Apple's big chance begins at home

It is a pleasure to report that Apple has just turned in its best quarter for nearly a decade. Our delight is only enhanced by the way it makes healthy money by offering superior products in competitive markets -- although its competitors may be forgiven for thinking otherwise. The iPod, Apple's star performer, commands fully 92 percent of the hard disk MP3 player market: this is sector dominance that puts even Microsoft to shame.

The curious thing about the iPod is how little of it came from Apple. The company decided on the case, interface and software but largely farmed out the electronics to companies from Santa Clara to Edinburgh. Most of the components are standard, most of the functionality off the shelf. The rest is Apple magic: if the company is to continue its stellar performance when the iPod finally runs out of steam, it must be sure-footed in sprinkling that magic elsewhere.

Apple's strengths are software, industrial design and marketing, and it knows this. It has shown little inclination to seriously chase the business market, where such things are way down the list of desiderata. No doubt OS X on Intel could land a punch on Microsoft but it could also be a fatal self-injury for a company that gets its money from high margin proprietary hardware products which people buy for the software they run.

Apple's best fit is the aspirational home -- not for nothing do all those makeover TV programmes swap out the punter's grungy PC for a shiny iMac -- and its closest kin, and therefore most dangerous enemy, is Sony. Although Sony invented portable music it's gone from being a market leader to an unimportant player, largely by trying to lock in its users in to ungainly software and proprietary standards. Apple has been fortunate here: the iPod should have been a Sony product, but Apple got there first, and it has given the Cupertino firm extremely valuable momentum.

The converged home has to be Apple's next move, and soon. It risks being late to the dinner party -- with Windows Media Center 3.0, Microsoft is already halfway through the six iterations it normally takes to get something right. We suggest a set of smart wirelessly linked digital components, including a DVR file server, flat-screen TV-cum-Mac, digital radio and -- why not ? -- a cordless iPod. These would make a stunning proposition, and cement Apple's arrival as the major consumer innovator of the 21st century.