Apple Third Quarter Results and Some Musings

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As we all know, Apple announced 73% increase in earnings this quarter sending shares up to $150 or so. They sold 9,815,000 iPods and 1,764,000 computers, which amounts to about 30% growth in both product lines. Not too shabby.

What, however, does this say about Apple and the state of the computer industry? Clearly, Apple is A #1 when it comes to MP3 players. That’s a given. But what about laptops and desktops and, more importantly, the iPhone and its myriad competitors.

In the grand scheme of things, 1 million computers in a quarter isn’t many. PC manufacturers shipped 58.8 million PCs in Q2 2007 and we can only assume that that number has gone up, not down, this quarter. That’s where Microsoft gets the big bucks. Apple’s revenues are up, definitely, but I’m worried that the next few quarters will stay flat. Why? Because as Apple innovates and the rest of the world imitates.

Say what you want about back-end processing power. Yes, I’m sure your Quad Core Intel running Vista is really cool but OS X and, by extension, the iPhone OS are the way things are going. With companies turning towards Linux on the desktop and Vista looking more and more like Gnome/KDE, there is a new technical and UI aesthetic that is taking over a number of older paradigms. You see it every day in Web 2.0 — the return of the thin client, fluid UIs, and multiple methods to attack a single problem — and you see it in OS X and the iPhone. It is a sense that things are working well both behind the scenes and on the stage. It is clockwork design, something that thus far has been difficult if not impossible to build.

Apple will sell a million iPhones. But I’m worried that Nokia, Samsung, et al will keep eating their sales with new and more iPhone-y devices. Phone UIs are notoriously bad and the iPhone has set the bar amazingly high for portable devices, just as the Newton once did.

Remember seeing that little dust cloud appear on the Newton when you deleted something? Wasn’t that great? It’s immediately understandable by almost everyone. That’s what Aero was supposed to be and that’s why more and more products — Office 2007, for example — are starting to look like blank slates rather than icon-filled mirror mazes. As processor power increases, the magic factor increases. Here’s an example. While I was in Budapest, I was walking around the room showing folks the iPhone. I wanted to show them the screen rotation so I brought it over to a table in portrait mode and turned it but it didn’t want to go into landscape. So I tapped it and suddenly the entire screen shifted. They entire table gasped. It was like I had just done a magic trick. There are no magic tricks in Windows Mobile 6 or Symbian, but there will be soon. So congratulations, Apple, on a great quarter but you’d better keep running. Everyone is gaining on you.