It’s not Apple’s “miss”

I love a good capital gain as much as anyone, but didn’t the dotcom bubble and 2008 teach us not to confuse Wall Street with reality?

Evidently not as you can find headlines everywhere about “Apple’s (rare) miss.” As if the company was at the foul line in the 4th quarter and suddenly couldn’t find the hoop.

There are companies with fairly predictable growth rates or profit dynamics who then do their best to telegraph to the investment community any little divergences to guarantee that they’ll “beat” earnings estimates. Sometimes we call that savvy management, sometimes the more pejorative “financial engineering,” and sometimes predictable growth in earnings  gets created the old fashioned way: pure fraud.

Apple famously doesn’t care a bit about this game. They lowball the next quarter then go out and run their business for their customers and the long term.

If you’re not aiming, you can’t miss. The miss belongs to the analysts making the prediction.

In their defense, predicting Apple’s results is really hard and no one is good at it. What they all seem to do is expect previous trends to continue when in fact Apple’s business is very, very lumpy, largely driven by product release cycles. To get this right you’d have to foresee both the blowout of pent up iPhone 4s demand a couple of quarters ago and its waning in anticipation of what’s next… no one has done this well. So the most optimistic were the heroes 6 months ago, as the pessimists are today. But those are just stopped clocks having one of their daily moments being right.

Ridiculous, though, is the idea that this is some kind of beginning of the end. Really? A company the size of Apple is still growing over 20% year over year — and this is some sort of fail? Of course the previous growth rates can’t continue forever. Actually it’s amazing that a company with the revenues of Apple can grow at all. And how many companies ever reach the size that equals Apple’s growth in the previous or next year?

My Single Takeaway: iPad

iPad. Wow. What momentum. Without a lower priced entry point. Without a smaller form factor. It’s the future of computing for the masses and look at all the focus on Google and Microsoft when Apple is running away with it.

Confirms what I’ve seen at my favorite (and canary-like) Starbucks. iPads are being used out in the wild in serious numbers. About half of them with keyboards looking like notebooks, about half without them looking like tablets.

What’s interesting is that at this very same Starbucks last December I noticed that suddenly all the kids seemed to have iPhones, where I used to see a healthy iPhone/Android/Blackberry mix.

Apple’s run won’t last forever. But it’s still early in the iPad story and I believe the only question is: Will it dominate like iPod or like Windows? (Though I’d guess that the web as a platform means we’ll never see a new platform dominate like Windows did.) And remember throughout the iPod’s growth era, there was always an iPod-killer just on the horizon.

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First public prediction: I’m feeling confident about that iPad mini today

Glad I predicted the 7.85″ iPad yesterday, because it seems obvious today.

The reviews for the Nexus 7 are coming in and they’re positive. Which tells me:

1. The smaller form factor works. And it’s better for some use cases. (Probably not for content creation, that thing that the iPad wasn’t supposed to be for but increasingly is for.) Unless they’ve suddenly adopted Microsoft management techniques, Apple already knows this.

2. The “unnamed sources familiar with Apple’s plans” are, in fact, deliberate Apple leaks. They either knew that Google got it right or at least could get it right, and need their fans to know they won’t have to abandon the iOS ecosystem to get a smaller and cheaper tablet.

The parallels with the iPod story are as strong as ever. We now know that the only thing that sent the iPod into decline was the decline of the standalone media player in the face of the smartphone. We forget that every step of the way there was an iPod killer just around the corner.

Microsoft

I thought the real battle this year would be for second place in tablets: between the non-traction of Android and the awakened giant Microsoft. But this competition may only be on paper if 7″ and 10″ class tablets serve very different use cases. Market researchers will compare the unit numbers but they may not be competing for the same buyers.

The 7″ class tablet may very well be the grandchild of the iPod; while the 10″ class is the car to the notebook PC truck. Only one of those threatens Microsoft.

Me

I’m about to release a major update of my iPhone/iPod touch app. Need to accelerate re-imagining it for the “big screen.” My target device is “descendent of iPod” whatever that is next.

First public prediction: The 7(.85) inch iPad will happen

I have no secret sources. I can’t tell you when. And I certainly can’t tell you what it will be called.

But the rumored 7″ iPad mini will happen.

Two things have convinced me:

1. All of the math done right here in the blogosphere (which I’m shamefully too lazy to look up and link to) showing that at 7.85″ in diameter (which is actually significantly bigger than the 7″ Android tablets) current iPad apps would be reasonable to operate. So an iPad experience is possible at the smaller size.

2. This is not John Sculley’s Apple, it’s Tim Cook’s. It remains to be seen if Apple can innovate under Cook like they could under Jobs. But he’s been running the operations for a decade, and famously stated that they’d not leave a price umbrella for competitors. The iPad is shaping up to be an iPod-like market. They will absolutely not risk that with a 100% higher entry price unless delivering a quality lower cost tablet isn’t possible. And it looks quite possible.

They have an untouchable tablet ecosystem in both apps and content. They’re only vulnerability is price, which they know and will fix.

And now the two possibilities that might make me wrong:

1. What if Apple can dramatically reduce the price of the currently $399 iPad 2 (or create some new low end 10″ model) before Christmas?

2. What if Apple can’t make enough and knows it? Yes I’ve given myself weasel room here since they may never tell us. But Apple’s a much bigger player in tablets than anyone else–what’s a nice manufacturing run for Amazon or Google doesn’t cut it. And an unavailable product just freezes the 10″ market. Still I believe they’ll solve this at least in the US and largest other markets.

So my real prediction is that iPads won’t start at US $399 this holiday season (unless they really can’t meet worldwide demand at that price.) My guess is that they’ll fix that with a 7.85″ version. Both the Macintosh and iPod lessons are deep in Apple’s institutional memory.

Now I’m on the record.

And a lot of kids should be happier this December when they get real iPads. Meanwhile, as an iOS developer, I better get more focused on iPad.