“Analysts spent much of Tuesday predicting that the company would miss its targets – forgetting, apparently, that most iPhone sales take place overseas”.

In fact, in this most recent quarter, the Americas made up just 34% of AAPL’s total revenue – representing only $13.2b of its total revenue of $39.1b. Over the past six quarters, the Asia Pacific has doubled its share of Apple’s revenue from 13% to 26%, significantly reducing the company’s reliance on its US base.

A total of 84% of US companies planning to buy tablets next quarter now say they’ll purchase iPads – a 7-pt leap since the previous survey.

 

Localytics used the top 20 countries for mobile devices between December 1 and 20 to establish a baseline. The average daily activation rate for this period was compared to the average for December 25 and 26, to allow for devices given on Christmas to be activated the next day.

 

In episode 3 of their excellent Critical Path podcast, Horace Dediu and Dan Benjamin raise the prospect of Apple using its $66 billion cash horde to ramp production throughput.

Many cash-rich companies encountering a supply problem might be tempted to take the obvious path of acquiring a manufacturer; a number of industry commentators have suggested over recent months that Apple should simply buy Foxconn or Pegatron. Apple, however, has already employed a more lateral approach – one that avoids the pitfalls many companies might fall into. As Horace pointed out in his show, Apple is using its cash to offer supplier finance to selected device manufacturers, in return for favorable terms. I believe Apple has thoughtfully chosen this strategy over overtly buying into a manufacturer.

Here are my Top Five reasons why Apple might not want to buy its factories:

5) Loss of clout: Apple’s buying power commands a lot of attention from the huge number of suppliers of the components in its products. Choosing favorites by buying some suppliers risks losing the attention of the others – potentially handing their preference to Apple’s competitors. Retaining a broad range of partnerships gives Apple leverage and builds resilience into their supply chain.

4) Innovation occurs in the supply chain: Apple does well by cherry-picking components from a broad range of component suppliers. They need the ability to switch out components and suppliers at will.

3) Commoditisation: Apple tends to introduce new technologies earlier than the broader market, so they end up funding development of manufacturing techniques. However, as production improvements and volume commoditises new components, Apple needs competition between manufacturers to drive prices down.

2) Competition: Apple is able to leverage the risk that it may take it’s business elsewhere as a tool for keeping prices low. They do this with Foxconn and Pegatron; Samsung and Taiwan Semiconductor; Qualcomm and Infineon; etc.

The number one reason that I don’t think Apple would buy a manufacturer is…

1) Labour arbitrage: Apple is just too successful to own a factory in China, Taiwan or Brazil. If Apple bought Foxconn, for example, they would be besieged by demands for pay increases from the workforce. The only reason this doesn’t happen now is that the labour movement in China knows Apple can take it’s business elsewhere if they push too hard. There is a reason Apple is helping Foxconn open factories in Brazil.

It seems to me Apple’s options for managing supply constraints are more limited than they might seem at face value, but Apple is once again very cleverly treading a treacherous path by making strategic (and secret) investments in their partner’s capabilities, in return for favorable terms.

• Android 33% (up 7%)
• BlackBerry 29% (down 5%)
• iPhone 25% (flat)

Blodget goes on to say:

The Android gains matter because technology platform markets tend to standardize around a single dominant platform. And the more dominant the platform becomes, the more valuable it becomes and the harder it becomes to dislodge. The network effect kicks in, and developers building products designed to work with the platform devote more and more of their energy to the platform. The reward for building and working with other platforms, meanwhile, drops, and gradually developers stop developing for them.

But is market share a reliable metric of network effect? Google doesn’t charge handset manufacturers or carriers for using Android, so it should sell more strongly than Apple’s more expensive iPhone. It takes a conscious decision to pay extra for an iPhone, whereas carriers are giving Android handsets to many customers by default.  These customers may have little or no loyalty to the Android brand. In fact, many of them do not even know their phone is running Android.

As an alternative to market share as a metric of network effect, it may be more objective to consider mind share. Network effect is at least partly a social phenomenon. While ever a platform consciously commands people’s hearts and minds, it is presumably more likely to become dominant over competing platforms.

The Google Insights for Search chart below offers a comparison of worldwide search patterns for the terms ‘iPhone’, ‘iPad’, ‘Android’, ‘BlackBerry’ and ‘Windows Mobile’ over the 65 months since the iPhone was first rumoured. While searches for the term ‘Android’ are keeping pace with the term ‘iPad’, they have a long way to go before they catch searches for ‘iPhone’.

The chart may suggest that Apple remains well ahead in the race toward mind share, and therefore platform domination.