Business Insider Research Morning Call 19/10/2011

About That Apple Quarter…
The big story yesterday was Apple’s earnings, which were a miss, largely because of weaker than expected iPhone sales. 

We believe this is just a bump in the road: 

Apple traditionally announces a phone in June, and this year they waited until September, either because the product wasn’t ready, or because they wanted to “reset” expectations for new product launches around the biggest quarter, which is the holiday quarter. In any case, Apple missed a product cycle, and so sales were lower than expected. It sucks. But it’s not a chronic problem.

In the super-competitive smartphone market, even Apple can’t wait more than a year without a new product and not suffer.  

A few more notes:

  • Expectations for Apple are now very, very high. This is a problem for Apple, because any time it comes in below outlandish expectations people are going to be severely disappointed. Call it the winner’s curse: after so many years beating expectations, now they’re at a very high bar. There are certainly worse problems to have, but it’s a problem nonetheless. This is true for products, too: the iPhone 4S is new in everything but appearance and comes with amazing new features like the virtual assistant Siri, and yet it disappointed everyone because it didn’t have a “5” in its name and a different case design. Somehow, Apple will have to do a better job managing expectations, both around products and earnings, better.
  • The fact that weak iPhone sales could dent Apple’s earnings so much is a testament to just how big the iPhone is. Remember, this is a product that didn’t exist 5 years ago. By itself, the fact that a product category that didn’t exist can now be almost half of a $50 billion company’s business is astounding. Apple’s opportunity in this market is absolutely huge, and the opportunity remains unchanged.
  • Apple’s other big, future growth business, the iPad, is still a blockbuster. iPad growth was steady this quarter, and it is a business that is growing extremely fast. Everyone focused on the iPhone miss, but continued iPad growth is just as big a story, and right now Apple thoroughly owns the tablet market. (This may change with Amazon’s Kindle Fire, but right now Apple is absolutely dominant.)
  • The next quarter looks like it’s going to be a blockbuster. Apple also raised guidance for the December quarter. Apple will probably sell iPhones as fast as it can make them, with both the new iPhone 4S (whose target market is not iPhone 4 owners but iPhone 3G, BlackBerry and featurephone owners) and the disruptively-priced free-with-a-contract iPhone 3GS. The iPad and Mac businesses are as healthy as ever.

That said, there is some concern:

  • iPhone keeps losing marketshare vis-à-vis Android, and
  • Retail same store sales were down 9%, largely due to the weaker than expected iPhone sales.

In other news…

Yahoo’s revenue shrank 5% y/y. The company also beat the Street on profits. No word on what actually mattered, however: Yahoo’s future and its board.

Six million Android tablets running Google services have been sold to consumers, Google’s Andy Rubin says. This is very small compared to the iPad, but bigger than most people thought it would be. 

Samsung unveiled the Galaxy Nexus smartphone, which is the first to run the latest version of Android, called “Ice Cream Sandwich.” The Android ecosystem is roaring ahead, at least in smartphones.

RIM has announced BBX, a new mobile operating system for tablets and phones. It combines its Blackberry software with the QNX tablet platform that has previously met with tepid response. At first glance, it doesn’t look like something extraordinary enough to pull RIM out of its death spiral.

Groupon reportedly begins its IPO roadshow next weekGroupon has been much-vilified in the press, but we think it’s a real business. Don’t miss our analysis of Groupon →

Dropbox has received $250 million in its latest round of fundraising. That’s a huge amount– and a big vote of confidence from some top investors– considering the company raised only $7.2 million before this. The company’s valuation is now $4 billion.

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