Apr 232009

In what was little surprise to anyone in the know (and certainly no surprise in the Mac community), Apple announced its street-stomping earnings last night. The 2nd quarter of 2009 represented the high water mark for revenue for a non-holiday quarter at $8.16 billion with a net profit of $1.21 billion, or $1.33 per diluted share.  This compares to $7.51 billion in revenue and net quarterly profit of $1.05 billion, or $1.16 per diluted share for Q2 of 2008.  Gross margin was up 3 1/2% (from 32.9% to 36.4%) YOY.

COO Tim Cook also made some “2nd base statements” about Apple’s interest in the netbook segment‚ going from zero interest‚ zippo‚ none to kind of bashing the segment and going after specific features that make netbooks an unattractive prospect for Apple. Tim’s basically positioning a future Apple offering in this space. Apple’s improvements over the limitations he’s bashing will be the talking points for said offering.

Consumers have shown that they will still pay for value even in difficult financial times.  Microsoft, in contrast, has been looking to capitalize on the sagging economy through an advertising campaign that equates value with first cost.   According to their advertising‚ this value is not even provided provided by Microsoft — Windows/Vista is not mentioned anywhere in the advertising except at the end.  We have yet to see how damaging this campaign was/is to Microsoft and Apple’s 2Q earnings are just the tip of the iceberg. When the economy spurs consumer spending confidence and they become more willing to part with their discretionary income, the damage done by this campaign will be more fully realized.

Microsoft business model is based on leveraging their locked-in users.  Their brand has become more and more absorbed into “generic PC” – the latest advertising says as much.  Apple has always been responsible for the total computing experience and tying its brand to that experience.  As chunks of the monstrous machine continue to fly off‚ the 2 lessons to remember are that:

1. Brand Matters.  Merge your identity with PC makers at your peril.

2. The first shot fired in a battle over price is usually by the party that will lose the war over value.

Update: according to the NY Times‚ Microsoft is reporting a 3Q net income drop of 32% YOY (from $4.4 billion to $3.0 billion) and a drop in revenue of 6% (from $14.5 to $13.7 billion).  It begins.

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