No, the iPad Is Not Killing Microsoft's Business

The iPad is killing Microsoft (MSFT), at least if you believe the meme that has been spreading in the stock market.

After Microsoft reported its second-quarter earnings last Thursday, the stock fell 4% despite stronger-than-expected financials and several analysts raising their price targets on the stock. But investors were taken in by the idea that Microsoft's future earnings are so much roadkill in the iPad Era.

Microsoft's quarterly revenue came in at $19.95 billion, above the $19.14 billion estimated by analysts, and its earnings of 77 cents a share beat the analysts' expectations of 68 cents per share. Revenue was especially strong in productivity software and gaming devices.

But the only thing investors seemed to focus on was the rise of the tablets and the decline of the netbooks.

It's true that tablets are eating into the market for netbooks and PCs in general. Gartner reckoned that PC shipments grew by 3.1% in the fourth quarter to 93.5 million units, a slower pace than the 4.8% it had estimated. But tablets are growing much, much faster: Strategy Analytics estimates sales of nearly 10 million tablets last quarter (77% of them iPads), up from virtually no tablet sales a year ago.

But while memes are wonderful for culture, they may not be so great for financial markets. Microsoft may be a big, sprawling company, but it's hardly acting like a deer in the headlights facing a speeding Steve Jobs at the wheel. Given the decades-old and often bitter rivalry between Apple and Microsoft, that narrative is tempting. But a deeper look into Microsoft's report reveals a company that's surprisingly nimble for its size.

First of all, the idea that Microsoft can't create a phenomenon like the iPad anymore simply isn't true. The iPad sold 2 million units in its first 60 days. The Kinect sold four times as many, tapping mainstream interest much sooner. "Kinect is the fastest-selling consumer electronics device in history," Microsoft CFO Peter Klein said in a conference call with analysts.

What's especially interesting is that the Kinect sold so well despite the lack of buzz in the tech media. Comparing Google search and news trends for the word "Kinect" with that of "iPad," and you'll find that the iPad attracted much more of the public conversation. And yet the Kinect's 8 million sales in November and December surpassed the 7.3 million iPads that Apple sold in the entire fourth quarter.

True, the Kinect's $149 price tag is significantly less than the iPad's $499 starting price. But the Kinect's strong launch suggests that Microsoft hasn't lost its ability to produce innovative products that resonate with consumers.

In the fourth quarter, Microsoft also demonstrated its ability to maintain strong sales in a highly competitive market. Google (GOOG) has made it clear that, as its business customers grow more comfortable housing data and applications online (or "in the cloud," as it's colloquially called), it plans to go after Microsoft's business software. But Office 2010 sales were surprisingly strong, with license sales up more than 50% higher than the pace Office 2007 had at the same point after its launch.

Investors seemed put off by the 30% decline in revenue and the 40% drop in operating profit for Microsoft's Windows division, the segment that contains operating software for netbooks and PCs. The drop exacerbated concerns that Microsoft's core product was in decline.

But as Microsoft pointed out in its conference call, the 30% revenue drop was largely the result of deferred revenue that was recognized a year ago during the launch of Windows 7. Factoring out the effect of the Windows launch, Microsoft estimated growth around 3%, "in line with PC market growth." Again, 3% growth isn't terrific, but it's nowhere near as bad as the headline figure suggests.

Even if Microsoft's Windows revenue does start to slide in coming years, the company can weather the blow. Sure, Windows revenue makes up a quarter of Microsoft's total sales. But its business-software division -- including Office, as well as SharePoint and Exchange -- contributes 30% of its revenue, and that division expanded its profit by 35% last quarter.

Other divisions are seeing similarly strong profit growth. Microsoft's server and tools division, which makes up another 22% of revenue, saw its profit rise by 21%. And the entertainment group, which makes Xbox and Kinect and accounts for 19% of revenue, posted profit growth of a whopping 86%.

In spite of all this growth, Microsoft's price-to-earnings ratio lounges at 12 on a historical basis and a mere 10 based on estimated earnings for the current fiscal year. That's well below the average P/E ratio of 18 for the Standard & Poor's 500 Index. Such is the power of the meme in the minds of Microsoft investors.

None of this means to play down the challenges that Microsoft faces as tablets and smartphones become more integrated into consumers' lives. The company faces an uphill battle in those markets. Windows Phone 7 is good enough to compete with Android and iOS, but Microsoft waited too long to enter the smartphone race. The same seems to be happening with tablets, as early reviews of Windows Phone 7 tablets haven't been promising.

But we've been hearing for years that PCs are on the decline in an era of cloud computing. And in response, Microsoft has been positioning itself for a post-PC world for some time, building on areas of strength that could serve it in the future – especially business software and video games.

The threat of tablets to Microsoft is real and shouldn't be trivialized. But neither should Microsoft's ability to keep sales and profits growing in other areas of its broad-based businesses.

Even that analysis shows being 3rd into the market isn’t the kiss of death, which was the point of my statement. Whether they’ve got the big lead NPD says or the functional 3 way tie like Nielson says, to go from where they were 15 months ago to either reading is substantial. And if those trend lines continue even Nielson is going to have Android with over 50% of the market by Labor Day.

That's possible if you ignore the data from the last month that has Android stalling on the news that Verizon, it's major US seller, is getting the iPhone in February. It can even be seen on that line graph at the end of Quarter4 2010 when the rumors became so strong that Android sales flattened. The quarterly trend charts show it clearly. Motorola, HG, and several of the other major Android makers have reported guidance for this quarter of sudden steep declines due to that data. When you can have the phone that all the others are attempting to copy, why settle for the copies?

Microsoft is planning its next version of Windows to be optimized for touch.

Way late. They won't be first or second to the market, something more like fourth.

It is also planning on supporting the Tegra chips

So is the competition, or supporting equivalents to the Tegra chips. Nobody really knows what Apple has planned, and they bought the company that designed the A4 and the current high-end Samsung SoC. I doubt that $120 million investment has been twiddling its thumbs for a year.

Once Microsoft can offer a tablet that appeals to enterprise users

RIM will have that covered pretty well before Microsoft even enters the picture. RIM is already extremely well established in the enterprise, even where the enterprise is otherwise Microsoft-based.

Apple did not invent the segment, they just applied their iPhone OS to a large screen as the starting point.

Tablets absolutely languished before the iPad. They were at best niche, not general market. Apple introduced the tablet that people actually want, and the competition is following Apple's lead. Remember, Apple is rarely the first to do something, but often the first to do something right.

A great idea in the short run, but like any new product, nobody really knows where it will go in the long run.

Given past performance, I'd say Apple does. Given past performance, I'd say Microsoft doesn't. Remember, Microsoft and HP ditched their new Windows 7 tablet as soon as the iPod was unveiled. Ballmer was the one who said there was no chance the iPhone would get significant marketshare.

And yet when I walk around my workplace I see desktops out numbering notebooks at least 10 to 1

Laptops overtook desktops in 2008, and the trend has been increasing since then. Half my workplace is laptops.

but that ignores the large and highly difficult to track local shop custom built

A tiny blip on the overall sales figures, and practically non-existent in the business use you mentioned above.

and tablets have seriously stolen the netbooks’ thunder.

That's true. First, netbooks ate into notebook sales, and now iPads have flatlined the formerly exploding netbook sales growth, and are eating into notebook sales in their place.

The cloud is a joke. It’s an attempt to get us back to the dumb terminals of the 90s.

Dumb terminals, a.k.a. thin clients, are starting to get quite popular in business again. For the iPad it means you can open it up and start using it without having to first connect it to any computer. It can easily be a person's only computing device if the tether requirement were eliminated. You don't need a desktop sized monitor for most things. I need one, preferably multiples, for what I do, but then I'm not most people just doing the common things. The problem with most geeks is that they forget few people are like they are.

people just aren’t going to be signing up to watch the latest Michael Bay explosion festival on an 8” screen, maybe as a supplemental when they’re traveling, but not as a primary when they’re home.

Then I'm glad the iPad has a bigger screen than that. People can use it while away, and the TV is already expected to have something Internet-based hooked up to it. Apple of course hopes that'll be an Apple TV.

The trick is to not waste money on R&D which leads to a technology that has no market niche.

Microsoft blows HUGE amounts of money on R&D that isn't directed towards any specific profit-producing products. It's actually pretty cool, kind of like the old Xerox PARC. But that's not to say Apple doesn't have any failures. Most of those were during Jobs' absence. His failures since returning are the Mac Cube (way too niche and expensive) and the Motorola ROKR (doing a phone the way phone companies did it, not the way he wanted to).

Back in the days of the failed Newton plenty of companies were glad they were ignoring tablets.

The Newton's failure was mostly an internal Apple problem. The product had no vision, creeping scope, restarts, redesigns, pretty much every aspect of product development hell you can think of. It was also too far ahead of its time, the state of technology made it too big and expensive. Apple learned that lesson, they've been working on a tablet since the early 2000s, even releasing much of the developed technology in the form of the iPhone, only to release a tablet when the technology could finally support it.

But it did have two positives. One, that's where the term PDA got its start. Two, ARM Holdings, designer of the ARM chip in everything these days, was started as a joint venture between Apple, Acorn and VLSI in order to produce the brains of the Newton.

Just look at the other tech article here about Android crossing the 50% line in smart phones, 3rd in, 1st in sales.

Microsoft, Nokia, Palm and RIM were in smartphones before Apple even started. Apple's trick was to revolutionize the market instead of just joining in against others already doing the same thing. Android leveraged the fact that iOS was available only on the iPhone and only on AT&T (pretty much the most hated network in the country). Now Microsoft joins in against both Apple and Android without anything superior and little to leverage.

Even though it has the advantage of being on phones from almost all manufacturers on all carriers, Android has never had close to 50%, although it did recently edge ahead of the iPhone. It has likely since fallen due to Verizon customers holding out for the iPhone, and this quarter's stats probably won't include Verizon allowing people to trade in their Androids for iPhones.

And yet every office I’ve ever worked in is at least 90% desktops, and even most of the people with laptops also have desktops. And no the one off shops are not a tiny blip, in most computer sales estimates “other” (which is where those shops live) account for over 25% of the sales, since nobody in “other” is selling laptops that’s fairly significant.

Netbooks never really ate into notebook sales, netbooks were a player long enough to eat anybody’s sales. And they have serious problems at a primary use machine, primarily that they’re all cloud dependent. Netbooks’ only real use is as a tablet for people that think touchscreens suck.

No thin clients aren’t getting popular in business again. They’re popular with certain prognosticators that have been wanting dumb terminals to comeback for the last 15 years, but in actual business not so much. They’re too dependent on the central server. With real computers at people’s desks when the central server goes down productivity may be hampered but it can still continue, when everybody is on a dumb terminal when the server pukes might as well send everybody home.

Anybody that spends more than 5 hours a day at the computer needs a full sized monitor. Individual tasks might not, but prolonged staring does. It’s one of the reasons why even places that give workers laptops tend to give them docking stations with full sized monitors. Bigger screens make less eye fatigue. I’m married to a non-geek, I’ve been to her office, 99% percent desktop machines, only the top management people, who tend to get called to meetings all over the place, have laptops. Everybody else has desktops, and while the tasks they perform on them probably don’t need a full desktop, and a few probably even could be done on a tablet, they spend all day in front of the computer. And the people in charge understand all day in front of the computer requires a full sized monitor, geeks or not.

General technology R&D is different and completely unrelated to the discussion. We’re talking about being first to bring a type of product to the market, or following. If you’re first to bring a type of product to the market you run the risk of finding out nobody wants that type of product, if you follow you let somebody else take that risk. It’s why Boeing has so far ignored the super jumbo jet market, they sucked up that risk on jets and on jumbo jets and decided to let somebody else stick their head in the noose this time, and given how poorly sales of the A380 are going I’m sure everybody involved in that decision is happy.

The Newton’s problem was that given the technology of the time tablets couldn’t be very useful, and nobody was really seeing that much of a need for portable computer.

See you just proved my point, following isn’t a bad thing, you just gotta follow smart. No MS definitely has things to leverage. One of the things that makes smartphones useful, especially in the business environment, is their ability to get data from full computer, e-mail, calendars, documents even. One of the things that MS has always excelled at is shunting data from one app to another. I have no doubt that in relatively short order, assuming that isn’t the case already, Windows Phones will have the easiest to use and smoothest interface for connecting to Outlook and Exchange, and the best apps for getting Word and Excel documents to and from the phone. That’s MS’ wheelhouse, making it so that if you use part of the MS ecosystem your life will be much easier if you take the whole thing.

According to NPD Android has 53%. Maybe they’re wrong but that’s what they say.

And yet every office I’ve ever worked in is at least 90% desktops

Yet there's the facts, notebook sales growth surpassed desktop growth in 2008. Since then desktop sales growth has flatlined and even declined, while notebooks have been experiencing 20%+ growth. That is until the iPad.

in most computer sales estimates “other” (which is where those shops live) account for over 25% of the sales

Take a graphic like below, "others" includes dozens of OEMs. Mom & pop is a tiny slice of that, and even they carry laptops.

Netbooks never really ate into notebook sales

Yes, they did, estimated up to 20%.

They’re too dependent on the central server.

You've never heard of redundant servers? The average desktop/server setup gives between one and two nines. Mainframes give five nines, less than six minutes a year downtime. Couple that with a thin client giving less down time than a desktop, and you have overall saved downtime.

Anybody that spends more than 5 hours a day at the computer needs a full sized monitor

Then it's good that desktop-replacement notebooks tend to be 15"-17". People used monitors that size and smaller for decades. I remember when a 17" monitor was considered a luxury (and it wasn't 17" viewable, more like 16").

If you’re first to bring a type of product to the market you run the risk of finding out nobody wants that type of product, if you follow you let somebody else take that risk.

Being too risk-averse makes for a poorly performing company.

See you just proved my point, following isn’t a bad thing, you just gotta follow smart.

That's kind of what Apple does. Apple didn't invent the mp3 player, the smartphone or the tablet. Apple watched what was out there, saw what was wrong and how it could be done better, and completely reinvented them. Microsoft's problem is that they see what's out there and just put out basically the same thing.

I have no doubt that in relatively short order, assuming that isn’t the case already, Windows Phones will have the easiest to use and smoothest interface for connecting to Outlook and Exchange

Apple is the expert at making things brain-dead easy, not Microsoft, and Apple already has the Outlook/Exchange thing down pretty well. Microsoft's leverage will be in XBox Live. Nobody else can do that.

According to NPD Android has 53%. Maybe they’re wrong but that’s what they say.

They're wrong, mid-thirties tops. And that doesn't count that the worldwide numbers were apparently inflated by the sales of Android forks.

I don’t know how you can say “other” is a tiny slice when it’s got the biggest numbers in your chart, the 2009 “other” is bigger than any two non-others COMBINED, that ain’t tiny. And those might CARRY laptops but don’t BUILD laptops, the laptops they’re selling come from HP and Dell and Apple.

I’ve dealt with redundant servers enough to know that it’s no guarantee of 100% up time. I’ve see both sets go down repeatedly, or you find out your configuration wasn’t done right so the redundant server keeps going but half your clients can’t get to it. Thin clients centralize your failure points, and that almost always works out against you.

Laptops with 17” monitors are big, lots of people won’t carry them around. Not to mention expensive. You can get a lot more computing power for the dollar with a desktop, which is why if the worker is not mobile the computer the company gives them will 100% of the time be a desktop. It’s cheaper and more effective.

But define “too” risk averse. We’ve both now pointed out multiple companies that waited to enter a market until it was proven that it was really a market and then entered it and excelled. That’s not “too risk averse” that’s “exactly the right amount of risk averse”. Which is my point, following can be a very smart business strategy.

Even if you take the numbers that say the smart phone market is basically a 3 way tie, 0% to 27% in 15 months is stellar and proves waiting can work.

I don’t know how you can say “other” is a tiny slice

No, I said mom & pop was a tiny slice of "other," which is mostly OEMs. There aren't only seven OEMs in the world. Aside from the majors not on that list like Sony, Panasonic, MSI, Fujutsu and Samsung, there are many smaller ones that make laptops.

In any case, you have the numbers, desktop sales flat or negative for years, notebook sales double digit increases for years, and that's since notebooks became the majority of sales.

I’ve dealt with redundant servers enough to know that it’s no guarantee of 100% up time.

That's why mainframe makers don't claim 100%. They deliver (not claim, deliver) five nines. I've seen the SLAs on desktop/server setups, and they rarely even expect two nines. Desktops kill you piecemeal. You don't often have one big outage, but the constant revolving outages add up rather quickly, and that's on top of server outages.

Laptops with 17” monitors are big, lots of people won’t carry them around.

It's not just about carrying around. A lot of laptops never leave the house. They're popular because they're small, compact, easy to move from room to room, and don't need an UPS in case the power goes out. In any case, the screen size is fine for most people, as is 15".

which is why if the worker is not mobile the computer the company gives them will 100% of the time be a desktop

Nope. And most of the non-mobile ones are better served by thin clients.

both now pointed out multiple companies that waited to enter a market until it was proven that it was really a market and then entered it and excelled.

It's the "excelled" part that is a problem for Microsoft. They're not excelling when they do enter as Apple does, they're barely offering the equivalent of what's already out there. Microsoft and HP unveiled what they thought would be the future of touch tablets in Jan 2010, months before the iPad. They killed it after the iPad was unveiled. That's not excelling. That's total failure.

Even if you take the numbers that say the smart phone market is basically a 3 way tie, 0% to 27% in 15 months is stellar and proves waiting can work.

It depends on how you go, US or worldwide. Worldwide, close for first place are Android and Symbian (note, that includes Android forks that aren't actually Android). Fighting for third place are Apple and RIM. Windows Mobile is under 3%, and Windows Phone 7 isn't even on the map yet.

Android's growth is impressive, and was expected. After the iPhone, people who weren't on AT&T (or Apple's single carrier in a country), couldn't afford an iPhone, or who just didn't like Apple, were desperate for anything like it. Along came Android, available from most established manufacturers on all networks from low- to high-priced. Of course it was going to sell well. You can even get Android phones free with a contract, I'm sure that helps the numbers.

Of course there’s a lot more points of failure for thin client than just the server. Anything that dings the network will kill all your thin clients. And of course it’s even worse with the cloud (how we started this) because with the cloud it’s not your server, so not only internal network problems hose you, external ones do to. With desktop machines if the internet goes down productivity usually rises because people can’t screw around on FR, if you’re on the cloud with thin machines and the internet goes down productivity ends. This is why the cloud is a joke, and will stay that way.

Most computer sales are still for business. A laptop with a 17” monitor starts at $1000, for $1000 you can get a desktop machine with twice the RAM, 3 times the HD space, a 17” monitor and still have money left over. That’s why businesses only buy laptops for people that will be mobile, people that will do their productivity at a desk get desktop machines.

Well if MS and HP put out tablets before Apple then they weren’t following, which kills you’re whole initial point that MS is a follower.

It doesn’t matter whether your looking US or world, all the numbers point to exactly what my point was: following can be a good business practice. You just said it yourself, the numbers are impressive and were expected to be so, that is my ENTIRE point. There’s nothing left to argue, you’ve agreed with me.

Of course there’s a lot more points of failure for thin client than just the server.

But thin clients have far fewer problems than desktops. Most failures will be in the network or servers, almost none in the desktops. People forget desktops are a huge source of failure because most people only see their desktop. Hey, it's problems only cost me a day last year. Multiply that by 5,000 employees.

And of course it’s even worse with the cloud (how we started this) because with the cloud it’s not your server

When I was talking about the iPad and cloud, I didn't mean that for constant operation, as I mentioned using the cloud instead of a host PC so a person could buy one as his only computer. You may have had some vision of people hauling around an iPad still attached to its host PC. And iPad certainly doesn't become unusable when you detach it from the host PC as a thin client does when you detach it from the server.

A laptop with a 17” monitor starts at $1000, for $1000 you can get a desktop machine with twice the RAM

... Talk to the sales figures. They don't lie. Laptops have been replacing desktops for years. Desktops will certainly have their place, but their numbers are dwindling.

Well if MS and HP put out tablets before Apple then they weren’t following, which kills you’re whole initial point that MS is a follower.

By early 2009 most aspects of the iPad were publicly known, touch screen around 10", iOS, App Store, etc. The release date was the biggest question. Microsoft demonstrated the HP tablet almost a year later, most likely to beat Apple to market for a tablet. It never hit the market because they killed the project after the release of the iPad.

You just said it yourself, the numbers are impressive and were expected to be so, that is my ENTIRE point.

Here's your problem: Those numbers are impressive across several manufacturers, none of which have been reaping the same kind of mad profits on phones as Apple has. These are the PROFITS (what matters to a business) for cell phones:

Apple: 4% of market, 51% of profit. And this includes all phones, which skews the advantage towards companies like Nokia and Samsung that sell hundreds of millions of non-smart phones.

We moved away from thin clients for a reason, as I outlined. Anytime something bad happens on a desktop that desktop has issues but the rest can continue productivity, anytime something bad happens to the server or access to the server in a thin client situation ALL the machines suffer all productivity ends. The people urging a move back to them are fighting the same forces as the people wanting us back on trains. Individual machines in the long run are better.

With or without a host PC the iPad will still be dependent on the cloud for something, even if it’s just regular server stuff. Then something bad happens to the server, or the server’s connection, or the internet as a whole and you got problems. Think about the cloud dependent businesses in Egypt last week. That’s why cloud computing, just like thin clients for the last 15 years, will never be a primary system.

Sorry but I don’t believe how you are describing the sales figures. It is quite simply the opposite of everything I see in multiple businesses. Desktop are not going away, period. There is no reason for any business to buy any non-mobile employee a laptop, that would be spending more money to get less, and since the vast majority of employees are non-mobile then the vast majority of employees get desktops.

I can’t even understand the order you’re saying things happened anymore. In one post you say MS is just following, then you say MS came out with it first, then you say what Apple was going to put out was known, then you say it was killed, but there are HP and Windows tablets available on Amazon now. Make up your mind, better yet don’t that whole part of the discussion has become idiotic.

And as for the profit chart, so what. 100% besides the point. I said being a follower isn’t necessarily bad, you’ve admitted that Androids growth from 0 to wherever they are now (depending no whose numbers you believe) was impressive, thus you’ve agreed that the last one to enter the market (the follower) has done well, the point is made, if you can’t admit it that’s not my fault. I am moving on.

We moved away from thin clients for a reason, as I outlined.

Yeah, for the most part, it was a fad. I remember when my dumb terminal got swapped out for a PC. Now in addition to server downtime I had to deal with workstation downtime. Great.

anytime something bad happens to the server or access to the server in a thin client situation ALL the machines suffer all productivity ends.

The catch here is that is very rare, while workstation downtime is very common. Eliminate what is most common, save the most resources.

Then something bad happens to the server, or the server’s connection, or the internet as a whole and you got problems.

Let's see, if I have an iPad, and my PC is not available, do I have problems? I don't think so. A WiFi iPad doesn't become useless when you go out of WiFi range, and a cellular iPad doesn't become useless when you're out of area. Odds are, that desktop you synch to will die before the cloud does.

Sorry but I don’t believe how you are describing the sales figures.

You start here when notebook sales surpassed desktops in 2008, then you search up the year over year growth since then (way too many sources, pick one), noticing the high notebook growth and low desktop growth. People saw this trend coming back in 2006 even, as notebook growth was much higher than desktops. It just took a couple years for the actual notebook sales to surpass desktop sales.

In one post you say MS is just following, then you say MS came out with it first, then you say what Apple was going to put out was known, then you say it was killed,

I think you're having a comprehension problem. Or you just don't know much about industry trends and are refusing to learn. Microsoft didn't even get it to market, HP killed it. This wouldn't be the first time one company rushed a product to head off a known upcoming product from another company.

I said being a follower isn’t necessarily bad

In the context of a business practice being successful, a "very smart business strategy." My chart shows how that worked out for the businesses involved in selling phones. Apple takes half and leaves the others to share the rest, with Android probably counting for less than a tenth of that chart. Google might be relevant in this if they actually sold Android. Their back-end income wouldn't even be visible on this chart.

Ah but when you’re dealing with workstation down time none of your co-workers are, the larger picture of productivity continues. And servers have issues a lot more often than folks want to think. Again remember it’s not just problems directly with the server, problems with the network, or even things that aren’t technically server problems like running out of hard drive space (we’re really good at that one here, of course every build of the money maker eats 2 gigs) and bang everybody is down.

If your iPad can’t get to the document you need because it’s in the cloud and your cloud has died yes it’s a problem.

Oh look right in the article you linked to “Nevertheless, desktops remain considerably cheaper than notebooks, which means they will continue to be favored by businesses with employees who don’t work on the road, Bhavnani said.” Exactly what I’ve been telling you for 3 days.

That’s just one tablet. Meanwhile HP and MS are both involved in tablets on the market right now.

Getting 51% of the profit is not the same as taking half the pie. That would be 51% of the REVENUE. 51% of the profit is as much a function of expenditures are revenue. If you manage to keep your costs way below everybody else you can get much more of the profit in a market than them without actually getting more revenue. It also helps if like Apple you have a long history of charging a bit more for basically the same thing, it’s been a key to their high profits with small margins for a long time. They spend less, they charge more and subsequently even when they have small sales percentages they have more profit per sale. It’s great if you have a customer base that doesn’t expect you to compete on price, but it still doesn’t mean they’re eating half the pie, it just means they’re getting a lot out of the 4 to 27 percent of the pie (depending on who you believe) they are getting.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.