Overseas sales could revive Apple
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| Image: Apple |
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Can Apple regain its status as a Wall Street darling?
So far 2008 has not been kind to the technology trendsetter. With U.S. iPod sales slowing and iPhone hype fading, investors have been seized by worries that the crew in Cupertino isn’t much of a growth story anymore. The stock has fallen 40 percent from its recent highs, losing some $50 billion in market value –and it isn’t clear what could turn things around.
It does seem certain that major relief won’t come from Apple’s (AAPL) newest products. This week’s update of the MacBook laptop line adds speed and memory, but no breathtaking design touches. The super-slim but pricey MacBook Air laptop that CEO Steve Jobs unveiled in January has met with mixed reviews, and won’t provide enough of a boost to make up for the iPod slowdown. And Apple TV, the second incarnation of Apple’s failed attempt to bring digital downloads to the television, doesn’t seem to be attracting an iPod-like following either; on Amazon (AMZN), it’s about as popular as a niche backup hard drive.
So where will Apple go for a sales boost to lift its stock? Perhaps overseas.
Even as U.S. tech spending slows, the market for high-tech gear and the opportunity for Apple to grow, is rapidly expanding in Europe and Asia. To wit: Hewlett-Packard (HPQ) CEO Mark Hurd noted last week that emerging markets accounted for nearly half of the industry’s PC shipments at the end of 2007, and well over half of the growth.
Those stats should be particularly encouraging to Apple because they suggest there’s opportunity that the company hasn’t yet tapped. While the Mac maker had an impressive holiday season in the U.S., ranking third in overall PC shipments behind Dell (DELL) and HP according to IDC, Apple came in seventh in the global rankings. That suggests the company has plenty of room for improvement in Europe and Asia.
IDC analyst Richard Shim points out that Apple must increasingly look to Europe and Asia in an uncertain year for U.S. consumer spending. “A lot of their growth is coming from these other regions,” he says “If the consumer market starts to back up as a result of the dour economic scene right now, they could face some serious challenges.”
International expansion has long been part of Apple’s plan. The company plans to open its first retail store in China this year, and to open one in Australia as well. Apple might also have its eye on Europe, where retail remains a largely untapped possibility; while Apple has 13 stores in the United Kingdom and one in Italy, the company lacks a company-owned retail presence anywhere else on the continent. With a higher profile there, Apple might drive even more sales; in the quarter that ended 2007, Apple reported that net sales in Europe grew twice as fast as in the United States.
Indeed, when I caught up to Apple vice president Greg Joswiak during the holiday season, he had international markets on the brain. On the phone from a Paris hotel, the iPod and iPhone marketing chief stressed the strategic importance of consumers outside the U.S. He seemed particularly interested in countries where Apple’s share of the MP3 player market was less than 30 percent.
“That’s a significant opportunity because not only can we grow share, but we don’t have, in any of these markets, an incumbent to beat,” Joswiak said. “We’re actually competing against ‘Other’ – the off-brands that somebody’s trying to sell only on price, and not establishing any value in the market.”
It’s a good thing, too, because it’s those overseas consumers who are still buying. In Apple’s most recent conference call with analysts, Chief Operating Officer Tim Cook said U.S. iPod unit sales were flat year-over-year during the holidays, and it took strong international sales to help Apple meet its targets. In an apparent attempt to stoke volume in 2008, Apple introduced a pink iPod nano in time for Valentine’s Day, and dropped the price of the iPod nano.
And Apple’s computers are selling, too. According to IDC, worldwide Mac shipments jumped 37.8 percent in 2007, outpacing the industry.
Re: George Hamilton
Advocates of the iphone and critics have long acknowledged that the iphone’s hardware is not high-end. No debate. It’s strengths are its software, and in that capacity, it is a high-end phone. It feels elegant and smooth while you’re using it- something no other phone I’ve ever used does.
I lived in Europe for 20 years, so I’m well aware of the trends. And having used or tried various other devices, Nokia etc, for me, I choose the iPhone hands down. I don’t claim that it’s the best phone for everyone, but for my needs, it beats everything else hands down because the software/interface is dreamy.
Also loved how the reviews you cited did place the iphone low on the scale, but the quantity of reviews was 1700+ for iphone vs. about 100 for top rated Nokia. What does that tell you? People are very interested in the iPhone, ‘hype’ aside.
Regardless of the tech merits of the device, you can argue all day about that, the point is that this is a relevant device that will continue to be a big player in the market, and Apple investors will benefit from this.
Fortune used to be smart. You make it sound like Apple is the only company struggling against Bush’s countdown to the Apocalypse. Google has fallen 37%, and many other companies are sucking the big smog with the banker mortgage debacle. Anyone for derivatives?
Americans call iPhone, suprisingly, a high-end model.
It has a 2 Mpx camera, no HSPA and no GPS! That´s not really technical specs for a high-end phone. iPhone is unfortunately several years behind the European and Asian, real, high-end models. Just like American gas-guzzler cars.
And regarding customer satisfaction…
The argument can be made that Apple was a little overvalued coming in to 2008. But I agree with several of the comments here that Apple is exceptionally well positioned considering the following:
Hype aside, iPhone is a great device with exceptionally high customer satisfaction ratings. It may or may not ever dominate the market as the iPod has, but there’s little question that people will continue to buy it, and as its features improve and owners continue to be satisfied, there is no doubt that Apple will remain a major player in the cellphone market for years. Just look at how well the device is doing in rural markets Africa, not to mention I see three or four iPhones in every subway car in NYC.
Second, strong computer sales. Much higher growth rate than PC equivalents. The ‘halo’ strategy is clearly working, and American consumer sentiment aside, Apple’s got nothing to do but grow here - and if you look at specific market segments like college students, Apple is making huge gains that will manifest well into the future. That’s good strategy.
Finally, Wall Street has almost completely ignored Apple’s emergence as now the second largest retailer of music. Ahem, what? In and of itself this should demand appreciation - that when everyone else is bemoaning the death of the record industry, Apple has successfully transitioned to an admittedly low-margin but none-the-less profitable model in a business that was “dying” - except it isn’t dying, it’s just changing, and Apple is to date the sole beneficiary of this change. But this seemingly counts for nothing because iPod sales have tapered off, boo-who.
So these are three market segments that are promising. Apple is well positioned regardless of global growth, though that might be the icing on the cake.
And yes, Apple should bring pricing in localized markets back down to reality. They’ve been awful on this for years and it’s no wonder that many people outside the US have never even seen a Mac in the wild.
To the few users who’ve griped about hardware problems: Apple buys components from the same suppliers as every PC manufacturer. There are some lemons for sure, but as someone who supports hardware professionally, I can tell you that on the whole Apple’s machines (including displays) are working better than ever.
Bought the cheapest of the new Imacs a couple of days ago and it has the problem everyone’s talking about: screen is darker on the top and lighter on the bottom. Default calibration was making it worse because it’s just so wrong. After I calibrated it, it’s not as bad, but it’s for example slightly worse than my Sony 17″ screen which is some 7 years old!
I just can’t believe that Apple have gone this low in their quality control. Putting cheap components into otherwise excellent products to drive the costs down shows how Apple’s regard for their customers goes down in the same proportion as their profits go up.
The excuse that it’s not meant for professional work is absolutely shameful. So what? It should still be up to the standards Apple used to have, so it should be perfect regardless! They know these products are loved by creative professionals and is THE appropriate choice to have at home as a Pro is too expensive, the mini is too weak and laptops have small screens. So they know designers and photographers are going to buy this. But they still don’t care. A 20″ screen and such processors for email and web-browsing? That’s just laughable.
Apple seem to be abusing a sort of monopoly here: the one that means that if you want to use Mac OS X, you have to buy their machines. I’m a designer, only do some freelance work at home every now and then so don’t justifify a Pro at home, I expected to finally have a proper monitor, and end up with a worse one than I had (albeit larger) and will have to continue guessing colour values because I need a new computer and there really is no valid alternative, I’m not going back to Windows and I’m not going to buy 2nd hand white Imacs to risk getting other problems.
I would return it for an exchange if I had a chance of getting a good one, but by what I’ve read chances are none. I can see them releasing a new Imac in some months, slipping in a proper screen (as they couldn’t get away without criticism as they must have hoped) and then all of us suckers will be stuck with the defective model with little 2nd hand value.
Success really does corrupt every company in the end… Windows lovers must be rolling on the floor laughing reading about how we’re being made fools off with this issue… Not that they can laugh much themselves, of course…
Regarding the iPhone comment, maybe if Steve Jobs decided to open iphones for any cell phone network and add more useful programming maybe the consumers might be intrigued to purchasing an iphone or any other apple product.
Apple products always have a premium price tag, but in emerging markets this is doubled up by massive import tax and added markup by resellers, rendering them a product choice for the super rich only.
If Apple got there product prices in emerging markets in line with what they charge in the U.S.A. more people would actually be able to afford their products.
Apple is poised to expand overseas, both its’ products and its’ retail store presence. They have been working on it. Once they make an iPhone that can take advantage of the faster data networks that exist in Asia and Europe, I think we will see significant growth.
When you talk that overseas sales could revive Apple, you should talk of latin america too.
Just check the numbers, check the prices of apple products in Brazil, Argentina and Chile, they are huge.
In Mexico have been quit success since we have the opportunity to buy Apple products. It all depends in having the chance to buy it. Itunes store will be a great strategy in this countries, possibly will no be able to equal the Uk sales, but Spain or Italy? Do the numbers.
re:” Calling an Ipod a “disruptive technology” is like saying clementines are going to ROCK the citrus world.”
If you’re poised to overtake WalMart in music sales nationally - I’d say that’s rather disruptive. Unless of course you don’t track sales of anything in particular until the market has utterly steamrolled you into the dust - which is basically what the music industry has been doing for the last 10 years. You’ve got good company certainly.
Lets look at the situation in Hungary.
There seems to be a positive buzz about Apple and Macs in general in Hungary. People are qurious about the hardware and they seem to be very interested about the software-side of things as well.
There are a few problems though:
1, Price: you can get a MacBook Pro for 1999 in the States, while the same computer costs 2800 USD in Hungary. Lets not even mention the average salary here. Many people would actually consider buying a Mac at a higher price, but not that much higher. This needs to be addresed.
2, Service: is very poor. People have to wait months to get their computers, iPods fixed, which is really bad considering the premium they pay for all their equipment.
3, Localization: people have been begging for a Hungarian OS X for years. There were even groups of programmer who tried to contact Apple to help them localize the OS, but received no response. Many older people cannot use English computers. They are begging for a localized OS version.
4, Availability: when a product comes out in the US, it takes about a month and a half to get to Hungary. It is not hard to loose interest in an overpriced product, that has poor service, no software support and you even have to wait for it.
I think Apple could do a lot better in Hungary if their prices got closer to what they are in the States. They could also assign some developer at the Apple Campus to work with Hungarian programmers to fix the lack of localization.
Then they would see increase in sales.
Yes, Apple needs to invest in this market, but this investment would pay off in the end.
As I mentioned, people seem to be interested, but they are afraid to jump into a big purchase with so many uncertainties.
I am running a Mac portal in the country. We have over 11000 registered members. That is not so little I think.
Come on Apple. Think Different!
Why is it that everyone forgets a very close major market. Canada. Release the damn iphone in Canada already.
I suspect Apple isn’t going to gain very much by going international - their forays with the iPhone have not played out with the same kind of hype that the U.S. has seen.
For instance, KPN in Germany.
What Apple offers is a great deal of style at a premium price, but sometimes at the expense of function. There is certainly a market for that, as there is a market for Lamborghinis.
China is probably the last place where I think Apple would fit - China has such a rampant piracy problem, that it’ll be an extremely tough to sell Apple’s extremely closed system at a premium. MS is selling Vista and Office for under $50 USD there, will Apple change their strategy? And at what cost?
Analysts are nervous bunch of people whos reaction comes not from rational street smart thinking, but from an over belief in trench warfare. Apple has prove itself to be innovative and a heartwinner. What we need to see is the stockplayer sit up and take notice of how the world is changing. It no longer wants Windows based heartaches - it needs tools to offer more than the corporate box. Apple is not ailing. It’s just a little bit ahead of most peoples comprehension. Where it shold be.
Someday growth will be back in favor on Wall St. And they will notice AAPL with $21/share in cash, selling at less than 20x forward earnings.
International, is, indeed, one of the reasons the growth story will continue while the street worries and frets. Apple has almost no stores outside of North America!
The irony is that the company has never been better positioned in its history. Only in this doubting market could growth shifting from devices to computers (a far larger market) be seen as a negative. And not applaud Apple for leveraging the ipod into a platform instead of chasing inevitably less profitable unit volume.
Right now it is the greater fool story in reverse. Why should I buy AAPL today when some greater fool will sell it to me even cheaper tomorrow. Markets always overshoot and that is where the easy money is made…
What is this guy smoking?
Apple took a hit when EVERYBODY did.
No growth from new products? He’s joking right?
What planet are you living on?
mannn … Jobs is even worse that Bill G. … why he can’t open OS X and removed that pathetic restriction that you can only use it when you buy their hardware … dang, Bill is even better than him coz you can run windows on any X86 configuration you want (even on not so old machine) … just wish linux is already on that level … Well Steve is just another Bill G and they all bunch of “whatevahhhh!!!!”
Wow, a “disruptive technology”! What are you smoking? Calling an Ipod a “disruptive technology” is like saying clementines are going to ROCK the citrus world. And unfortunately Ipods don’t represent a “global communications infrastructure” The Ipod is an mp3 player and the Touch adds connectivity to the Web. Like my blackberry, they are devices that utilize the “infrastructure” others have built. Apple is not in the infrastructure business. It kills me when any one trys to do a critical analysis yahoo’s come out of the wood work with this ridiculous stuff. Yes, Apple makes some great consumer appliances and should be proud of it. But you can make the worlds best mouse trap and not survive if you don’t sell product. That is the crux of this article. Hey Ashley, Jobs is jumping off a cliff….go get ‘im.
Apple should start to think of ways to make indigenous products tailored to local needs. Its the best bet in consumer marketing strategy. India for example is the biggest untapped market for Apple. Apple should open an Apple Store and i wouldnt be surprised if they have to hire the cops for crowd control. A middle class population of 400million with plenty to spend is the targeted customer. Steve Jobs should look at what Mark Hurd has done with HP…LOOK OVERSEAS AND EXPAND LIKE HELL….you will survive any recession
Sorry, all the premises in this jumble are just wrong. To say that the MacBook Air ” has met with mixed reviews” is like saying the new Lamborghini got mixed reviews because Backpacker Monthly felt it lacked trunk space.
For all the comments on the iPhone, I can only say: The iPhone you see, is not the iPhone.
The criticisms of the iPod sales rate amount to a smug assertion in 1869 that “now that the transcontinental rail system is complete there is no further future for railroads in America. After all, railroading is all about laying new track, and now all the railroads can do is fill niche markets by laying spur lines to smaller and smaller towns.” Wake up analysts–You can’t limit analysis of the future of a disruptive technology to its behavior during introduction. iPods now represent a global communications infrastructure–there’s a future in that.
While Apple TV has not grown like an iPod, it is just as disruptive and interesting. Macs, which you acknowledge are a strength have been under recognized and under appreciated for years and are now doing well.
Thanks for clarifying John. The article seemed to imply operational problems. The Stock price is subject to volatility on rumors, since Mr. Jobs plays his cards very close, sales will not be known until mid April at least. All we can do is look at the fundamentals, their free cash flow and see if we are comfortable with the 25-28 PE range for now. The jump from Sep-Dec was a speculative bubble and was bound to deflate to these support levels. Personally, as a Long investor in Apple, I feel we need to test bottom at least once more before we see any real bounce to the 140-150 range where I believe it will hover for a while until overseas Carrier arrangements are finalized. What I particularly like is the fact that their computer sales have been picking up in their “bread and butter” ranges. The Air is a specialized niche machine for now, and will not count for much towards their overall sales. cheers, AJ
The fact of the matter is that AAPL stock went way too high on unfounded euphoria. It has corrected back to reasonable levels.
As to the subject of this article, it’s doubtful AAPL will achieve the same success overseas as in the US because there aren’t a lot of “if Apple makes it, it’s the best thing ever and anyone who critizes Apple is an idiot” fanatics over there.
“With U.S. iPod sales slowing and iPhone hype fading….”
Hmmm, iPod SALES slowing, and iPhone HYPE fading”. Well, the HYPE may be fading, but what are the SALES doing? You were kind enough to mention slowing iPod SALES, but you ignored iPhone SALES. I guess iPhone SALES might be dozing a bit right (and I emphasize the words “might be”), but upgrading the memory to 16GB will push the serious iPodders over to the iPhone, and that will reinvigorate sales. However, that’s nothing compared to what will happen when the 3G iPhone is released. It will be the absolutely most successful product introduction of all kind of all time! The iPhone’s excess baggage (the slow “EDGE” network) was well-known to the public long before the product was released. Millions of potential users would rather sit on the sidelines comfortable in the knowledge that the 3G iPhone is right around the corner.
What’s to revive? Seriously! Apple is kicking butt.
From Jon Fortt: The stock price. Operationally, yeah, Apple seems to be doing fine.
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A senior writer for Fortune, Jon Fortt focuses on technology and innovation in Silicon Valley - a subject he's been reporting on since his days as a rookie reporter for the Lexington (Ky.) Herald-Leader. Before joining Fortune in 2007, Jon had reporting and editing stints at Business 2.0 magazine, and the San Jose (Calif.) Mercury News, Silicon Valley's hometown newspaper.
i think we should cut apple some slack sometimes…..gigantic success like this will take its toll on a company as small as apple….whats happening right now is that the products are too sexy that the world is demanding too much form a handful of few engineers to cater to every need….apple will reach everyone eventually, but i wish they tailor their business model to local prices which would be a better bet in the long run..