about China generating $2.6 billion during fiscal first quarter, which compares to $3 billion for all fiscal 2010. The number was repeated several times. Apple CFO Peter Oppenheimer also explained that the company's four retail stores in China generated more foot traffic and sales than any others. So nearly 10 percent of the quarter's revenue came from the one market. By comparison, the Americas and Europe generated so much more: $9.22 billion and $7.26 billion, respectively. That said, in the Asia-Pacific region, which includes China, revenue grew 175 percent year over year and unit shipments by 65 percent, more than any other region.

International markets accounted for 62 percent of Apple revenue during fiscal Q1, up from 57 percent three months earlier. The numbers strongly suggest China is one major factor driving up international sales. Two years ago, Apple didn't even break out Asia-Pacific as a demographic region. Now Asia-Pacific is growing fast, with China accounting for more than half the revenue generated in the region.

"Several years ago, we identified China as our top priority, and we put enormous energy into China," COO Tim Cook told financial analysts yesterday. The results of that have been absolutely staggering." That's an understatement.

3. Contrary to persistent rumors, maybe Apple isn't working on a 7-inch tablet. Cook responded to a question about iPad competition, which he put into two categories: Bulky devices with shorter battery life running Windows and smaller Android tablets. He largely dismissed Android competition in part because the operating system wasn't designed for the form factor. But it was how he expressed the sentiment that reveals something important about Apple's -- or at least his -- perspective on 7-inch tablets.

"You wind up having a size of a tablet that is less than what we believe is reasonable or even one that would provide what we feel is a real tablet experience," Cook said. "Basically, you wind up with kind of a scaled-up smartphone, which is a bizarre product in our view." Same could be said of a 7-inch iPad, should Apple choose to release one.

4. Wall Street analysts cow before Apple, or they did yesterday. Surely investors want to know: How long does Jobs plan to be on medical leave? Will he realistically return? Is there a succession plan? If I were an Apple investor and one of these analysts represented me and was on that conference call, I'd want some answers. But no one asked. Perhaps analysts were just too awe-struck by the quarter's results.

Piper Jaffray analyst Gene Munster came closest to asking the right question: "In terms of the long-term business planning, there have been a lot of questions how far out you actually plan?" He continued: "Is it a one-year plan, a five-year plan? Any sort of insight would be helpful." Jobs is seen as Apple's visionary. Munster knows that products like iPad don't just come to market overnight. What he really asked, ever so subtly, is how long before Jobs' absence would affect the product pipeline.

"That's part of the magic of Apple," Cook replied, indicating the magic is a trade secret. "In my view, Apple is doing its best work ever...The team here has an unparalleled breadth and depth of talent and culture of innovation that Steve has driven within the company -- and excellence has become a habit. We feel very confident about the future of the company." Maybe, but Cook didn't answer the question.

5. The cloud is Apple's Achilles Heel. By far, Apple's greatest strategic vulnerability remains the cloud, and nothing during yesterday's conference call -- including the questions (or lack of them) -- changed the perspective. Apple still depends on Google for maps and search on its iOS devices. Sync is convoluted, being anchored to the desktop but partially available from the cloud. Using Cook's words about Android tablets, Apple sync is a "bizarre product." There's no over-the-air-updating of iOS devices, unlike Android. I could go on and on with examples.

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