AMITIAE - Tuesday 27 January 2015
Cassandra: Big Four Quarterly Figures from Microsoft, Apple, Yahoo! and Google - With Pointed Analysis of Certain Analysts (Edited)
By Graham K. Rogers
I wonder if they hope for some of the karma of OS X (ten, not X) to rub off. This is much needed especially considering that many of the Windows faithfull - including many of the ATMs of major banks here - are still running Windows 95, despite the lack of official support.
Revenues were $26.5 billion for the quarter: slightly ahead of analysts estimates, and 8% up on the same period last year. As an indication of the way computer systems are changing, cloud revenue of $5.5 billion was reported: a rise of over 100%. This is part of a wider picture, suggesting movement away from the core software (Windows, Office), as Microsoft is also seeing a fair amount of development in the services sector.
Nadella was upbeat about hardware, reporting that the company had surpassed the $1 billion revenue mark with Surface for the first time; and that the sales for Lumia phones top 10 million units growing 30%. While Xbox continues to perform well, overall inventory was higher than desirable.
There are also moves within the company as Nadela de-Ballmerizes with "pretty significant changes in . . workflow of our engineering teams", adding a comment about a "significant I would say combination of culture change as well as how we work change that drives more innovation." Dismantling the management system that had been constructed may take some time, but it is a step that Nadella knows he has to take to redirect the company and deal with the changes in the way users now work.
While most sales are outside the USA, Apple has some complex financial strategies to deal with taxation and movement of the monies, so it may be that foreign exchange has less of an effect on the company than it has on Microsoft or is expected to have on Google for this quarter.
There are others who are almost permanently negative, with Michael Blair of Seeking Alpha replacing Trip Chowdry at the top of my list that also includes Rob Enderle ("Nearly always completely wrong (at least regarding Apple)" and Paul Thurrott.
. . . and of course, Apple Should Post An Astounding Q1, But It Might Be A Hard Act To Follow which is contradicted by earlier postings. There is a lot of unsupported speculation and much cherry-picking here (OK I am cherry-picking some of the best/worst) but note, Q4 Will Show Just How Stagnant Apple Earnings Really Are, which sort of shows how stagnant some thinking is as that was another record quarter with unexpectedly high sales both of iPhones and of Macs.
Back in October, Blair took exception to being called out by two commentators on his negative article on the iPhone 6 launch weekend: Bill And Chuck's Incredible Journey - Apple's Blowout Launch Weekend Revisited. He still insisted that "Apple's launch was good, not great, and shows that Apple continues to lose market share," which is not a criterion that works with Cupertino. Despite signs to the contrary that sales were impressive, there has been no revisit of the revisit. That original articles was Apple's Incredible 10 Million Unit Sales On Launch Weekend - Fact Or Fiction?. He was unable to accept that the reported sales for the opening weekend could be real, noting "Apple did not say whether those "sales" were to end users or to carriers".
As others will know, it is often Samsung that reports sales to carriers as real sales, while Apple's figures are more accurate. Visiting a Best Buy, which was one method of Blair's analysis, is neither the optimum store at which to see iPhone sales, nor takes account of the much larger figure of online sales: direct to the customer. As a final nail in this coffin, Blair may have the best comment on his skills as an Apple analyst in Apple Will Post A Strong Finish To 2014 - The Real Test Will Be Fiscal Q1.
We will know how right the negatives have been in a short while. What I am always astounded by is the way that Blair and others like him (there are way too many) continue to offer advice to investors on Apple, despite antipathy and a poor track record.
One person who is not rooting for her is Nicholas Carlson at Business Insider who is one of a number who think the figures are likely to be disappointing. He cites Victory Anthony of Topeka Capital Markets and the feeling that critics are unsure about how the acquisition and divestment of Alibaba shares is being handled.
Others are also concerned about this focus on the tax efficiency of Asian assets, but note that the core business remains weak. Search has become the preserve of Google, where previously Yahoo! was regarded as the top search engine. Microsoft has had a go with Bing, but is not considered a big player in this area, while others are beginning to dip toes in this rather deep and lucrative sea. Users do not say, "I'll Yahoo! it" or "I'll Bing it" and therein lies a key to the search market.
Yahoo! does have some areas in which it still excels, such as financial data, but it also has strong competition there. It is unlikely to regain its earlier strong position, so needs to focus on areas in which it has a good position and capitalize on these. Yahoo! is no longer a competitor of Google in terms of general search, and that needs to be recognised.
This is not the first time, and Google has a habit of creating concepts or services and then shuttering them after the excitement has gone, which is particularly galling for those who have been using the service: goodwill fades. Other areas in which the company can do itself some harm are with intrusive advertising and privacy.
The personal space of a user's computing environment is often invaded by pop-ups, unsolicited email, and other means by which advertisers try to gain the attention of consumers. That is after all how they make their money. There are limits to the amount of interruptions consumers will accept and Google needs to be aware that it is no longer the "Do no evil" good guy in many eyes.
That intrusiveness also extends to the amount of data it collects on users, coupled with the increased concerns in some quarters for privacy. Many are also concerned about how those companies collecting such personal data will use it. Of equal concern is the access that governments might have to the data.
While Google's earnings are expected to rise slightly this quarter, the amount of increase is likely to be modest and the figures, like those of Microsoft, are also expected to be impacted by foreign exchange fluctuations.
Graham K. Rogers teaches at the Faculty of Engineering, Mahidol University in Thailand where he is also Assistant Dean. 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. He is now continuing that in the Bangkok Post supplement, Life.
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