Are Apple’s Strong iPad Numbers Just a Supply-Chain Story…. 0

Last week Apple blew away (nearly) all expectations for fiscal Q3 iPad sales.  I hate saying, “Apple always exceeds expectations” because that just suggests estimates are consistently and systemically biased downward but they did far exceed fiscal Q3 iPad estimates after not accomplishing that feat in fiscal Q2. Analysts estimates for fiscal Q3 iPad sales ranged from 6 million to 9.5 million with an average estimate of roughly 8 million. Apple ended-up shipped 9.25 million iPads during the quarter.

A recent GigaOm article implicitly suggests the strong growth seen in fiscal Q3 is a result of supply chain dynamics:

” Apple admitted earlier this year that it couldn’t make iPad 2s fast enough to keep up with demand. Now Apple is still selling “every iPad 2 it makes,” but it also said it was able to make more iPads 2s during the most recent quarter than it did in the same period a year ago. So while demand is still ahead of supply (“Sales of the iPad 2 have been absolutely a frenzy,” said Cook), they’re getting closer to meeting it. Cook went as far as to say that in some markets they had actually caught up and were able to be in some sort of an equilibrium with demand and supply. He did not, however, expand on which markets.”

In other words, Apple out-clipped expectations because the supply chain finally caught up.  This has been common rhetoric throughout the lifespan of iPads. Demand has been strong, supply has failed to keep up, and unit volume would be much higher if supply could have kept up with demand.  Certainly this rhetoric was made by many after fiscal Q2 iPad sales failed to meet expectations.  After selling 7.33M in fiscal Q1 (which includes the ever important holiday season) most analysts (myself excluded) expected sequential growth for fiscal Q2. When Apple shipped only 4.69M in the quarter, many analysts blamed a lack of supply.

But would unit volume really higher had supply been more robust?  Does this logic make sense?  I don’t think it does.

There has definitely been strong demand for the iPad. This was true for the first generation as well as the second generation (iPad2) models.  Throughout the last year+ buyers have on occasion had to wait to receive their iPad. At times, they even had to wait 2-3 weeks for their purchase to ship. Others, wanting a specific model, opted to buy a different model so they wouldn’t have to wait. Some bought a 3G model or a black model or a 64GB model even though they wanted something else – simply so they wouldn’t have to wait.

So yes its true supply hasn’t perfectly kept up with demand.  This is true with any successful product – especially a nascent device. Its even possible that some delayed making any purchase until they were able to immediately get what they wanted.  But I doubt we had millions of potential customers delaying their purchase.  It seems to defy logic to suggest some waited to buy an iPad because they didn’t want to wait 2-3 weeks for it to arrive.  In order for fiscal Q2 to show sequential growth, Apple would have needed to have sold an additional 3M+ iPads in the quarter.  Its tough to believe 3M people opted to delay this purchase because they didn’t want to wait.  Moreover, evidence suggests delays of 2-3 weeks at most.  3M+ individuals waiting in line would have resulted in months of delays (remember they only sold 4.69M during the entire quarter).

Another inconsistency.  In the same conference call Apple discussed supply shortages, it also discussed opening new geographic markets to iPad sales.  When supply is extremely curtailed, OEMs typically delay opening new geographic markets.

In short, I don’t buy the argument suggesting supply “shortages” are driving these quarterly results. Calendar Q1 (Apple’s fiscal Q2) is a seasonally slow period – especially for new technologies.  Strong growth in Apple’s fiscal Q3 is a result of the natural laws of adoption.  More individuals have been exposed to the technology and they’ve now had multiple exposure points.  More markets are now open to iPad sales. Supply constraints have perhaps influenced results on the margin, but they aren’t driving the uptake of iPads.

The Future of Curation 0

I’ve written about curation in the past. One of the keys to curation – one of the driving features to why curation matters – is discovery.  Curation drives discovery which drives more curation. The battle within curation today – and in the years to come – is how curation is done.  There are a variety of web services that empower the individual to become a curator. But machine curation will also play an important role.  Here are two recent techcrunch stories covering app discovery and content discovery. In both of these you can see how both machine and individual will play an important in curation and discovery.

What’s going on in 3DTV 0

A recent article in Home Media Magazine – citing research firm SNL Kagan – calls into question the growth rate of 3DTV:

Sales of 3DTVs are projected to actually decline in 2011 as issues surrounding a universal standard, eyewear, dearth of content and price resolve themselves, according SNL Kagan.

Principal 3DTV drivers include live sports and ongoing (though waning) interest in theatrical 3D movies.

3DTV households should top 1.8 million by the end of the year, or 2% of the overall market. The net gain of 1.4 million households is based on an estimated retail sellthrough rate of 75% (up from 35% in 2010) as retail prices drop about 6% to $1,623 per unit. (The retail sellthrough rate compares the amount of inventory a retailer receives from a manufacturer or supplier against what actually is sold to the consumer.)

Kagan said 3DTV household penetration would rise from 5% at the end of 2012 to 21% by 2015 as the SRP falls 21% to $1,195 from $1,511.

CEA research suggests a very different picture for 3DTV (pun intended).  According to CEA’s recently published 13th Annual Ownership and Market Potential Study 3DTVs are now owned by 3% of US households.  Kagan suggests this figure will only reach 2% by the end of the 2011. In addition to household surveys, CEA also tracks 3DTV unit volume.  CEA receives these data directly from the 3DTV OEMs each month. CEA’s estimated 3% ownership rate aligns with the number of 3DTVs that have shipped from OEMs over the last 12 months. More, given the rate at which 3DTVs are currently selling – the household ownership rates for 3DTV will increase significantly in 2011 (compared to 2010).  In the early life of a product, it is common to see relatively low units per household.  It is only as a product begins to reach mass adoption and ultimately begin to mature that we see higher unit ownership rates per household.  In other words, in the early life of a product most unit sales are going to new households and corresponding driving up household ownership rates on a nearly one-for-one basis.

While Kagan suggests a large different in the sell-through rates of 3DTVs between 2010 and 2011, they muddy the water and fail to grasp how retailers behave. In the current environment – retailers won’t (and don’t) take stock of products that aren’t selling through over an extended period of time.  Just over the last two months, unit volume of 3DTV is up nearly 200% over the same period a year-ago.  This growth rate ONLY typifies and is consistent of product that is experiencing corresponding sale-through growth rates.

In making their claims, Kagan fails to understand the current TV landscape.  While topline unit volume is declining – consistent with our January projections – certain segments within TVs are doing well. Higher-end TVs have sold well over the prior few months and these growth rates are showing little sign of abating. Even if they did slow significantly it is hard to fathom they could show negative unit volume for the year.  In January CEA had projected 3DTV unit volume in 2011 would grow slightly from roughly 1.1 million units to 1.9 million units. Already year-to-date, the industry has sold nearly 40% of that annual estimate.  But new products are heavily influenced by Q4 seasonality. If 3DTV were to slow sharply in 2011 it would have to break seasonal variation in a way  I’ve never seen a nacent technology do.

In the current TV landscape 3DTVs are synomous with high-end TVs as many of the 3DTV OEMs have made their highest-end models 3DTVs. SNL Kagan rightly suggests Internet-enabled TVs will do well in 2011. In fact, according to the monthly data CEA received from TV OEMs, Internet-enabled TVs are up roughly 160% YTD compared to the same period last year. But it is important to note that many Internet-enabled TVs are 3DTVs and most/all 3DTVs are Internet-enabled TVs.  In other words, some of the growth in Internet-enabled TVs is coming in the form of 3DTVs. SNL Kagan suggesting one grows while the other declines is implicitly suggesting a very specific Internet-enabled TV is growing while some of the highest-end models are actually shrinking.

None of these figures suggest why consumers are buying 3DTVs.  Some consumers probably want the 3D functionality.  Some consumers just want a high-end TV and in making that purchase end up with one having 3D functionality. This is a story we’ve told frequently over the last 3 years as we’ve watched this market segment develop. At the end of the day the data are what the data are – and its good to have real, actual data.

Perhaps the biggest mistake SNL Kagan makes is to suggest 3DTV unit volume will decline despite price declines in the category.  Consumer tech has relatively elastic demand. Consumers respond to incentives and when prices drop consumer buy more. 3DTV prices are dropping and consumers are responding.

Despite all of the hype and all of the panning – 3DTV is on the exact trajectory we would expect a new segment like 3DTV to experience in the early years of its adoption by consumers.

 

Is the Future of Reading Social? 0

The role of social in reading is becoming more pronounced. I’m not talking neighborhood book clubs here (no offense). The social aspects of today’s reading leverages the digital environment where both reading and the sharing of content (and consequently content discovery) is taking place.

In Kindle for example, Amazon shows sections of texts highlighted by a large number of other readers.  This reading as social allows you to see what others have found important (and thus highlighted). I’ve found this aggregated, anonymous approach to be very valuable when reading.  It keeps me engaged, helps with retention and ensures I haven’t missed something many others found significant.  This provides a break from reading without providing a distraction. More, it takes advantage of the wisdom of the crowds.

Evolutionary Currents: Adding Context to the Nook Color Upgrade 0

This week Barnes & Noble upgraded the software running on their Nook Color e-reader tablets. Users can now access apps, have email pushed to the device and watch flash videos.

There are a variety of reviews on the web (see: here, here, and here) discussing the anticipated update so here I’ll take a differ tack and discuss two things: what we learn about the evolution of technology in the Nook and what it means for adjacent categories like tablet computers (as opposed to tablet e-readers).

While their initial foray into personal electronics with the original nook might have been more than just an experiment, B&N moved relatively quickly onto the Nook Color. The original Nook was launched in November 2009 and while it was largely sold out during that introductory holiday season, there was likely very little opening stock available. By June 2010 the price had been cut consistent with pricing cuts across the entire e-reader category. Within a year of the initial Nook launch, B&N had a higher-end, full color screen e-ereader tablet and the Nook line collectively was “the company’s biggest bestseller ever in its nearly 40-year history.”

Apple’s AirPlay Remains the Sleeper Hit for 2011 0

Back in January I wrote that Apple’s AirPlay would drive a renaissance for audio.  Networked audio solutions have been building slowly to a crescendo I believe plays out over the next 24 months.  Of course companies like Sonos and Logitech with their Squeezebox suite of devices left important early footprints while defining the market for networked audio solutions.  Several years ago I spoke with the guys at BridgeCo (who’s  JukeBlox Connectivity platform now enables Apple AirPlay) and could see the potential of network audio solutions.

Today several pieces have come together to make 2011 the year I expect to see networked audio move into the mainstream.  First, television sales are declining which will free dollars that can be spent on other tech categories (like audio). This development started in 2010 and will continue for at-least the next 4 years. At the same time consumers are maintaining their historically high levels of spending on technology relative to other durable goods. After spending a decade plus updating and upgrading video in their homes, consumers are starting to look at audio – something I’ve expected to see for the past several years, but is now just materializing. More, the strong growth in portable products like tablets and smartphones is creating the network effects that will ultimately power this ecosystem.

on Kindle Pricing Part II 0

Last week I provided an estimate of the implied revenue Amazon expects to earn in advertising from the newly discounted Kindle with Special Offers. I happened to catch MG Siegler’s post on TechCrunch on the same topic.  Siegler takes an approach I heard frequently immediately following the announcement, namely that $25 isn’t a strong enough discount.  Amazon should have been more aggressive and marked the device down to $99 – then we’d be talkin’.

I agree with Siegler that this is part of a broader pricing experiment for Amazon.  Amazon loves to experiment with pricing (among other things) and by so doing they can more accurately estimate demand elasticity (among other things). Thus, the recent price cut could have simply been an info gathering exercise. On the other hand, Amazon has on several previous occasions cut the Kindle price so I imagine they have a good handle on the shape of the demand curve as well as demand for ebooks (additional books sold) as a result of additional devices moving into circulation. As I wrote, Amazon could have arbitrarily picked $25 – it is after-all a very round number.  In this spirit, I don’t agree with Siegler where he suggests Amazon “must have looked over the potential numbers from advertising and determined that $114 was as low as they could go.” They could have gone lower, but opted not to. And I don’t think that decision was heavily influenced by per unit revenue loss rates.  

The 360 degree solution 0

this was previously published in March 2008 in Dealerscope Magazine:

Ten years ago, consumers bought consumer electronics devices largely independent of the services and content they would eventually use in conjunction with those devices. Those times are gone.

As opposed to piecing together an a la carte experience by coupling hardware, software and services, today’s consumer is in search of a more robust, 360 experience. This 360 experience focuses less on what the devices, services and content can do in isolation and more on how they come together to provide the consumer with the experience they are seeking straight out of the box. This change is driving an important shift within the consumer electronics industry, as content owners, service providers and hardware manufacturers come together to create and provide a 360 solution.

123Page 4 of 55