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 Intelligence of Things 0

At its root, the Internet of Things is about being about to uniquely identify devices.  Over the last year I’ve been talking more about the Intelligence of Things.  The Intelligence of Things is spawned by devices and objects being uniquely identifiable and addressable, but more it is able machine-to-machine communication performing tasks on my behalf based upon pre-established parameters or other guiding principles.  Here’s an interesting video from Ericsson that builds of this concept.

[youtube]i5AuzQXBsG4[/youtube]

When eReaders grow-up to be Tablets 0

What happens when eReaders grow up to be tablets? This morphing is already well underway. Barnes & Noble has always referred to the Color Nook as a tablet eReader – with tablet being the operative word. At their event this week. B&N claimed the Color Nook is the top selling android tablet in the market. Amazon – the current king in e-ink eReaders – is getting set to launch potentially two new tablet-oriented devices.  E-ink is actively working to bring to market color e-ink screens and other eReader players are treading towards tablet-like devices.  But this evolution has important implications.

First, network economics for text are very different than they are for video and more data-intensive applications. One of Kindle’s opening hallmark features was the ability of the user to download books via the cellular connection without having to independently contract with the service provider.  In fact, at one point Amazon switched Kindle cellular service from Sprint to ATT and users never took notice.

This won’t be the case as users gain access to more data-intensive offerings. These services are more bandwidth intensive (and therefore costly) than delivering text over the network.  Even though our research has constantly shown most tablet users primarily connect via Wi-Fi, the existing service contracts can’t work when devices are more than books. This will be a key element in the new tablets being launched by Amazon.

App usage on apps-enabled devices will crowd out book usage.  This has ramifications for device pricing.  In the early days of Kindle, Amazon subsidized the content instead of the hardware. This changed as Apple moved into the book business and subsequently eReader OEMs began selling ebooks at the publisher price and subsidized the hardware prices (or atleast began selling them at very low margin).  If the margin is made on the ebooks and their are less ebooks sold as a result of changing use-case scenarios – OEMs will be in search of a new business model to driven margin. 

Conduits of Content 0

In a few weeks I’m speaking briefly on a call with executives at Korn/Ferry – the world’s largest executive recruiting firm. My remarks will cover major trends in the consumer tech space and how the global search for talent will be impacted.  For several years now, I’ve talked about companies reaching to create a 360 degree solution. Today the drive towards a 360 degree solution is pronounced. In some corners of consumer tech it is no longer simply a nice approach – it is an integral part of competing in that segment. So how does this impact talent acquisition?

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.”

Retail Trends to Watch 0

The following was published in Dealerscope Magazine in December 2010:

The last three years have been a volatile period in the history of consumer electronics. While a recovery is slowly taking shape, I believe the next few years will offer as much change as the in the last year or so. Here are a few trends worth watching:

Store-within-a-Store Model Expands
In the late 1990s, Apple’s presence within major retailers began to change, ultimately transforming into the now familiar store-within-a-store model. This gradual transformation pulled Apple products together within the store. Instead of merchandizing Apple products within the category where the products would sit next to similar devices, Apple products were increasingly merchandized next to other Apple products. The retail presence for Apple changed from an existence within categories to one of brand. As the Apple ecosystem of products expanded, so too did Apple’s store-within-a-store presence.    While this trend has yet to catch-on widely within the U.S., it is starting to emerge outside of the U.S. for other brands. We’ll see this trend accelerate in the U.S. and beyond.

To create a 360-degree experience (a combination of hardware, software and ecosystem) for consumers, companies are highlighting how the interoperability of their different devices can provide a seamless experience for the end-user. The store-within-a-store model is also expanding slowly as the more traditional categorical view recedes. When devices move away from conventional category definitions, brand becomes the natural organizational default.

Estimating iPad Second Quarter Unit Sales 0

Through the first three quarters of iPad availability, Apple sold 3.4 million, 4.3 million, and 7.33 million iPads respectively for a total of 15.03 million units through the first nine months.   The estimates for Apple’s second quarter iPad sales are all over the board.  For example, JP Morgan is expecting 5.3 million, RBC Capital is expecting 7 million, some are calling for something comparable to the 7.3 million sold last quarter, and Credit Suisse is estimating 7.84 million for the quarter.  Estimates of 13 analysts compiled by Bloomberg averaged 6.1 million units for the quarter.

My personal forecast of around 4 million for the quarter – made in December 2010 – is clearly on the low side.  At the time I expected a quarter-to-quarter sequential decline because the first calendar quarter is seasonally weak and that trend has been more pronounced in recent years.  More, I expected a new iPad launch that would slow gen one unit sales while at the same time production shortages would limit sales of gen two unit sales. 

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.

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