Apple’s Earnings Call Notes

1. What exactly has Apple paid $3.9 Billion for and who are the 3 vendors? If there’s a rumor smoking gun from the earnings call, this would have to be it. Normally, there’s nothing rumor worthy from the call, some analyst tries to ask about future products and COO Cook or CFO Openheimer per script repeat the mantra about not discussing any future products. But this time we got this testy nugget of data, but no more details. Which 3 companies? Are they 3 different initiatives/technologies or 3 vendors providing the same product/technology. The last time Apple spent this much cash was back in 2005 to lock down the flash RAM market for their iPod lineup of media players. This huge pre investment by Apple basically hand cuffed any competitor from ever getting a significant price advantage on Apple. Apple had elite pricing on all major components and the iTunes Store.  Here are some best guesses on what Apple might be doing:

  • Credit Gizmodo and Engadget, for both going with high resolution LCD displays for Apple’s entire lineup. With a dedicated supply of cheap displays, Apple will be assured of being price competitive for the massive tablet/smartphone markets. And with Wall Street going crazy predicting iPhone sales of 100 million and iPad sales of 40 million for 2011, Apple is going to need massive supplies of LCDs. And as we mentioned in the iPad 2 article, high resolution screens combined with iOS resolution independence could make for a deadly combo against competitors. Rumors of Apple fronting big time cash to Samsung or Toshiba for LCDs were floating around in December.
  • Apple’s entry into using OLED displays for iPads, iPhones, iPod Touch, MacBooks, iMacs. $3.9 Billion to 3 vendors to create 3 production lines for cheap OLED displays? Is $3.9 billion enough? But if you wanted to fast track OLED adoption over LCDs, getting Apple to switch would do it. All the Apple designs elements are there with OLED thinner, lighter, more energy efficient.
  • System on Chip fab facility. Apple needs to be able to design advanced “system on chip” designs, and eventually move to unique proprietary designs that have features competitors cannot match. Apple needs these chips to still be cheap and abundant, but exclusive.
  • Solid State Drives. Memory exclusivity deal again. This time exclusive access for the next generation of Solid State Memory drives that could go into almost every product Apple makes.

2. There was not one question about the news of Steve Job’s health related leave of absence. Just stunning. Were all the analysts on the call briefed not to ask? MoD is not criticizing the move, Job’s health is his private business and Apple released a statement as part of their press release over earnings. Still, it didn’t stop analysts from asking questions before during his two previous absences.

3. Kind of surprised during the call that no analysts asked about the sales of the new Apple TV, and Apple’s forward looking view on their hobby. Now Apple had announced selling more than 1 million of the devices already, so maybe that was enough. And considering Apple had over $26 billion in revenue, the 100 or so million generated by the sales of the Apple TV was probably not really the focus. Analysts instead were too busy trying to figure out how many billions iPad and iPhone might generate in 2011. Still, if the AppleTV is generating more iTunes rental revenue that’s something to track later on if the AppleTV starts to build some momentum.

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