iPhone: The 11 best selling U.S. smartphone SKUs in Q4 2011?

WARNING: Fun with statistics ahead!

I've been wanting to make this post for a bit, but was missing a piece of the puzzle until NPD put out its public facing Press Release this morning. The report isn't incredibly descriptive, but it finally gave me the last bit of information I needed.

Many people are aware that, according to NPD's numbers, the iPhone 4S, 4, and 3GS were the top three selling smartphones in America in Q4 2011. If that were the only significant thing to say about the report, I would have simply linked to the NPD report and been done with it. Instead, though, I've noticed that a bit of fun with statistics can reveal some interesting numbers.

First, it's important to note that I do not, and will never, think that market share is in itself a valid assessment of whether or not a product is superior to another. My focus here is not in any way to declare Apple the "winner" of the quarter. So before I go on to make an entire post about how well Apple did, let me point out a two positive things about its competitors:

1. While Apple sold the majority of smartphones in Q4, Samsung sold the plurality in Q3--that means in Q3 Samsung, not Apple, was the best selling smartphone vendor.
2. In Q4, according to NPD, Android still outsold iPhones by 5 percentage points in the total smartphone market and by 23 percentage points in the first-time smartphone buyers.

We could discuss the significance or lack of significance around these points for ages, but that's not my point here. I'm not talking about overall market numbers for platforms or operating systems. My interest for the sake of this particular post is only to discuss sales of particular mobile phone handsets.

On that subject, NPD says:

Led by continued steady sales for Apple’s iPhones, the top five best-selling mobile phone handsets in Q4 were as follows:

1. Apple iPhone 4S
2. Apple iPhone 4
3. Apple iPhone 3GS
4. Samsung GALAXY S II
5. Samsung GALAXY S 4G

So, from the outset we've established the iPhone was counted as the top 3 selling mobile phones in Q4. That seems pretty straightforward, but it's rather deceptive. It might already seem to speak volumes that all 3 iPhone models on the market outsold every other individual smart phone, but upon further inspection the disparity in single-model numbers is even further in Apple's direction. Before we go further, let us dissect iPhone sales a bit further.

From NPD's report:

"Attracted by a faster processor, improved camera and the Siri speech-driven agent, most iPhone buyers paid a premium for the iPhone 4S, making it the top-selling handset in Q4," said Ross Rubin, executive director, Connected Intelligence for The NPD Group. “The iPhone 4S outsold the iPhone 4 by 75 percent, and outsold the iPhone 3GS, available for free on AT&T, five to one.”

That last sentence is going to gives us the basis of some basic algebra. The awkward switching of phrasing to indicate sales comparisons will cause some issues, so let's simplify:

"iPhone 4S outsold the iPhone 4 by 75 percent" indicates:

iPhone4S = 1.75 * iPhone4

~57.1% iPhone4S = iPhone4

In the meantime, "and outsold the iPhone 3GS, available for free on AT&T, five to one" translates to:

iPhone4S = 5 * iPhone3GS

20% iPhone4S = iPhone3GS

So, in Q4 2011 in the United States:

iPhone4 = 57% iPhone 4S

iPhone3GS = 20% iPhone 4S

iPhone4 + iPhone3GS = 77% iPhone 4S

After a bit of algebra, we get the total breakdown of iPhones sold in the U.S. in the quarter (according to NPD) at about, roughly:

iPhone 3GS: 11.3%

iPhone 4: 32.2%

iPhone 4S: 56.5%

While the percentage of total iPhones is nice to know, the previous set of numbers comparing iPhone 3GS and 4 sales to 4S sales are more useful going forward.

What we've established now is the number 3 selling smartphone in the country (the iPhone 3GS) sold about 20% of the best selling smartphone (the iPhone 4S).

Here is where things get interesting.

According to AllThingsD's reporting of a consumer survey by Consumer Intelligence Research Partners:

iPhone 4S unit sales follow a predictable pattern, with the lowest-priced model being most popular:

• 16 GB: 45 percent of sales
• 32 GB: 34 percent of sales
• 64 GB: 21 percent of sales

It's important to note that CIRP announces 89% of iPhone sales as 4S sales (with iPhone 4 and 3GS at 7% and 4% respectively), but is specifically starting from the 4S's launch date half a month into the quarter. For two weeks all iPhones sold were iPhone 3GS and 4 units. Even then, I'm doubtful those two weeks bring the total 4S number down from 89% to 56.5%--but, according to Chris Rawson at TUAW CIRP's total numbers skew total iPhone revenue about 6% higher than Apple's--meaning they're a bit heavier on 4S sales than reality. High, but close enough to approximate individual capacity proportions.

Here's where my numbers are going to start getting a bit rough. Because I don't have exact numbers, and because my NPD-based numbers differ from CIRP's, I'm going to be approximating even more than I have been, but I'll be careful to justify any time I do.

Using my per-model numbers according to NPD with CIRP's 4S capacity breakdown, I get an average selling price of just $628.78, lower than the official one ($659) by a substantial margin. That means that, if NPD's per-device model numbers hold, the more expensive 32GB and 64GB models actually sold as an even higher proportion of 4S units than CIRP's numbers. In reality it's likely the real numbers lie between the two.

So with all this discussion surrounding the breakdown of sales per-capacity of 4S units, what happens if we no longer count the iPhone 4S as one phone, but three? Where do the individual units, especially the lesser selling 32GB and 64GB varieties, fall on the scale of phones sold in America? (This is fair because the iPhone 4 and 3GS are now only sold at 8GB capacity. There's no further breakdown of the two.)

Let's, just to make things especially difficult, continue to use CIRP's relatively pessimistic mix of total 4S units sold per-capacity (16GB @ 45%, 32GB @ 24%, 64GB @ 21%) with NPD's pessimistic mix of devices sold (iPhone 3GS @ 20% total iPhone 4S units, iPhone 4 @ 57% of total iPhone 4 units).

That puts us at:

(Be careful to notice the percentages offered are how each model compares to the total number of 4S units sold--NOT total iPhones. These numbers are used purely because they're a method by which to rank each individual split against the others--they obviously should not add up to 100%.)

1. iPhone 4 - 57% total 4S sales
2. iPhone 4S 16GB - 45% total 4S sales
3. iPhone 4S 32GB - 24% total 4S sales
4. iPhone 4S 64GB - 21% total 4S sales
5. iPhone 3GS - 20% total 4S sales
6. Samsung GALAXY S II
7. Samsung GALAXY S 4G

Well. That list looks remarkably different now, doesn't it? Keep in mind this is definitely skewed towards lower price products selling in higher proportion than actuality--giving the aforementioned ASP of $628 rather than the accurate $659. Even then, every single different capacity of iPhone sold better than any other individual smartphone sold by anyone in this country for the quarter.

You might think now that that I've established that the iPhone could be considered to be the best selling 5 phones, rather than the top 3, that I'd have finished having fun with these numbers. If you did thing that, you'd be wrong. All I've finished so far is finding what can be solidly shown to be true in a "worst case" scenario when considering Apple's sales mix. What if we now move on from what is certainly true and begin to look at what is probably true?

What if we split the iPhone 4 into CDMA (Verizon & Sprint) and GSM (AT&T) models? This is a valid split because the 4S unified models with a common cellular chip which handles both CDMA and GSM--meaning the models themselves are the same. Now, instead of 5 models we have 6. According to Ars Technica:

Tccording to fourth quarter 2011 results, AT&T activated 4.1 million iPhones, while Verizon activated 4.2 million. Sprint would not disclose the number of iPhones it activated last quarter, but we feel safe in assuming that number is less than 4 million. Assuming Sprint was able to activate (perhaps a generous) 2 million or so iPhones, only a little over a quarter of iPhones were sold in the US.

with this correspndoning update:

(Editor's note/update 1/26/2012: The numbers used in the previous paragraph for AT&T's activations is incorrect, as they are from 2010. The fourth quarter 2011 numbers from AT&T show 7.6 million iPhone activations. Those numbers were released after this report was published, but they are relevant to the calculations in this article. With the new numbers, that means roughly 37 percent of iPhones sold last quarter were inside the US.)

So, assuming equivalent mixes of 4 to 4S sales across carriers, we're looking at AT&T being somewhat more than 50% of iPhone 4 sales in the US. Assuming an AT&T/Verizon/Sprint ratio of 7.6/4.2/2, we get a iPhone 4 GSM/CDMA mix of 7.6/6.2 or 55%/45%. That means GSM iPhone 4 hits about 31.35% of total iPhone 4S numbers and CDMA iPhone 4 hits about 25.65% total iPhone 4S numbers, changing our list to this:

1. iPhone 4S 16GB - 45% total 4S sales
2. iPhone 4 GSM - 31.35% total 4S sales
3. iPhone 4 CDMA- 25.65% total 4S sales
4. iPhone 4S 32GB - 24% total 4S sales
5. iPhone 4S 64GB - 21% total 4S sales
6. iPhone 3GS - 20% total 4S sales
7. Samsung GALAXY S II
8. Samsung GALAXY S 4G

So now we can see a way to easily see the iPhone as, most likely, the top 6 selling smartphone models.

But wait! There's more!

What if we ignore the previous breakdown, going back to 5 iPhones, but now split them by color? We then get 9 iPhone models (all the previous 5 except the 3GS are available in black and white--the 3GS is only available in black).

This is when we start running into trouble. You see, up until now I haven't even glanced at what the Samsung GALAXY S II's sales are because, well, they haven't mattered. The splits we've done have kept things above the 3GS, which we already know to be above the GALAXY S II. By definition then, these new split models have still been above the Galaxy S II. This is the first time we're looking at splits that would take us blow the 3GS's sales proportions (Remember! According to pessimistic numbers giving the 3GS a likely inflated number!) After all, at this point if we split 4S 32GB and 4S 64GB sales in to perfect halves per color to keep the lower numbers as high as possible, that still gives us new SKUs with numbers at 12% and 10.5% of total 4S sales--far beneath the 3GS's 20%.

Unfortunately, I don't have Samsung Galaxy S II sales numbers. Does that mean I'm finished with my thought exercise? No it doesn't. Here's where I blow your mind.

Up until now I've been trying to see how far I can stretch Apple's numbers by unfairly splittings its SKUs while not touching anyone else's. In doing so I've been comparing "sub-models" from Apple to full models from competitors. Obviously, this was to make a point. In effect, though, I've been giving Samsung an unfair advantage.

That entry on NPD's list at number 4 says "Samsung Galaxy S II". Let's hop over to Wikipedia for a second. What's this? An entire section called "U.S. Variants"? That's right. That number 4 item actually accounts for all phones flying under the Samsung Galaxy S II flag. These are:

• Sprint's Samsung Galaxy S II Epic 4G Touch - 4.52 inch touchscreen, capacitive buttons, no NFC
• T-Mobile's Samsung Galaxy SII - Significantly different processor, different cellular radio, same screen, same buttons, NFC
• AT&T's Samsung Galaxy SII - Same CPU as Sprint's, 4.3-inch touchscreen, thinner, NFC
• AT&T's Galaxy S II: Skyrocket - 4.52 inch screen, LTE, faster processor
• AT&T's Samsung Captivate Glide - Lower quality 4 inch screen, pop-out qwerty keyboard, slower processor

Those are a lot of differences. In fact, all 5 of those phones is more different from each of the others than the iPhone 4 is from the iPhone 4S. Those changes I made concerning capacity and color? Nothing in comparison to the differences here.

Would anyone care to bet that splitting all the above proposed sales units I made before being divided into two colors each would be above the Galaxy S II after it's split out into 5?

Exactly. It's certainly possible that a single one of those Galaxy S II variants will remain above the black or white version of a single one of the iPhone models split by color--but frankly it's unlikely.

So splitting the iPhone into 9 units makes it, most likely, the best selling 9 smart phones in America. Remember when I split the iPhone 4 into CDMA/GSM models above? If you'll notice, both iPhone 4  models were still listed ABOVE the lower-selling 32GB and 64GB 4S models. That means adding that back into the mix AND dividing it by color would still position the iPhone 4 network-split and color-split models above some of the individual 4S versions. That means that if the lowest selling 4S color/capacity variant still manages to sell above the best selling individual Samsung Galaxy S II variant (which is not guaranteed, but certainly possible given the above logic)--the iPhone was actually the top 11 selling smartphone variants in the United States in Q4.

Want to have your mind blown further?

I've kept saying best selling smart phones. Now go read the header to that NPD press release I linked to. What do you see? That's right, there's no mention of the word "smart" in the title. That list is actually the list of best selling "mobile handsets". That means the iPhone quite possibly accounted for the eleven best selling mobile phones--smart or dumb--in the United States for Q4 2011.

That is, well, insane. It's not often you can read a single player has taken the top 3 positions in a competition of any kind and then discover the announcement is deceptively understated.

-----

*Note* Once more, keep in mind I chose a combination of numbers on hand that would give me considerably more difficulty than reality in making this point. All of the arguments in the latter half get easier when you realize the real numbers, though unknown, are assuredly heavier on the products splits which fell lowest on my lists.

Facebook's IPO: Different From The Norm?

I've held the belief for some time now that one of the many things that separates Apple from most other publicly traded companies is how its operations are so independent from stockholder opinion. Much of this is based on Steve Jobs's return to the company when running things as stockholders wanted had effectively killed the company and his dictatorial guidance of the company to being the most valuable in the world. His success essentially taught Apple stockholders and Apple's board to accept something: Steve knew better than they did and had the company's long-term interest at heart. Jobs having such firm control over the company was a very rare triumph of long-term goals over the detrimental short-term profit-seeking and share-boosting goals the stock market has poisoned most of corporate America (or rather, the corporate world) with.

It's with this knowledge that I've generally thought (and still think) taking a company public is essentially an admission that you care more about financial success than the quality of your product. You are giving up control of how the company will be run in the future in return for a sudden infusion of funds. The moment your numbers look to be flagging, or stockholders believe you could be doing something better in order to make them more short-term money, choices will be forced upon you--choices which will sacrifice what you want the product to be and which you never would have considered before. Sometimes (often?), the creators of a company don't really have any better idea of how to have the company succeed in the long-term than shareholders do--so the company wouldn't have necessarily stayed successful anyways. (The investment-affected definition for "success" is a whole separate can of worms. In the investment world a company is only successful if it grows quickly. In a privately-owned "we run this company ourselves" world, a company is successful as long as it's making money--growth be damned.)

So let's look at Facebook. According to the company's SEC filing, it made $1 Billion in profit in 2011. That's considerably more than Amazon. That's huge. As MG Siegler has pointed out, Facebook is far bigger and more profitable (even as a proportion of revenue) than Google was when it went public. The company is doing gangbusters. It is a profit machine. It doesn't need external funding. Frankly, the only reason for the company to go public at all is to make some people richer than they already are.

So now Zuckerberg is taking the risk of eventually giving up the right to run the company how he deems fit in order to become valued as the 4th richest American alive rather than just being rich enough to never have to think about money again. Is that really worth it?

I'm not trying to say I'm the only person who sees this. For now at least, Zuckerberg seems to have a stranglehold on how the company will be run. From Reuters:

The 27-year-old's ownership position means Facebook, a company dissected in 2010's Oscar-winning "The Social Network", will not need to appoint a majority of independent directors or set up board committees to oversee compensation and other matters.

The company's ownership structure and bylaws go against shareholder-friendly corporate governance practices put in place in the United States after years of investor activism.

As Facebook states in its prospectus, Zuckerberg will "control all matters submitted to stockholders for vote, as well as the overall management and direction of our company."

and

"The downside of doing this is that the value of Facebook may be slightly lower than it would be if he were not retaining control."

He knows he could get even more money if he gave up control. He's going to try to effectively run Facebook in the same stockholder-hostile fashion Steve Jobs would run Apple if the choice was given. He wants to make this IPO different from most. He wants to operate the company mostly the same as when it was privately owned. We'll see if this plays out the way he wants to and he can hang on. The odds are against him, but it's probably possible.

Nintendo Prepares to Post First Yearly Loss Ever, But Why?

Nintendo's Fiscal Year of 2011 is still not over. Just as Apple ends its fiscal year in September, which is not at the end of the calendar year, Nintendo ends its fiscal year in March. Nintendo has released its consolidated financial results for the 9 months ending in December 2011 (pdf), along with corresponding numbers from the previous year. The general gist can be gathered from The Verge or many other sources if you don't want to read the numbers directly.

In the release, Nintendo is predicting it will make a loss of $835 million in fiscal 2011. Let's talk about why. If you ask most people why, they'd say something about the 3DS not selling well, possibly due to competition from the iPhone. That simply isn't true. The 3DS is selling just fine, even with lowered projections. It is, in fact, selling much faster than the DS did in its first year--and the DS has gone on to become the best selling video game system of all time, just passing 151 million units sold to date according to the previously linked financial results. I'm certainly not going to say the iPhone is not relevant to Nintendo, but I will say that it isn't yet a dominant factor. (I'll have to address this in its own post.)

So if the problem isn't the 3DS selling poorly, what is it? As with most financial results from large companies several things come into play. Let's list them off.

First, the Wii has not been selling particularly well compared to previous years while also being sold at a lower price point than before. This means the Wii didn't offer so much sheer profit that it could allow the company to weather any storms it reached. The reasons for this include, but are not limited to, a lack of new compelling software for the system, the large numbers of units already sold, and the obvious age of the hardware from a technical perspective compared to other now-affordably priced alternatives. The reasons could be discussed in far more depth but are not directly relevant to the topic at hand.

Second, people may recall the 3DS was selling below expectations in its opening months. There were three things at play here:

1. Nintendo simply priced the 3DS far too high, at $250, for most people to consider it.
2. Nintendo didn't launch any particularly desirable games for the system in order to make room for third parties--and so there was less incentive to purchase the system.
3. The largest element is expectations were ridiculous. In this case even Nintendo's expectations didn't make sense. There have been very few consoles in history which have ever sold at rates exceeding their predecessors immediately on launch after the opening week or two. It normally takes time for one generation to start exceeding the previous generation's sales. The Xbox 360 and PS3 took a long time to consistently beat the PS2 in sales, the DS took a while to consistently beat the GBA, etc. There have been exceptions, but the word "exception" has a definition for a reason. The Wii's explosive launch was unexpected. It isn't the norm. The Wii's launch also still didn't equate to peak numbers of the PS2 (though it exceeded the PS2's peak sales rates later). The absurdity involved in the 3DS launch sales expectations came in that Nintendo and industry insiders at large somehow expected the 3DS to simply jump into sales numbers equating to a dominant system that has been out for a while. The same problem is happening now with the PlayStation Vita's "disappointing" launch in Japan. I may not believe the Vita will sell very well, but launch numbers aren't evidence for that position.

The 3DS launch numbers being lower than expected leads us to the third major point: Nintendo dropped the price of the 3DS from its $250 to a more reasonable $170 per unit. That's $80 less per 3DS sold going to Nintendo than with an unchanged price. Obviously Nintendo wouldn't have gotten the same volume of units sold at the previous price point, but the point stands because Nintendo was operating with certain expectations of sales revenue with which it could operate.

The previous major points really only indicate why Nintendo might have made less money than expected, rather than why it lost money, though. So let's dig deeper.

The next item of significance derives from the previous one. That $80 price drop lead to the 3DS itself not being profitable in order to build momentum. Loss-leading is normal in the video game industry, but it's not normal for Nintendo. Sony and Microsoft have diverse businesses with which they can weather video game hardware losses for years until a large enough ecosystem is established to begin turning a net profit. Nintendo generally avoids this, with almost every system it's produced making profit from the day of release on every unit sold. The 3DS had to change this in order to get the volume of units Nintendo wanted into peoples' hands. This lack of profit, then, is a sacrifice Nintendo determined was necessary now--with the security of the assets it has built up over the last 5 years of immense success, in orer to position itself best for the future.

Ok, so now we're starting to see where some actual losses come from, but $800 million is a huge number. What else is there?

One huge point that can not be overlooked is the 2011 Tōhoku earthquake and tsunami in Japan. While direct impact to Nintendo was fortunately minimal, the entirety of Japan's economy was effect. Energy costs increased, LCD and other component costs increased, partners were damaged more directly, Japanese consumers were harmed (and therefore couldn't purchase as much), etc. And all this happened just after the 3DS launched, thereby probably hurting sales as well. The losses caused to Nintendo probably aren't the bulk of the company's losses and are very hard to quantify, but they also were assuredly subsantial.

The final major point is Japan's strong Yen. You might think that a strong Yen would be good, but for an economy so heavily export-based, a much stronger than historical local currency hurts quite a bit. Let's take a hypothetical ¥9,000 Nintendo DS sold in January 2010 and compare it to the same one sold in January 2011. If that DS is sold in Japan in 2010, the costs and revenue associated are both handled in terms of Yen. Let's pretend that ¥9,000 cost Nintendo about ¥6,000 to produce, ship, and market, meaning Nintendo made ¥3,000 on the unit--a margin of 33.3%. If Nintendo sells the same unit the following year in Japan for the same price, and its costs have dropped a little bit, it will make marginally more money due to the cost decrease--but all of its financials look pretty similar on that same unit.

Now let's look at the international situation. Let's take that hypothetical Nintendo DS and have Nintendo sell it in the US for $100 in January 2010. I picked these price points purely for convenience (¥9,000 was roughly equivalent to $100 in January 2010), but we're going to pretend this price point was chosen carefully by Nintendo in order to maximize the combination of profit per unit and number of units sold in the target market--in this case the United States. So this hypothetical DS in January 2010, because ¥9,000 is equivalent to $100, brings Nintendo ¥9,000 in revenue. Subtracting the costs for the unit--let's say ¥7,000 because it costs more for Nintendo to ship to the US than Japan--gives Nintendo ¥2,000 profit per unit. Now let's jump to January 2011, where things start to get slightly more complicated. That Nintendo DS is still priced at $100 in the US. By this point, though, $1 is no longer worth ¥90, but instead worth ¥83. That means that $100 is now just worth ¥8,300. So Nintendo sells that DS and gets ¥8,300 in revenue from it. It's costs, though, don't go down proportionally, because its costs are still counted in Yen. So now subtracting the ¥7,000 costs means Nintendo only gets ¥1,300 instead of ¥2,000 profit on the unit unless it somehow manages to decrease costs by a proportional amount--a difficult task to accomplish when your hardware is already mature and has been cost-reduced several times.

To make things even more complicated for export-heavy Japanese companies, the Yen has continually fallen over the course of the fiscal year at a rapid pace. That means all external revenue becomes worth less and less as time continues even while local costs essentially stay the same and prices go unchanged. Having price drops at the same time the Yen continues to get stronger against foreign currencies (as Nintendo did on both the 3DS and the Wii this year) compounds the issue--the revenue drop-off is immense.

Every single device Nintendo sold outside of Japan this year made the company less money than it did the previous year, regardless of whether it got a price drop or not--for reasons entirely out of Nintendo's hands. Combine that with stagnant or even increased costs and weakened domestic sales because of a disaster, and you start to see a picture that looks an awful lot like large financial losses.

So this year's posted financials are a result of a confluence of events combining to make things look bleak. They aren't a sign, however, that Nintendo is doomed. The exchange rate is forever out of Nintendo's control, but with the launch of a new Wii U system before Christmas 2012 and a now-fast selling 3DS console ready to start making money again, it's possible Nintendo can make up for these new difficulties. Only time will tell if it can manage the immediate struggles--and then we'll talk about the viability of Nintendo as a competitor in the games industry (and the viability of that industry's existence as it exists altogether) on a later date.

A Prediction on Wall Street Predictions for Apple's 2Q 2012

Now that Apple has had a record-shattering quarter, easily the best quarter of any non-oil company ever (and the 4th best quarter of any company anywhere in the history of the world), let's talk about next quarter.

Next quarter, Apple's Q2 (Apple's first fiscal quarter of the year ends on December 31, so the previous huge quarter was their fiscal Q1 of 2012), will not beat the previous one. It won't be anywhere close. There won't be a new iPhone launch, might not be a new iPad launch (and even if there is, it will be near the end), and won't be any elevated holiday season sales. This part of the year is generally the lowest in sales because people purchase less after the gift season is over. So let me repeat: Next quarter will not be anywhere near the one that just ended.

Here are my predictions for next quarter:

• Apple will beat Q2 2011 (the same quarter in the previous year, or "year over year") by a large margin.
• Apple will set a new record for Q2 earnings.
• Apple will make more in Q2 than many big tech companies will all year.
• Apple will exceed their own guidance/projections for the quarter by a healthy 10-20%.
• There is a good chance some, possibly many, Wall Street analysts will claim Apple's quarter was disappointing.

You might look at this list and wonder where the disconnect is between the first four bullet points and the last one. There are two things at play here. The first is that I switched between predicting Apple in the first four points and predicting Wall Street in the last. The second is that I am basing my prediction of Wall Street analysts based on my assessment that Wall Street analysts are lazy, incompetent, or simply bad at their jobs. Strong statements, I know. Allow me to justify.

Apple's Q4 2011 earnings were released on October 18, 2011. In that quarter Apple posted record iPad sales, record Mac sales, and record iPhone sales for the September quarter. Apple beat its own guidance by 13.08% and set an all-time record for its Q4 fiscal quarter. What kind of press do you think Apple got for it?

Pat yourself on the back if you guessed:

• Apple Misses Fiscal Q4 Ests; Guides Fiscal Q1 Higher; Shares Off 5.9%
• Apple Q4 earnings fall short of expectations: $28.27 billion in revenue, $6.62 billion net profit
• As iPhone Sales Dip Ahead Of 4S, Apple’s Earnings Fall Below Street Expectations
• Apple Announces Quarterly Earnings, Misses Expectations

and a whole lot more just like that.

If you then ask "how did Apple miss expectations if they set a record for that quarter and exceeded their own forecast?" I need to congratulate you for having a brain unlike Wall Street. You see, all those expectations people complain about Apple missing? Those were Wall Street's expectations of Apple's performance, rather than the expectations of anyone who knew anything about Apple. Wall Street's expectations are based purely on emotion and guessing based on historic stock values--not on what the company is actually doing. The quarter in September was normally a huge one and Apple has been growing at an exponential rate, meaning the Street analysts predicted the September quarter to not only grow over the previous one, but to grow at a larger rate than it did previously. This despite Apple's own guidance showing it wouldn't. Just because Apple beat its own guidance by 24% in the previous quarter (an anomalously huge margin) doesn't mean you should be expecting the company to do the same in subsequent quarters when there is no actual reason to think so. (Check here for a historical overview of Wall Street expectations vs Apple guidance vs Apple real performance. This will make it clear how absurd Wall Street's expectations were.)

So to be clear: Apple's Fiscal Q4 2011 was only disappointing to people who had bad or stupid expectations not at all based on any real-world information or theory. If Wall Street makes the same mistakes again, which is unfortunately likely, it will overshoot any sort of realistic expectations of Apple's fiscal performance for no reason at all other than the fact the company just had an immense quarter. I'm not guaranteeing Wall Street will make the same mistake again, but if April rolls around and you find yourself hearing Apple had a disappointing Q2 2012, don't take the headlines or journalists at their word. Instead, make sure the disappointment isn't based on absurdity but rather on Apple actually missing its own expectations or having little to no growth.

*Note* To be clear: Wall Street does this for all kinds of businesses. I just happen to know more about Apple than I do many other companies and Apple is much more in the public eye. You should frankly take this same approach to reading reports on financial results from any company. Always make sure the disappointment is based on actual performance rather than ill-made predictions the company itself essentially warned against. I would say the same thing if someone suddenly predicted Google would double in revenue next year and then claimed Google was a disappointment because it "only" grew a little bit faster than ever before (and beat its own projections).

Why the PS4 and next Xbox will/won't launch in 2013

According to Examiner.com, Michael Pachter has this to say about the next generation of systems:

“I think there’s zero chance of a tease from Sony for PlayStation 4 and only a 20 percent chance from Microsoft that they’ll tease the next Xbox,” Pachter told Forbes. “Neither console is launching in 2013, so there’s no reason to tease them in 2012.”

It's a tough call. Pachter has a hit and miss track record (as does anyone who's an analyst).

The way I see it, there are 5 things Microsoft and Sony would like to do in an ideal world with their next console launches:

1. Launch in 2013.
2. Launch with a sizable performance leap over the current generation of consoles.
3. Launch with bundled advanced motion controls (Kinect/Move, possibly upgraded).
4. Launch with affordable hardware.
5. Launch without taking an immense loss per unit.

Item 1 is desired to avoid letting Nintendo have the Wii U as the only new home console on the market for well over a year and 2 full holiday sale seasons.

Item 2 is desired to show customers obvious value. The "wow factor" can only exist if the visual leap is significant but, as I've mentioned before, it's difficult to do this when the previous generation was sold at a huge loss while prioritizing this particular aspect of the console (and this time around you have other new areas which take a large slice of the cost pie).

Item 3 is desired to not be left behind. "Regular" people now expect motion controls with a home console. The Wii was huge, the Kinect has become a significantly well known success, and the Wii U is yet another platform launching with motion controls and a new interface attached. Launching a new console without any sort of alternate control available is a nonstarter.

Item 4 is desired as a response to the trials Sony had with its exorbitant pricing at the PS3's launch. People don't want expensive consoles.

Item 5 is desired because, frankly, it's hard to make that money back. While using loss-leading strategies is still feasible, you have to manage the losses such that you don't get yourself into a hole you can't dig yourself out of. Sony has been gradually shedding features of the PS3, discarding hardware left and right, over the course of the generation because the system couldn't recoup its losses otherwise (because of the debacle addressed by item 4). You only take losses small enough that you can eventually make those up on game and accessory sales. Large enough losses will never be recouped, especially if you're trying to sell to larger groups of casual owners--who buy fewer games for their consoles than so-called "hardcore" gamers.

It is extremely difficult to do all of these things at the same time. At least one of the above items has to be sacrificed. It's my guess (and make no mistake, it's only an educated guess--I don't purport to know anything secret) that Sony and Microsoft are absolutely not going to sacrifice items 3-5.

That means the companies are left with the following decision:

1. Launch in 2013 with systems that are noticeably but not impressively more powerful than the previous generation.
2. Launch in 2014 with systems that can have a more substantial (and more perceptible) increase in performance but leave Nintendo's Wii U as the only new home console for well over a year and two full holiday sales seasons.

Pachter is betting on item 2. I don't have a horse in this race. He could be right, he could be wrong. Either way, the reason will almost surely be one of these two points.