Another quarter and another round of anxiousness, this time exacerbated by the uncertainty in the credit markets. So let me cut to the chase since we're talking about two of Silicon Valley's bellwether companies. The news isn't as bad as it seemed at first blush for Apple. I'm not quite sure I can say the same about Yahoo.
Given the economic headwinds, this was a blowaway quarter. Apple sold 6.9 million iPhones, ringing up about $4.6 billion in sales. Measured by revenues, Apple thus became the third biggest mobile phone supplier in the world just 15 months after entering the business.
At the same time, Apple sold 2.6 million Macintoshes, a tad below the consensus estimates of 2.7 million units. Some of that had to do with people waiting for a refresh in the product line. You also have to factor into the equation the obvious fears of approaching Armageddon.
Steve Jobs, making one of his rare appearances during the conference call, allowed that the economy might force some customers to delay purchases, but added that they wouldn't defect to a rival. It's obviously hard to predict behavior when peoples' 401ks are dropping in worth by tens of thousands of dollars, but Jobs probably is right. Despite the rah-rah spin about his customers being the best in the world, he can count upon amazing loyalty.
And they're loyal because Apple keeps knocking out innovative products. Until now, the argument has been Apple would continue to fetch a premium price because it builds more innovative technology. If the economy keeps heading south, that assumption comes undone. But unless you're the Amazing Kreskin, nobody can guess the length and the severity of the downturn. Assuming that the market can return to a semblance of normalcy, Apple's going to be in an enviable position.
So what about Yahoo?
Turning to the other big tech bellwether reporting Tuesday, I have a lot of empathy for Jerry Yang. At this point in the company's history, he's in the worst possible bind. I'm not even sure a Jack Welch could do much to turn Yahoo around. It's not that Yang is an incompetent; it's just that circumstance has dealt him the most lousy hand possible.
On the surface, the picture is, at best, grim. Yahoo reports a 64 percent drop in quarterly profit, and announces plans to cut at least 10 percent of its workforce. That's the second big round of layoffs this year. (Here's theof his memo.) You can't dun Yang for failing to predict the recent volatility but what if he had been bolder and cut deeper the first time? Maybe that wouldn't have made much difference but now circumstance is forcing his hand and he looks the weaker for it.
The stock was up after hours, but that was more of a dead cat bounce than a reflection of investor confidence in the company's direction. On his blog, Henry Blodget of Silicon Alley Insider called Yahoo's results "crappy but not awful." I think Blodget actually underplays the depth of the challenge facing Yang and his executive team.
The economy ground to a halt in September after the financial markets melted down. I've seen this movie before: during times of financial distress, companies chop discretionary spending like mad. Remember how Internet media companies fared after the dot com bubble burst? Even if the stock market stabilizes, a economy in recession--and I don't need Ben Bernanke to tell me that we're in recession--portends a rough patch for companies like Yahoo, whose bread and butter is display advertising,
Yang keeps saying that he's got a plan and is working things out. But does he have enough time to make good on his ideas? Yang still says that he remains "optimistic." I can't do any better than to quote Kara Swisher's apercu that "actually, Yahoo's news was just a bit more promising than the polls are going for the Republican presidential candidate."
Ouch! But at 12 dollars and change, Yahoo's stock at its lowest point in the last five years. Remember how (now fellow board member) Carl Icahn was screaming to agree to Microsoft's buyout offer? If Yang could turn back the clock...well, you can finish the rest of that sentence.