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Apr 10


Quick notes on a few prominent companies in the news. Apple’s fiscal Q2 results were announced today: $13.5bn rev, net profit $3.07bn (up 90% year-on-year for the quarter), against analyst estimates of around $12bn. Almost 9m iPhones sold (more than any other quarter), Mac sales up by a third compared to Q2 2009, with iPod sales stable. Q2 doesn’t cover some big things that entered or will enter the pipeline this quarter: iPad (estimated 1m sold already, and this is pre-3G and international releases), iAd (some estimates put it at generating 8% of revenue, or several billion dollars), the Macbook Pro refresh, and the iPhone v4 refresh. Apple is clearly going on a tear.

I had written an earlier post questioning the sensibility of Apple’s market cap taking over Microsoft’s when it was making half of Microsoft’s profits. With this strong showing, it is conceivable Apple will push up towards Microsoft-level profits, but if it hits it this year, I’ll be absolutely stunned. The market must be pricing in the growth potential over the next few years today. (Once this prospective growth is fully priced in, I wonder if a bubble will start to develop at that point?) Let’s see how Microsoft fares when it has its earnings call on Thursday.

Google also did well last quarter, but not well enough for investors who ensured that its stock price fell about 7% on announcement day. Google is fantastic at making (software) technology that works like magic. But they, and their hardware partners, can’t compete with Apple on one of the key reasons Apple does so well: industrial design. Industrial design simply isn’t Google’s ball of wax. However, it is an integral part of Apple’s branding. If you look at Android, it’s more fully featured than iPhone OS – but Android phones don’t have the same design cachet. If you look at MacOS X, it’s nice, but a lot of people think Windows 7 looks just as nice… but I believe MacOS is popular because the boxes it is installed in are popular. I speculate that proportionately more people install Windows on a Mac, than would install MacOS on a PC (if Apple decided to permit that one day). So Chrome OS is all nice and good, but if the devices that run it aren’t sexy enough, I’m not sure that Google is going to be competitive with Apple in the netbook-end of the market.

Turning now to the other big news of Goldman Sachs being sued by the SEC. When the suit was filed last Friday, Goldman’s stock price fell about 13%, shaving somewhere in the region of $10bn off its market cap. Reading through some peoples’ opinions of the worst-case scenario, Goldman is looking at anywhere from $100m to about $1bn in liabilities (whether in settlement payments or damages, including suits filed by other parties against them). There are also reputational effects as well, but I doubt they would have any impact.

As this BusinessWeek article says, GS is still going to be used by the people that count – clients and prospective employees. When I was an undergrad, I remember that among students there was this sense of an unofficial totem pole of professional services work, in decreasing order of desirability: private equity, i-banking, mgt consulting, law, and accounting/tech consulting/retail banking. Because private equity firms usually don’t hire fresh grads, that left i-banking as the most sought after industry for BCom students. At the top of that world was Goldman, followed by Morgan Stanley, JPMorgan, and so on (incidentally, the order was pretty similar to the order of what banks were most vulnerable during the GFC). That was back in 2002. Goldman has since had a massively successful decade, so I can only imagine that its aura has multiplied during that time. GS also had a successful quarter, reporting $3.3bn in net income.

In any event, it seems to me that the market has largely overreacted to the news. It will be interesting to see what unfolds over the next few months.

  9:37pm  •  Business & Finance  •   •  Tweet This  •  Add a comment