Apple made its annual regulatory filing with the Securities and Exchange Commission Wednesday. It said gross margins will fall again in 2011, just as they did in 2010, “due to a higher mix of new and innovative products,” and predictions of higher prices for components and other production-related costs.

It said much the same thing last year; 2010 brought the introduction of the iPad, possibly Apple’s biggest gamble of the past decade when viewed from the vantage point of Dec. 2009. No wonder they expected gross margins to fall.

This time around, what might account for the same worry? The iPad is a winner, as will be its successor, and one would assume that the next iteration will be evolutionary, not revolutionary, so margins should go down. Same with the iPhone and its next iteration, though Apple might shake things up in that arena to get rid of the stigma of the antenna problems that plagued its latest smartphone release.

The redesigned MacBook Air, which will affect Apple’s 2011 financial year, could account for some of those narrower margins, but I think Apple has even more up its sleeve if it sees the gross margin percentage dropping below levels of a year when it launched a brand new product category. Maybe we’ll see changes as dramatic as the MacBook Air’s new internals come to the rest of the notebook line, or another new device category to extend the reach of iOS further still.

One other noteworthy element of the filing is Apple’s prediction regarding capital expenditure. The company plans to spend $4 billion in 2011, with $600 million of that earmarked for new brick-and-mortar retail. Plans for new stores include between 40 and 50 new locations, more than half of which will be located outside the U.S.

While 2010 is a tough act to follow, the next year should be another big one for Apple, especially as the Android-iOS battle heats up. What do you see it planning for 2011?

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Easy Books (Free)

Easy Books was anything but! For a business using strict accounting methods, I’m sure the application has merit, but for balancing your checkbook and tracking credit cards, it doesn’t cut it. The app gives you a variety of templates to choose from, but it was extremely confusing for tracking money coming into and out of accounts.

Annoyingly, all data must be entered by hand since there’s no direct bank download option. The in-app purchase option does give business owners the option to create invoices ($16.99) and track hours worked ($12.99) on the iPad, but without a desktop companion application, all your work has to be done on-device.

MoneyDance(Free)

MoneyDance acts as a satellite application to its desktop version ($49.99). Transactions can be edited and classified on the iPad, but account setup and transaction downloads must be done on your computer. Synchronization with the desktop was clunky, requiring you to type a very long string of alphanumerics to establish pairing, a process which wasn’t always successful.

As a cross-platform Java-based app, MoneyDance was slow and clunky and not very Mac-like. If all you want to do is modify transactions while away from your desktop, MoneyDance for the iPad will suffice, but otherwise, this app is probably one to avoid.

PocketMoney ($4.99)

PocketMoney has the potential to be a great financial management app. The program can stand on its own, and allows you to add accounts and transactions. Budgeting is included, as are options for in-app upgrades for charting ($2.99) and photo receipt tracking ($.99).

It also synchronizes with a full cross-platform desktop client. And though this release doesn’t yet allow for direct downloads from banks, the feature is slated for a future release. If you just want to track your checkbook and credit cards and don’t mind typing in transactions directly, PocketMoney is an excellent choice for the average user.

SplashMoney($4.99)

SplashMoney is by far the most powerful iPad financial app out there, and it’s extremely easy to use: a rare combination when dealing with money. SplashMoney can run fully independent of the desktop. Setup of accounts, budgets and reports can all be done on the iPad.

Unique among its competitors is the ability to download transactions from your bank while away from the desktop. The ability to fully manage credit card downloads while away from a computer is a killer feature. Obviously, printing of reports or registers isn’t currently supported by the iPad OS, but that will likely change in iOS 4.2.

Because SplashMoney fully supports .qif import and export, I can try it without commitment, but I suspect as time marches on, I’ll have a long-term relationship with this app.

PageOnce Premium($6.99)

PageOnce is a direct competitor in terms of both features and benefits to Mint. Unfortunately Mint doesn’t yet have an iPad app.  Like Mint, PageOnce downloads your transactions from your bank and credit cards in order to give you a dashboard view of your spending, and is nearly identical to its web counterpart.

No direct registers are supported and an Internet connection is required for usage. PageOnce take full advantage of the iPad’s real estate to give you a great overview of your financial situation. The application and its website counterpart don’t allow for budgeting or reclassification of transactions. Many users will find this annoying, but fortunately no commitment is involved, so you can test it out for yourselves.

Unlike Mint, PageOnce gives you a dashboard view of your entire digital life and includes your frequent flyer miles, gift cards, social media accounts, etc. If it can be accessed via the web, PageOnce has it. The Premium version includes the ability to password lock the application, and additional travel options.

I can’t recommend the free version because of the inability to secure the data in the app. Lovers of Mint will find this application just as sweet with a few extra benefits.

Overall, Splash Money seems to be the only mature application in the iPad financial management field and is the recommended choice. PageOnce is a great alternative or companion to existing applications out there, but shame on them for not allowing free users to lock and protect their data.

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Investors should be seriously looking at putting more money into Apple stock, says one industry analyst. Robert Cihra of Caris & Company is predicting that Mac market share will grow by 26 percent in 2010, compared to only a 16 percent expansion in the general computing industry.

Cihra predicts in a new research report (PDF download, requires registration) that Apple will have a 4 percent overall market share in the year 2010, which is actually around what it has now, according to numbers released in September. Apple’s pricing and profit model, however, give it a 10 percent share of worldwide revenue. Despite not seeing growth in terms of overall market share, Cihra still thinks Apple is the best stock available in the personal computing market.

The report, as described by AppleInsider, sees Mac unit sales growing because of things like pricing and product line control:

Cihra goes into great detail on his analysis in a note issued to investors Thursday morning. Due to Apple controlling its own product cycles, as well as pricing, he believes Mac units will grow at a rate of 1.6 times faster than the entire PC market. On average, the Mac has outpaced the PC market as a whole by 1.8 times over the last 12 quarters.

In the report, Cihra also explains why Apple remains the best stock choice for investors interested in the computing sector:

As the most (in fact only) innovative, highest-value (hardware+software) and profitable PC vendor, we estimate Apple having earned a Mac [average selling price] of $1,289 in CY09, down 10% [year over year] but still representing a premium of 1.8x vs. its Wintel peers. Even more meaningful, we estimate Apple Macs generating a gross profit-per-unit of nearly $340, which is 2-3x our estimate for its peers, keeping us focused on AAPL as the single best PC market investment.

Apple’s success is due to a number of factors, but one in particular is the way in which it predicted the dominance of the notebook well before it had achieved that position with consumers. The price of Apple’s notebooks fell below those of its desktop offerings in around 2005, a full two years before the same thing happened at HP, one of the largest PC manufacturers. Many consumers these days, if they have only one computer, choose a notebook because while performance has caught up to desktop machines, portability and battery life in laptop computers have made significant gains.

While Cihra doesn’t seem to mention it, if Apple does indeed release a tablet in 2010, and if it can price it reasonably, as recent evidence seems to suggest it will, there’s no telling what kind of gains we could see. If done well, Apple would essentially be creating a new market, which could provoke an uptick in its fortunes the likes of which we haven’t seen since the introduction of the iPod.

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Apple sold 20.7 million iPhones in the fiscal year, $6.75 billion in net sales, which includes accessories and carrier agreement revenue. Comparing that with just $123 million in 2007 shows just how important the iPhone is to Apple. The iPhone now accounts for about 18 percent of Apple’s sales revenue, but that’s using subscription accounting to spread the revenue over 24 months. Using non-GAAP numbers, the Mac and the iPhone now each account for about a third of Apple’s net sales.

As for the Mac, during the fiscal year Apple sold 10,396,000 computers, a new base-ten record, while the iPod continues to sell around 54 million units a year. However, unlike the iPhone, both the Mac and the iPod apparently have been affected by the recession. Of the other product categories, the iTunes Store, or “other music and product related services,” and software continue to show steady growth.

Browsing the rest of the Form 10-K, a few other points of interest for fiscal year 2009 include:

• Net sales were $36.5 billion for the fiscal year, $5.7 billion in net income, bringing Apple’s cash on hand to $34 billion.
• Apple has 34,300 full-time employees.
• R&D has grown from $782 million in 2007 to $1.3 billion in 2009.
• Apple spent half a billion dollars on ads, up slightly from the previous year.
• Regarding the patent lawsuit with Nokia, Apple “intends to defend the case vigorously.”
• An investment of $100 in AAPL in 2004 would be worth $957 today.
• The Americas account for 44 percent of net sales.
• Unit sales of Macs were up 40 percent in Europe.
• The total number of Apple Stores was 273, up from 247 and 197 for the previous two years.

2009 was an amazing year for Apple by pretty much any metric. However, the introduction of the iPhone in China and possible end of carrier exclusivity in the U.S., the addition of a tablet product, and continued growth in Mac sales all suggest 2010 will be even better.

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Stores are given a basic set of goals, including a forecasted number of Macs to sell over the quarter, as well as a number for iPods and iPhones. Attach rate numbers also exist for One to One, ProCare and MobileMe.

In the stores, managers have access to real-time reports that show revenue and attach rates for their stores as well as the rest in the company, allowing for a quick comparative snapshot of how sales are doing.

Important Metrics

Beyond just sales of Macs, iPods and iPhones, managers are also focused on several other important sales indicators. Units Per Transaction (commonly referred to as UPT) is just what it sounds like, an average number of the units sold during each transaction. Typically this number is between one and two, as many customers will just buy one item, like an iPod or USB cable. When you experience a Specialist trying to sell you everything under the sun to go with your new iPhone or Mac, it’s really an effort to increase the store’s UPT.

The other metric that’s closely connected to UPT is the ADS, or Average Dollar Sale. This number represents the average transaction value for the day. Between selling a reasonable number of Macs (high dollar transactions) and a ton of accessories (low dollar transactions), this number typically ranges from $200-$500.

Another figure important to Apple is the conversion rate, or the rate at which people entering the store actually become paying customers. This number is often low, something that’s typically not given much thought. Some retail stores ask their employees to “slither” past sensors that count store traffic, but Apple has no official policy in place, so the volume of employees in and out can often affect this number. The system Apple uses to track visitors, however, called ShopperTrack, is extremely sophisticated, and can distinguish between something like a mom and the stroller she brings in with her, counting both as one person and not two.

Stores are also focused on EasyPay metrics as well as Personal Shopping metrics. As stores transition to less usage of cashwraps, some strive for as high as 60-70 percent of all transactions being completed via EasyPay.

All of these numbers are reviewed on a daily basis by store management in order to determine the proper direction and focus going forward. Many figures are compared to WTD (Week-to-Date) and QTD (Quarter-to-Date) numbers, as well as how the store fared in these areas on the same day in the previous year. Stores can also see how every other store in the company is doing.

Drilling Down Further, Individual Metrics

Individual numbers for Mac, iPod, iPhone and attach rate sales exist for employees as well, allowing them to see how they rank comparatively. Though the Apple Stores do not function on a commission basis, employees are given individual goals towards making the larger store goals for the quarter. These individual reports help provide feedback and focus as the quarter progresses.

Few stores put much emphasis on the accuracy of these numbers, as full-time employees work more towards helping up-and-coming part-time Specialists meet their sales goals. Regardless, it’s the responsibility of the cashier to assign “credit” for a sale to a particular employee. This can obviously become problematic when the stores are insanely busy, and Apple prefers cashiers not ask customers who helped them, as it implies they work on commission. With Apple’s emphasis on EasyPay, whoever is logged into an EasyPay will automatically get “credit” for the sale.

All of these numbers are factored into an employee’s performance reviews, held every quarter, with a more focused annual review at which employees are rated based on individual performance as well as the store’s forecasts and goals.

This should give you a better idea of how store management uses financial figures to gauge success and set targets. As you can see, there’s a lot more to it than just selling a certain number of computers. The result is that, for some, it can become frustrating to focus on sales while managers also push the importance of these other numbers. Apple’s multifaceted approach must be getting something right, as their stores continue to be wildly successful from a financial standpoint.

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Analysts were expecting a slight drop in earnings for the second quarter, based on the performance of other, similarly positioned companies, and the economic climate in general. Instead, Apple had a record quarter yet again, with a net income of $1.2 billion, or $1.33 per share. Total revenue came in at an astounding $8.33 billion, compared to $7.51 billion during the same quarter last year. Last year’s income was only $1.05 billion, or $1.16 per share. The strong numbers gave Apple stocks a big boost in aftermarket trading.

If you break down the revenue numbers, you start to see the effect of the recession on sales. Specifically, Mac sales fell 3 percent over the same period last year, while iPod sales went up 3 percent and iPhone sales rose 123 percent. In other words, big ticket items are not as appealing to buyers, while cheaper consumer electronics are still performing well. It might indicate that a netbook would market well to cash-strapped consumers.

But Tim Cook is having none of it. The CFO took the call yesterday as an opportunity to reiterate and expand upon Jobs’ stance regarding netbook devices:

When I’m looking at what’s sold in the Netbook market, I see cramped keyboards, junky hardware, very small screens, bad software. Not a consumer experience that we would put the Mac brand on. As it exists today, we’re not interested in it nor would it be something customers would be interested in the long term. We are looking at the space. For those who want a small computer that does browsing/email, they might want an iPhone or iPod touch. If we find a way to deliver an innovative product that really makes a contribution, we’ll do that.

Cook taking the hard line and shooting down the netbook concept is only to be expected when the still-absent Jobs is already on the books as having done so, regardless of whether or not rumors since about such a device have spread like wildfire. Cook also briefly discussed the Pre, though his comments didn’t really say anything beyond those already made at past calls regarding the device. You can check out a recording of the conference call at Apple’s website, if you want to listen to the whole thing yourself.

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Last time around, Apple had yet another record-breaking quarter ($10.1 billion revenue, $1.78 in earnings per share), exceeding the estimates of Wall Street and observers, and beating their performance in the same period the previous year by a fair margin. They downplayed their expectations for the second quarter on that call, which is something they always tend to do, but Wall Street expects them to perform well, with $1.13 in earnings per share and $8.2 billion in revenue.

We should see at this conference call what effect Apple’s recent desktop update has had on sales figures, and also get a better idea of the toll the recession is taking on the company, which has appeared to be rather resistant to its effects. You can bet that investors will also be watching closely because of Steve Jobs’ continued absence, which is beginning to look like less and less a factor in the company’s success, since the stock (AAPL) is performing well. Some analysts are even going so far as to claim that Apple is better off without him at the helm. Be sure to check back for a follow-up on April 22 from us here at TheAppleBlog for all the details.

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We Love the $199 Price Point

On the subject of iPhone pricing, Tim Cook, Apple COO standing in as CEO while Jobs is recuperating, made clear that their $399 and $199 price points were working well for the company. Quite specifically, he emphasized the company’s love for the $199 price point, which is clearly leading to high sales numbers. Interestingly, he didn’t talk about storage size, just pricing.

We could see a pricing move based on strong sales and a shrinking consumer smartphone market that may result in a $199 price point for the 16GB iPhone to stimulate sales. Whether this also leads to a lower cost 8GB phone or a 32GB model, I can’t guess, but we will mostly likely see a pricing change when sales start to dip.

We Have Some Ideas, But Right Now We Think Those Products Are Inferior

The netbook saga/flirtation/denial continues. They’re spot on about the hardware deficiencies when they point out that the keyboards on these devices are still too small, and about the software not being well-tailored to the platform as of yet. Which shows that they’re thinking much more deeply about those issues than the offhand remarks would seem to suggest.

Make no mistake, Apple is developing a device for this space. And they’ve targeted the specific issues their competitors have so far failed to address, which means they probably intend to come to the market late but with a superior product. This could be the reason they sought to separate “OS X” from the “Mac” moniker, if they’re preparing a version of the OS specifically designed to run on netbook hardware.

We Feel Extremely Good About Our Product Pipeline

This comment was made in reference to their projections about iPhone seasonality. They also made a followup comment noting that Apple has fear in terms of the danger of the economy affecting smartphone adoption, considering the higher monthly rates that come with them.

References to the product pipeline in this context are extremely tantalizing. What does Apple have in its pocket to offset the threat of smartphone contract prices? Two possibilities come to mind. Either they think that upcoming iPhone iterations will be impressive enough to attract consumers anyway, or they’re planning on moving away from the smartphone market to take advantage of lower contract costs. In either case, references to product pipelines should not be taken lightly.

That’s my take on some of the more salient points of the Q1 conference call, the content of which I reviewed thanks to CNNMoney’s transcript of their live blog of the event. You may think some of my predictions are reaching or far-fetched, but they all come from an analysis of the context within which the statements were made. Whether you agree with me or not, share you own interpretations below.

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It seems everyone is lowering their sights regarding Apple’s projected earning for next financial year. But some, at least, are predicting more “wow” factor to shore up those numbers.

No one seems to think they can sustain the kind of numbers they showed this past year, especially regarding iPhone sales, since analysts see the device’s massive success to date as leaving less room for new customer growth in the future. Many customers will probably stick it out for the duration of their contracts before considering a hardware upgrade.

Barclays Capital analyst Ben Reitzes is the latest to cut projections for the Cupertino-based tech company. Reitzes lowered his EPS (earnings per share) estimate for FY 2009 to $4.95, lower than his initial projection of $5. FY 2008 numbers had the EPS at $5.36.

Reduced earning predictions are based on a tough consumer market and lower growth opportunity, although Reitzes offers intriguing predictions regarding hardware introductions that could help the company pick up some customers in new demographics and niche markets.

He believes the gap between the $399 iPhone and $999 MacBook is just clamoring for a bridge product, and Barclays is putting their money on a touch-capable ultra-portable form factor. This will not, however, be a netbook. Steve Jobs has said that Apple doesn’t know how to make something of quality at that price point, and they won’t. They’ll go more up-market, producing a premium device in the $600 range, instead of joining in the race for the bottom.

According to Reitzes, the device would be perfectly positioned for partnerships with wireless carriers, a possibility we reported earlier. He also mentions more MobileMe integration, and it’s true that a cloud computing device with multiple-band connectivity would be a match made in heaven for wireless broadband providers.

The Barclays report also introduces the interesting possibility of a cheaper, entry-level iPhone to appeal to non-smartphone cellular customers. Though they don’t specify, it’s possible this could be a media-phone instead of a smartphone, emphasizing music and movie playback and forgoing the bells and whistles of the App Store for those who wouldn’t make much use of it anyway. This last prediction, while possible, doesn’t seem like it will be a priority for Apple, considering today’s news that the iPhone has unseated the RAZR as the most popular U.S. mobile handset.

Personally, the possibility of an ultra-portable is far more tantalising than a netbook. If I buy an Apple computer, I want it to be a proper computer, not just a mobile web browser and chat client. Do you think an Apple UMPC is more likely than an Apple netbook? Which do you think is more useful/appealing?

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Apple front-ended their notebook event today with a look at the business side of things.  Their reported sales figures were impressive, having moved 2.5M Macs last quarter alone, and continuing their trend of growing at two to three times the rate of competitors in the same sector.

COO Tim Cook listed a number of reasons why Apple continues to put up impressive numbers:

1. Hardware quality (all Mac computers, basically)
2. Software quality (Leopard, iLife, iWork, etc.)
3. Compatibility (Boot Camp, virtualization software makes it easy to switch and/or integrate with existing infrastructure)
4. Vista (Microsoft’s poorly received OS scaring people to OS X)
5. Mac vs. PC ads (heightened brand recognition)
6. Brick-and-mortar retail growth (new Sydney, China stores; 400,00 visitors a day across all locations)

Cook then went on to talk about growth, where Apple has done better than their market for four years running, raising their market share from less than 10% to 17.5% in the U.S.  While that represents a significant gain, Apple’s most impressive figures are in the educational market segment, where they saw an improvement from 15% to 47% market share at one major university, and enjoy a 39% share overall, surpassing PC provider Dell.

Overall, Apple has already matched their sales figures for all of FY2007, moving 7.1M Macs between Q1 and Q3 2008.  The holiday season and today’s introduction of new models could see Q3′s numbers exceeded, despite the mostly depressed consumer electronics market, and will likely see Apple nearing or even passing the 10M mark by end of year.

Following today’s announcment, the price of Apple’s (AAPL) shares initially dropped, due likely to the absence of the $800 laptop predicted by some analysts.  Share price has gradually recovered since, and has stabilized at 104.08 at the time of this writing, down 5.60% from opening.

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I was one of the many loyal enthusiasts that pre-ordered Leopard and couldn’t wait to install it on all my Macs. Unfortunately for me, it didn’t work out that way.

If you haven’t heard of the installation problems with Leopard yet, there are a few. It seems the very popular third-party application Application Enhancer does not work well (at all) with Mac OS X Leopard.

I did a quick inventory of my software, and sure enough I had APE installed (along with several APE plugins). After attempting to uninstall APE, I was almost ready to try my Leopard upgrade and noticed a blog post about Logitech Control Center mouse software issues.

Of course I have two Logitech mice, and have the Logitech Control Center installed. It appears Logitech Control Center uses APE in the background. Logitech has instructions on removing the old software and installing a new version. Unfortunately, their instructions are flawed as they reference downloading and opening a DMG file and running an uninstaller, and upon downloading the zip archive from their software download page I only found an installer application.

Their online help mentions a manual uninstall, but does not give the instructions. After several unsuccessful attempts to find the instructions via Google, I decided to take matters into my own hands. I have removed most preference panes and locations that APE or Logitech appear in my hard drive (through the shell) but am still not convinced it is completely removed. When I try to run the updated Logitech software installation, it promptly gives me an error and quits.

So, I’m left to do an Archive and Install which will likely leave me having to reinstall several applications and clean off enough hard drive space to have two concurrent System folders (at least until the installation has completed). With only 10 GB free on my 100 GB hard drive, that will be hard.

I hope to have my backup complete tonight and will remove most of the files (like my massive iTunes collection) in order to perform the upgrade.

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