Estimates for Apple’s 4th Fiscal Quarter 2012

Values in millions, except for earnings per share.

  2012Q4 2011Q4
iPhone: 27.0 x $630 = $17,010 $10,980
iPad: 20.0 x $560 = $11,2000 $6,868
Mac: 5.2 x $1300 = $6,760 $6,272
iPod: 6.2 x $165 = $1,023 $1,103
Other music related: $1,800 $1,678
Peripherals and other hardware: $660 $640
Software, service and other sales: $960 $729
Net sales: $35,996 $28,270
     
Cost of sales: -$20,770 -$16,890
Gross margin: (42.3%) $15,226 $11,380
Operating expenses: -$3,100 -$2,670
Operating income: $12,126 $8,710
Other income and expenses: $150 $81
Income before provision for income taxes: $12,276 $8,791
Provision for income taxes: (25.5%) -$3,131 -$2,168
Net income: $9,146 $6,623
     
Earnings per diluted share: (950,000,000 shares) $9,63 $7.05

Published on September 28th, 2012.

Disclosure: Long various vertical AAPL call option spreads.

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Rounded corners, eh?

Samsung’s statement on the August 24th jury verdict in its case against Apple:

It is unfortunate that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners, or technology that is being improved every day by Samsung and other companies.

The latter part of the sentence is just outright silly. It suggests that as long as you improve upon existing technology, you get to freeride. That’s not how it works. You need to take a license for the original innovation. But if you then improve upon it, your products have an edge over the original innovator’s. That’s how technological progress is made. So, basically Samsung is saying this is only about rounded corners. Let’s take a look.

Exhibit A: The jury verdict

The verdict finds that Samsung infringed three utility patents (‘381, ‘915, and ‘163), three design patents (D’677, D’087, and D’305), and the iPhone trade dress. The utility patents cover aspects of touch screen interactions such as rubber-band scrolling, double-tap zoom, and differentiating between one and two-finger touches. Clearly they have nothing to do with rounded corners. The design patents are about iPhone hardware and its home screen. These can naturally include aspects involving rounded corners, so let’s take a look at Samsung’s software design process.

Exhibit B: An internal Samsung memo

This document contains a total of 126 slides showing side-by-side comparisons between the iPhone and Samsung Galaxy S. In each case, it lists “Directions for Improvement” on what should be copied from the iPhone. Only one of them touches on rounded corners. Slide number 131 compares app icons between the two phones and notes that iPhone’s icons look better because of a 3D effect and curved edges. It also mentions how there is a “strong impression that iPhone’s icon concept was copied.” Then it lists these directions for improvement:

  • Insert effects of light for a softer, more luxurious icon implementation.
  • Make the edge curve more smooth to erase the hard feel.
  • Remove a feeling that iPhone’s menu icons are copied by differentiating design.

So, in the only slide where they say they should copy rounded corners, they also acknowledge that the icons already look like ripoffs and that this should be avoided. I guess we have to give them some kudos for that. Too bad it didn’t really work out, as usually copying more doesn’t make it look less like copying. And too bad the other 125 slides didn’t say anything about trying to differentiate design.

In my opinion the most important aspect of the jury verdict isn’t the $1B of damages, or that Apple can now seek injunctions for (mostly outdated) Samsung devices. It’s the fact that Samsung’s copying was deemed willful. In addition to possibly leading to tripling of the damages, it sets a precedent for future cases. It puts an eyepatch on the pirate’s face. And how could it not have been found willful, if you look at these examples:

Exhibit C: Samsung is Apple’s Biggest Fan

Just ignore all the rounded corners. You can even ignore all the iPhone, iPad, Mac Mini, and MacBook Air ripoffs. Just look at the accessories: Smart Cover/Case, charger, USB cable, camera connection kit, and box/app/store design. How could this possibly be anything other than willful copying of every single detail of Apple’s design? And isn’t it ironic how all these years people have been giving Apple so much shit about using a proprietary Dock connector instead of standard USB, and then Samsung goes and rips that off too?

Shame on you, Samsung. Shame on you both for your copycat design and your blatantly lying PR.

Update: I just came across this article, which does a lot better job at debunking the rounded corners nonsense than my piece.

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