Apple earnings, 2Q12: 5 enterprise takeaways

Apple CEO Tim Cook and CFO Peter Oppenheimer discussed the company's record second-quarter earnings yesterday. Here are five enterprise takeaways.
Written by Andrew Nusca, Contributor

For those of you under a rock or merely without Internet connectivity yesterday evening, Apple announced another record-breaking quarter -- its second-best ever -- and some $11.6 billion in profit, with millions of iPhones and iPads sold.

That's a great story if you're an investor, and if you happen to own a bunch of AAPL stock, well, treat yourself to a swimming pool full of caviar or a ride in a white Jaguar full of prostitutes. (Please don't. It's unbecoming.)

But if you're a tech buyer for your company, you probably have a few questions about where the industry is headed. Chief executive Tim Cook and chief financial officer Peter Oppenheimer offered a few words about how the company is treating the enterprise and what could be in store around the next corner.

Five things you need to know:

1.) The iPad is a vertical play. One line repeated over and over on the call was how broadly appealing the iPad is. The device posted a 151 percent increase in sales, year over year, and that's because it keeps popping up in places entirely new to Apple -- which translates to new customers. The U.S. Air Force Air Mobility Command unit uses them, for example. Cook: "The iPad has taken off not only in consumer in a way but in education, enterprise -- it's sort of everywhere you look now. And the applications are very easy to make very meaningful for everyone. As the ecosystem gets better and better and we continue to double down and make great products, I think the limit here is nowhere in sight."

2.) Education is everything. The most prominent vertical for the iPad is education, and it came up early and often on the call. There are more than two iPads for every Mac in the K-12 segment, Apple said, and San Diego's school district just placed two double-digit orders for them -- even as school districts across the nation face budget shortfalls. It certainly helps that the company reduced the entry price of the device to $399, an important step to win price-sensitive education buyers. Cook: "It's a profound product. The breadth of it is incredible. The appeal of it is universal."

3.) The next enterprise step: dig in. One caller asked how the company was working with enterprise customers in particular, and Cook shed a little light on its strategy with this group. "Initially our focus was working with the Fortune 500 and Global 500 to get the iPad certified for their particular enterprise," he said -- leading to 94 percent of the Fortune 500 and 75 percent of the Global 500 testing or deploying them. "These numbers are off the charts for a product that's only 24 months old," he added. Now the company is focusing on penetration within these accounts, he said. "It's absolutely the most broad-based product I have ever seen in my whole career in terms of adoption rate into the enterprise," Cook said, and Apple is definitely investing more resources and testing and sales people for this group, including working with carrier partners to deliver product-plus-service bundles.

4.) Tablet-PC cannibalization: it exists, but it's not a problem. "Convergence" was a key concern of callers asking questions of the executives, but they said Apple sees the tablet market as a growth, not zero-sum, game. Cook, memorably, compared the convergence of a refrigerator and a toaster: "Anything can be forced to converge, but the problem is that products are about tradeoffs. You begin to make tradeoffs to the point where what you have left at the end of the day doesn't please anyone." Sluggish PC/Mac sales are more indicative of an industry slowdown than cannibalization, he said. For now, people still need both.

5.) China matters. There's no way Apple would have posted record numbers without a huge lift from China, where it opened up sales of the iPhone 4S and the iPad after years of pent-up demand. Even Macs saw strong sales. "We had the mother of all Januarys with getting the vast majority out of the iPhone 4S backlog and China's launch as well," Cook said. "It was an incredible, incredible quarter for us." Addressing the big picture, Cook said, "China has an enormous number of people moving into higher income groups -- 'middle class,' if you will. This is creating a demand for goods, not just Apple's but other companies' goods as well, I think there's a tremendous opportunity for companies that understand China. We're trying to understand it as best we can." The share of international sales in Apple's overall portfolio is growing, and the company is slowly turning the pressure valve. "It is mind-boggling that we could do this well," Cook said.

While the executives did mention the upcoming Mountain Lion operating system and its iOS development program, the spotlight was on the iPad -- both for its potential enterprise applications as well as its role in carrying the company beyond its successes with the iPhone.

Photo illustration by me and based on this, in case you're wondering.

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