Return To Profitability

This week, Apple delivered on the return to profitability promised by co-founder/CEO, Steven Jobs. This was mostly attributed to better-than-expected sales of more than 133,000 of Apple's G3 Power Macintosh computers, 2,496,000 Macintosh computers and 11,011,000 iPods this quarter alone.


This return to profitability expressed itself in the form of revenue of $7.46 billion and a net quarterly profit of $1.07 billion According to the press release, this was one of the most successful product introductions in the company's history, which accounted for about 38% of Apple's revenue. I don't think that it's an exaggeration to suggest that those numbers would make any CEO power up his iPod and dance for joy.

This outcome did not surprise us. According to our leading-indicator, Customer Loyalty Engagement Index, Apple ranks No. 1 in a field fraught with "ties" when it comes to what's becoming more and more computers-as-commodities. Take a look and see how owners rate their computers:

  1. Apple
  2. Dell
  3. Gateway/HP (tie)
  4. Fujitsu/Toshiba (tie)
  5. IBM-Lenovo/Sony VAIO (tie)
  6. NEC/Panasonic/Compaq (tie)



If you try to put aside the nasty comments about PCs and Microsoft Vista (we said to "try"!), Apple continues to lead the industry in differentiation and loyalty in three critical areas: innovation (in computer design, its OS X operating system, and iLife and professional applications), fun and "the brand."

The "fun" part comes into play when you see that consumers don't look at their offerings purely as office or communication or even entertainment tools, but more as adult toys. Since Apple spearheaded the digital media revolution with its iPod portable music and video players and its iTunes online store (not to mention the iPhone), the view that consumers have and what they expect from these instruments are more akin to (for lack of a better word) playthings - albeit very useful playthings. Playthings that consumers want. I mean, really want. And this desire is reflected in Apple's share of total personal computers, which is up to nearly 20%, and iPod sales up, which are up nearly 13% over a year ago.

And finally there's "the brand." When you stop and think about it, not only is Apple the only provider whose brand actually stands for something in the minds of consumers, but it's become an international brand, at that. It absolutely resonates with value and, at last count, Apple wills have 216 stores worldwide by end of the quarter.

It's extending its international presence, with stores in Switzerland and Germany on the way. The Beijing store is already in the black.

Yes, yes, everybody knows the Dell and Gateway brands (and a raft of others), but nobody actually knows them for anything in particular. In fact, when you mention their names, consumers tend to wince or cringe or just stare at you searching for an adjective. And there's no debating that most other brands generate a lot of complaints -- many more certainly than Apple. Let's see. . . Genius Bar versus Phone Support. What does your brand radar say?

On the innovation-fun-brand front, Jobs announces that Apple is "busy finishing several more wonderful new products to launch in the coming months." The techno-toy segment of early adopters can't wait! Apple introduces new products that initially cost more but that's because they exceed customer expectations and deliver a new level of value to the customer. They change/morph/re-define the category. Then Apple drives costs down and stays out of reach of competitors. And that's the secret: meet and exceed expectations and resonate with value and you keep the customer loyal to the brand.

There's an old saying that goes, "the only difference between men and boys is the cost of their toys." But with 133,000 computers sold so far this year, and 160 million iPod units sold worldwide, apparently that's true for girls and women, too.

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