Core issues

As Apple spreads itself ever wider, many are wondering if it is getting too bossy and too powerful, writes Karlin Lillington

Is Apple getting too big for its britches? And does anyone know what those britches even look like anymore?

As the onetime computer company spreads itself into everything from consumer electronics to telecommunications to media, many wonder if it is getting too large (it is now the fourth most valued technology company in the industry, trailing only Microsoft, Google and Cisco) and too powerful and bossy.

This week, Apple announced that it would not take cash any longer for iPhones, so that there would be a record of who bought them, and it would limit purchases to two.

And whatever happened to the "computer" in Apple Computer? Despite lots of chatter about its new operating system release, Leopard, ask anyone what Apple stands for today and most will probably say "iPod", quickly followed by "iPhone".

As the company released its annual results last week and senior executives fielded analysts' and journalists' questions on a conference call, there was certainly much to surprise - and perhaps to further feed accusations of hubris.

By any measure, the company is certainly entitled to feel smug. Apple had excellent results - getting congratulations from several analysts - and it closed the 2007 fiscal fourth quarter with net income of $904 million, a good 17 per cent above analysts' consensus estimate, and 67 per cent above the $542 million the company reported in the comparable quarter in 2006.

Revenue in the recently-ended fourth quarter was $6.2 billion, up 28.5 per cent on the $4.8 billion earned in the fourth quarter last year.

Apple closed 2007 with revenue of $24 billion, up 24 per cent on 2006. Shares rose 6 per cent on the news - and they have more than doubled since the start of the year, which chief executive Steve Jobs kicked off by announcing the long-awaited iPhone.

It's where the revenue streams came from in 2007 that surprises, however.

Far from fading into the background, Mac sales are actually booming, at their highest levels ever, said executives.

In 2007, Apple shipped 2.2 million Macintosh computers, ahead of analysts' predictions of 1.9 million to 2.1 million. Macs made up about 50 per cent of Apple's total revenue.

According to industry analyst Gartner, Apple's current share of the overall computer market has risen to 8 per cent, after years around the 2 to 3 per cent mark.

Sales of Macs in Europe are particularly strong, running at more than four times the predicted gain by analyst IDC, according to chief operating officer Timothy Cook, speaking on the conference call.

Analysts attributed those very strong sales to a so-called "halo effect", as purchasers of iPods and iPhones grow enamoured with the design of Apple electronics and decided to try a Mac as well.

"Over 50 per cent of the Macs that we sold in our retail stores were to customers who never owned a Mac before, so we've been very successful at expanding our customer base," Cook said.

"It's clear the Mac is going mainstream," Piper Jaffray analyst Gene Munster told the AP news agency. "Two years ago you had to explain to your friends why you were buying a Mac. Now you have to explain why you are buying a PC."

Sales of both Macs and iPods were up over 30 per cent on the previous quarter, and iPhones have been selling at a rate of about 18,000 a day in the US since the company recently lowered prices.

Apple has sold a total of 1.12 million of the still-pricey devices, with European sales about to kick off for the Christmas market. It still has not indicated a launch date in the Irish market.

Looking ahead, normally conservative Apple surprised analysts with an extremely optimistic prediction of $9.2 million in revenue for the upcoming holiday quarter.

Some analysts wonder if it can possibly meet that figure, a $3 billion increase on the recently-ended quarter and $2 billion above the $7.1 billion sales racked up during last year's holidays.

While Apple has chalked up an extraordinary 120 million iPod sales since the device was launched in 2001, and the player is a popular holiday gift, prices are dropping and margins are narrowing.

Sales in the just ended quarter, at 10.2 million, were actually a shade under analysts' predictions of 10.5 to 11 million.

But Peter Oppenheimer, Apple's chief financial officer, was confident during the conference call.

"We are looking forward to our best December quarter ever as we head into the holiday buying season with the strongest product line-up in Apple history," he said.