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Cool devices with cool content make money

By PETER WHITE

Published: 27 January, 2012

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Apple's incredible results are perhaps the pinnacle of a single clear trend in the cool devices and entertainment technology industries - it is virtually recession proof. Or rather innovation is recession proof.

If you look at Microsoft and Nokia, where precious little innovation has been seen (until Stephen Elop took over at Nokia) even these companies are doing fine compared to businesses outside these key industries - because of cool devices and entertainment.

Apple has been done and dusted for some time. It can do no wrong with consumers and investors alike, although we think virtually all Apple announcements right now are drawing a yawn from genuine technologists - Siri is a gimmick, the iPhone 4S was a pigeon-step, the iPad 2 is still too heavy and too expensive, and App Store Apps are virtually disposable, play once and discard - these are not real innovations - but the first iPhone and first iPads were and remain loved.

But everywhere we look, any industry that touches on cool personal devices - the Amazon Kindle Fire, the B&N Nook tablet, the Samsung Galaxy devices - the businesses behind these, especially where they intermingle the devices with a content eco-system, seem recession proof.

Apple for us has a lot of work to do to stay at the forefront, and probably won't, beyond 2012, but it has enough momentum for the next 5 years, and its results - an obscene quarterly net profit of $13 billion, a 28% margin after all deductions - more profit in a quarter than Google had revenue - more than double the profit of Intel and Google combined, all of which it achieved by selling 37 million iPhones in a quarter.

We don't think it is as dominant as Windows was 30 years ago, and Android is actually ahead in shipments and installed base - and you can argue that Apple is taking way too much profit out of the market and that operators will come to resent it, but right now the company is riding high.

But it's not alone. Every IPTV supplier out there is making good growth and at Verizon this week a combination of the iPhone and its FiOS TV system (a hybrid QAM and IPTV system) showed another growth spurt - even in the teeth of a consumer recession. How does a company as old and static put on such momentum in such a tough consumer environment - by offering cool devices and cool entertainment technology.

Verizon added 194,000 FiOS IPTV video subscribers in one quarter and today FiOS brings in 61% of the Verizon wireline revenues - in other words what it has built since 2004 is bigger than the fixed voice business it relied on for 100 years. And it has US homes paying $148 a month for the privilege. The spending has to be measured in $billions - what would it be like in a time of plenty?

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