By Graham K. Rogers

Opening Gambit

Apple Q2 2013 financial report

The Company posted quarterly revenue of $43.6 billion and quarterly net profit of $9.5 billion, or $10.09 per diluted share. These results compare to revenue of $39.2 billion and net profit of $11.6 billion, or $12.30 per diluted share, in the year-ago quarter. Gross margin was 37.5 percent compared to 47.4 percent in the year-ago quarter. International sales accounted for 66 percent of the quarter's revenue.

The Company sold 37.4 million iPhones in the quarter, compared to 35.1 million in the year-ago quarter. Apple also sold 19.5 million iPads during the quarter, compared to 11.8 million in the year-ago quarter. The Company sold just under 4 million Macs, compared to 4 million in the year-ago quarter.

Also announced at the time was an increase in the capital return program, which would perhaps explain the 4.9% rise in share prices that was reported. As part of this change, Apple has "increased its share repurchase authorization to $60 billion from the $10 billion level". In addition, the press announcement reads that "the Board has approved a 15% increase in the Company's quarterly dividend and today has declared a dividend of $3.05 per common share." . . .

That 18% profit drop was beter than most of the analysts had predicted. Why am I not surprised?

Some more details began to emerge as I read the headlines, with Lex Friedman on MacWorld reporting,

• iPhone sales were up seven percent year over year to 37.4 million units.
• iPad sales up 65% year over year: 19.5 million tablets were sold in the second quarter of 2013, compared to 11.8 million in the year-ago quarter
• Mac sales remained flat, with just under 4 million sold in the quarter - a slight drop, but minimal (Apple outperformed the overall PC market, which was down nearly 14%)
• iPod sales falling from 7.6 million in the year-ago quarter to 5.6 million this year [which is not unexpected]
• Apple recorded $2.4 billion in revenue from iTunes during the quarter, a record tally.

Hardly what one would think of as a doomed company. Steady as she goes, Number One.

Apple Stuff

An averaging of the analysts' estimates was reported by Neil Hughes on AppleInsider, with expectations of record iPad sales, but a reduction in profits. This theme (that appeared in many sources) was that while Apple's guidance on income is expected to be met and will be fairly high, the comments on profits are less rosy.

None of this is new, but it is being aired this week (just before the figures are announced for real) as if there are some startling revelations. Instead, the pundits are just scoring hits on old work. Let me join in: I went through old Cassandra columns and found that the idea of higher income, lower profits was in Cassandra for 27 March, with some of the links that I found then; and my comments. Quite why there should be a sudden rush of shock and horror is beyond me as this was all aired last month.

Also reporting the same ideas, this time from Bloomberg, is Ben Lovejoy on 9to5Mac, but the first of the comments below is as revealing as anything: "Notice how this shit ALWAYS happens just before an earnings call? Of course this can't have anything to do with trying to short the stocks so you can buy more as they fall in value... right?" Josh Lowensohn also had comments on the expectations: income, profits, Wall Street.

And to the DigiTimes shilling for Samsung, we can also add a comment by John Gruber, who looks at news on Apple that appeared in Bloomberg. That once reliable source (Bloomberg, not Gruber) covered a rumour that the iPhone 5S is to be delayed until September (and a consequent negative spin on Apple) citing "Harrison Cho, an analyst for Seoul-based Samsung Securities" and yet Bloomberg did not think that worthy of clarification (or perhaps exclusion).

Another theme that has been running for months is that of the replacement of Tim Cook. This week Philip Elmer-DeWitt took some of the whisperers to task and homed in on Doug Kass who has an awful track record - some say dishonest - when it comes to Apple. The article also brings in Rob Endlerle who has also had this bone to gnaw on for a while and a Fortune article that was based on nothing: no rumours, no sources, but maybe the board is looking. Philip Elmer-DeWitt adds on Oracle Investment's Laurence Isaac Balter and Rocco Pendola who has been on this track for months too.

He writes, 'Make no mistake, the people who want Tim Cook's head on a spike are not friends of Apple."

And then this happened: After Phillp Elmer De-Witt's earlier article, all hell broke loose, he writes, and much of the reaction from Korea was a little fanatical, although one ex-pat living there wrote about how things really are as regards Samsung there. It is not paranoia if it is true.

While we are on Rob Enderle (he was in that last part somewhere), The Macalope also has a go at deconstruction of some of Enderle's comments on Apple and Cook. It is a bit like shooting fish in a barrel - some of the assertions Enderle makes are just plain wrong - but this is worth reading as an antidote to the knowledge that some people read and (worse) quote Rob Enderle as some sort of knowledgeable source.

I have looked at the general track of Apple's share price in the past and suggested that the real aberation was the peak last year. However, Steven Sande reports the comments of Abdel Ibrahim, co-founder of The Tech Block, who charts the share prices and suggests that the fall is normal and that the shares will begin to rise again (and indeed he appears to be right if the early reports are correct). What is most interesting is his comment,

. . . ignore the bullshit headlines that seem to be flooding the internet and newspapers. They come from analysts. Analysts with agendas to either inflate the price of a stock they own or deflate the price of a stock they want. ... Apple, in my eyes, is still a very good company. Time will tell if I'm right or wrong."

That rumour about the delay to the new iPhone, which some insist on calling the 5S without any real confirmation, is said to be due to the finger-print sensor coating, according to Patently Apple. They cite the UK Daily Telegraph but in the article by "Telegraph staff and Agencies" the only source is an unnamed "supply chain source in Taiwan" which sounds suspiciously like DigiTimes again. The Telegraph article repeats all the old rumours with only one other analyst's opinion cited throughout on the company that Apple took over for the tech: the rest is unsubstantiated rumour.

Also covering the same ideas was a brief article in AppleBitch which had borrowed from a Reuters' article. That may have been the source for the Telegraph item as several phrases are identical, although the Reuters text is much more informative and a bit more balanced. It does however, repeat a number of the speculative rumours flying about right now.

In the light of all this and my own comments on poor journalism, there is an interesting article by Ian Betteridge who deconstructs an article that set out to prove developers were running away from Apple. Betteridge points out that, while David Gewirtz at ZDNet (not always an Apple friendly organ) used an index that showed interest levels in programming languages, he stripped it of context by only examining the fall in Objective C, while ignoring falls in interest in other languages at the same time, thus giving a distorted sense of the truth.

All these secret sources; all the unconfirmed quotes; and Wall Street bought into it all, slashing value from the company and depleting the investments of thousands. There is no shame from the analysts nor the slavish pundits who follow the trends because they have no other solid information. Most analysts these days have not been following Apple for years like Dilger, Dalrymple, Gruber, Elmer-Dewitt or many others, who are far better placed than the arriviste, ovine bloggers who play follow my leader and chase the hits.

A couple of articles in the last day or so had hints about the next iPad as well as more on the new iPhone (whatever, whenever). Electronista, for example, reports that a source has a photo of a rear shell for the next iPad and also mentions new nano-SIM trays for the iPhone.

Fallout from the Apple Q2 results comes from comments made by Tim Cook when questioned after the figures were released. AppleInsider reports that we may expect a lot of surprises, starting in Fall 2013 and continuing tthrough all of 2014, with new devices to be released.

Apple has "a lot more surprises in the works", he said.

While I am rather circumspect about anything on Apple that comes from the direction of Korea, an interview that Horace Dediu of ASYMCO conducted with Chosun Daily is well worth taking time over. Some of the comments I make on bloggers are confirmed in the exchange (although far more gently than me) and the source thinks that the chances of Apple's downfall now that Steve Jobs has gone, are "negligible". The commentator clearly has a good and long-term understanding of Apple and does provide some criticism on certain aspects of the strategies that Apple has.

Most interesting - and an example of long-term strategy thinking - is the comment when asked "If you were Tim Cook, what would you do?"

I'd buy Intel and turn them into Apple's microprocessor design and manufacturing group. They won't have much to do in a few years and they'll be cheap.

Horace Dediu also includes a Bono quote on Jony Ive towards the end, "What the competitors don't seem to understand is you cannot get people this smart to work this hard just for money".

Apple was not always known for donations to charity under the previous CEO, but Tim Cook is a different man (see above, for heaven's sake) and has a soft spot for China, so it is not a surprise to see that Apple updated its homepage in China with a message of sympathy following the recent earthquake, but Mark Gurman reports on 9to5Mac, has pledged "cash donations and new Apple devices to help schools that have been affected": 50 million Yuan in total.

A couple of items of news concerning patents from the company that does not innovate. Mikey Campbell on AppleInsider reports that Apple has been granted a patent for "a system in which a "virtual input," such as a trackpad, is recreated onscreen with various interactive objects, allowing users to quickly navigate programs and documents."

Another patent, as reported by Mikey Campbell, is for "a novel data transfer invention that allows one device to use its built-in camera to take a picture of a second device, and extract a digital handshake key from the image to setup a secure connection." Oh, I like that.

Apple also now has a patent for creating a comic book from a video game, Patently Apple reports. As the user plays the game, the actions and results are recorded and "A book, e-book, or comic book may be produced from the narrative data structure".

Apple was actually granted 49 patents this week as Patently Apple reports. As well as those mentioned above, there are others, such as those for "smart instruments, smart business cards, and magnetic connector ports"

A lot of sites were reporting this week on a new feature that Apple added to iTunes with the recent update. It may affect those of us here a little less than users in the US or Europe, but there is now an option to Download Later for large media files "such as movies or music box sets" Yoni Hessler writes on TUAW. as most of my downloads are apps, I have not come across this yet.

One of the features of Macs is the ability to connect to certain devices using Bluetooth, which is fine if the Bluetooth is working OK. Topher Kessler examines the problems of connections and shows a number of ways to analyses and fix.

With Apple almost at death's door if you read some of the panic-style blogger output, it is nice to see that its newe Austin TX campus is almost complete. Mikey Campbell on AppleInsider writes about the current stage construction is at and includes a number of nice pics. When completed, Apple will have spent $304 million in construction costs. Pocket change really.

Before the iPhone, there was the iPod; and before that (long before) the Newton. Erica Sadun on TUAW reports this week that Mike Culbert, who was a hardware engineer at Apple for a long time, ending up as VP of Architecture, died as a result of cancer recently. While he worked on the later iOS devices, he was also on the Newton development team.

When I went to MacWorld back in 2007 (and again in 2008) one of the exhibitors was the John Lennon bus that travels around to assist children in creating their own music. 9to5Mac reports that Apple is to be one of the sponsors this year.

Half and Half

Other Matters

That site appears to be backed by Microsoft and Windows.

IBM has announced that it has acquired a Cleveland OH company called UrbanCode as part of its cloud strategy. The company automates the delivery of software, helping businesses quickly release and update mobile, social, big data, cloud applications, which is a natural extension of IBM's DevOps strategy, designed to simplify and speed the entire software development and delivery process for businesses.

While it may be that Samsung is behind a lot of the recent misinformation about, and pressures on Apple, the Korean company has a history of its own that is nothing to crow about. Indeed, according to the part of it that MacDaily News provides, Samsung sails not simply close to the wind at times, but may have engaged in criminal acts. There is certainly a suggestion that the government there is not in total control when it comes to Samsung with the current chairman having been convicted of bribery (since pardoned by the Korean president). Too big to fail does not begin to describe it.

If Apple did 10% in America of what Samsung apparently does in Korea, the country and the politicians would be in uproar.

While many are breathlessly waiting for Apple to report its earnings for the quarter, Xerox tells us that it has revenue of $5.4 billion for the Q1 period, which is down 3 percent, although revenue from the company's services business was up 4 percent and represents 55% of total revenue.

Local Items

True did apologise for the problems I had experienced with the channel changes and enclosed a spreadsheet with old and new channels: all of them, whether I subscribed or not. As I pointed out in my reply to their reply, this did not answer my question as to when the iOS app would have up to date data. Almost a week now, and there still no update to the app data.

SingTel are reporting that they are going to boost fibre adoption and speeds in Singapore. The press release contains phrases like "cutting-edge services over fibre" and "fibre-enabled intelligent home".

SingTel are also reporting that they are to spend some S$150 million for the rollout of 4G. I love it when they use grand terms like "nationwide" for an area about the size of the Isle of Wight.

Graham K. Rogers teaches at the Faculty of Engineering, Mahidol University in Thailand. He wrote in the Bangkok Post, Database supplement on IT subjects. For the last seven years of Database he wrote a column on Apple and Macs.