Apple services are growing, hardware slowing

Apple posted quarterly results, and received a standing ovation: the stock rose 7% at the opening this morning.
What’s intriguing is that the numbers show lower sales of iPhone (down 15% compared to last year), Mac (down 10.5%), and iPad (down 8.3%). But Apple has pulled off some hand jive, and drawn attention to what may be the future of its growth engine: services.
In the release, Luca Maestri — Apple’s CFO — wrote ‘our Services business grew 19 percent year-over-year and App Store revenue was the highest ever, as our installed base continued to grow and transacting customers hit an all-time record’.
As I mentioned earlier this week (see What’s going on in Phoneland?), the market had already priced in the negatives coming in Apple’s quarterly results. As others — like Chris O’Brien — have pointed out, Apple has done a great job managing the expectations of Wall Street, and drawing the analysts’ attention to the figures Apple wants us to pay attention to. And the trend in services, and the growing margins in iPad sales, are the figures that are causing the stock to soar.
Tim Cook stated that the services side at Apple is on track to be ‘the size of a Fortune 100 company next year’.
So, once again the maturation theme is front and center: Apple’s sales of new hardware is dropping, but with a huge installed base, what can Apple do to make money? Sell — or more aptly, rent — services to all those folks with iPhone, iPads, and Macs. (Oh, and Watches, but that’s too tiny to matter, and might never.) So if Apple can continue to grow services to the installed base — plus get some additional boost in iPhone sales in the fall when new models come out — the company will remain a Wall Street darling.
Relative to enterprise sales, the better margins in iPads has got to be a proxy for increased sales in the enterprise based on the new larger iPad Pro. But, at present, Apple doesn’t have much of a story for enterprise services. Maybe it’s time to the company to revisit the plan to buy Dropbox or Box, and replace/rework iCloud (iCloud Pro?) with a cloud file sync-and-share solution –including a deep integration with Apple’s productivity suite — that makes more sense for the enterprise?
 

Screen sharing could be a future Apple FaceTime feature

Apple’s FaceTime service is currently just a method of two-way personal communication, but it could become much more. A patent granted to Apple shows how FaceTime would work as a collaborative productivity tool, complete with data and app sharing.

AppleInsider noted the new patent grant on Tuesday, with images such as this one showing how screens could be shared over FaceTime on an [company]Apple[/company] iPad while the app maintains a two-way video conversation.

facetime screen sharing patent

This particular example also shows that FaceTime users could control what application data is shared between two parties; on the right you can see shared calendar information.

The patent describes how data controls would work — determing what can be shared based on user controls or the type of connection. ranging from specifying exactly what can be shared based on user controls or by the type of connection. Sharing a screen or an app over Wi-Fi might be preferable to sharing it over an LTE connection, for example.

Apple’s FaceTime service is only available on iOS and OS X devices, of course, so don’t expect to share your Windows Desktop or apps any time soon using FaceTime, even if Apple does implement what’s described in the patent. Besides, there are plenty of third-party apps that offer that functionality now on non-Apple devices.

Looks like Apple bought the company behind software synth Alchemy

Apple doesn’t make a big splash when it acquires a company. Usually, there isn’t an announcement or even an acknowledgment except for CEO Tim Cook’s periodic updates (earlier this month, Cook said Apple acquired 17 companies in the previous calendar year.)

It appears that one of those 17 companies is Camel Audio, a British company that previously made software instruments — in particular, a product called Alchemy, which was a digital sampler and synthesizer suite that retailed for $249. MacRumors spotted that Camel’s address in a British corporate registry had been updated to 100 New Bridge Street — an address that Apple uses in London — and the company’s new director is an Apple attorney.

Last month, Camel abruptly shut its doors with a message that its plug-ins and sound libraries were no longer available for purchase and downloads of previously purchased instruments would cease by the summer. Software synthesizer fans complained on Reddit and forums that they had been anticipating Camel’s next major release, Alchemy 2.

No purchase price is available and Apple is unlikely to share how much it paid for Camel Audio. Apple could fold Alchemy’s sounds and technology into one of its two digital audio workstation products, Garage Band or Logic Pro X.

Astropad turns your iPad into a graphics tablet for your Mac

For years there have been options to add a drawing pad and stylus to a computer, a way for graphic artists to create digital media and drawings. Turns out if you have an iPad, you have another option. Astropad is an app that lets you draw in graphics tools on your iPad with the results displayed in real-time on a Mac.

astropad on ipad and mac

The team behind Astropad — former [company]Apple[/company] engineers — created their own wireless communications method to tie together the screen sharing between an iPad and a Mac. It’s called Liquid, and they say it’s actually twice as fast than Apple’s own AirPlay over Wi-Fi.

astropad peak performance

The app is capable of 60 frames per second refresh rates so everything you draw on the iPad should look equally good when rendered on the Mac. Images are also RGB color corrected on the iPad to match your Mac. Here’s a video demo to show the performance and functionality.

[youtube=http://youtu.be/ouwCHT3rGRY]

You can use Astropad with your finger, just as you would with any touchscreen iPad app, but a stylus is better. Astropad supports multiple pressure-sensitive pens, so if you already have one of those for your iPad, you can likely use it with the app.

Keep in mind that Astropad itself is really the mechanism to turn the iPad into a graphics tablet; it doesn’t replace graphics apps such as Photoshop for content creation. Instead, it enables the iPad as an interface for such apps.

The $49.99 app ($19.99 for students)  is available directly from the Astropad site as of today, although you can try a free demo before buying. Your computer will need to be running Mac OS X 10.9 or better and you’ll need iOS 8 on the iPad.

Apple earnings: 74.5M iPhones sold, record-breaking $18B profit

There was a lot going for Apple in its most recent holiday quarter. As the first quarter with the popular iPhone 6 on sale for the entire period, many expected Apple to boast eye-popping earnings, and Apple’s first fiscal quarter has traditionally been its best. Expectations were surpassed: Apple on Tuesday reported first quarter earning results of $74.6 billion in revenue and net profit of $18 billion.

In terms of device sales, that breaks down to:

  • 74.5 million iPhones, up from the 51 million sold a year ago.
  • 21.4 million iPads, down from the 26 million a year ago.
  • 5.5 million Macs, up from the 4.8 million a year ago.

[dataset id=”910131″]

Apple’s earnings beat Wall Street’s already-lofty expectations. Analysts were generally expecting total revenue around $69 billion, and Apple’s own guidance was in the range of $63.5 billion to $66.5 billion. It’s also a big increase over last year’s holiday quarter, in which Apple reported $57.59 billion in revenue.

Earnings per share works out to $3.06. Apple declared a cash dividend of 47 cents per share.

The 74.5 million iPhones sold are a record for Apple, nearly 46 percent higher than the previous quarterly record set last December. Fortune-polled analysts predicted 66.5 million iPhones sold.

“This volume was hard to comprehend,” CEO Tim Cook said during a conference call to discuss the earnings. “34,000 iPhones sold per hour, 24 hours a day, every day of the quarter.”

Clearly, the iPhone is a juggernaut, and the new models with larger screens have only increased demand for it. Cook mentioned that he believes the number of switchers from Android to an iPhone 6 were as high as they’ve been for the previous three years. The proportion of Apple’s revenue coming from the iPhone has also never been higher:

[dataset id=”910132″]

A key number to watch is Apple’s gross margins, or the proportion of revenue after manufacturing costs. Apple reported that its gross margins were 39.9 percent, which is up from 37.9 percent in the same quarter last year. It’s difficult to tell if the larger margins are due to the more expensive iPhone 6 Plus or the newly less-expensive 64 GB storage upgrade, but the average selling price for the iPhone was $687, which is nearly $50 more than last year’s holiday quarter. Cook didn’t elaborate on the sales mix between iPhone 6 and iPhone 6 Plus beyond broad strokes.

“iPhone 6 was the most popular iPhone last quarter,” Cook said. “But to sell 74.5 million they were all popular. There is clearly a geographic preference, some [regions] skew much higher on their preference to iPhone 6 plus to other [regions], it’s something that’s not consistent around the world.”

It’s no secret that iPad sales have been dropping year-over-year for the past few quarters, but this earnings report reflects a full quarter selling new models released in October, including the iPad Air 2 and the iPad Mini 3, but total unit sales were still down nearly 17 percent from the year-ago period. Cook has previously said that the lagging iPad sales were due to a longer upgrade cycle, and he reiterated that point on Tuesday.

Apple reported 5.5 million Macs sold this quarter, a 14 percent increase over the year-ago period despite the two newest Mac models released in October — the iMac with Retina Display and the Mac Mini — being niche products. However, it wasn’t a big jump from the prior quarter, which also saw 5.5 million Macs sold thanks to the back-to-school bump.

However, the average selling price for Macs was up $58, thanks to the new iMac with Retina Display which retails for $2500 or more.

[dataset id=”910155″]

We expected sales in China to make an impact in these earnings. Apple reported that revenue in the Greater China region, which includes Taiwan, was $16.1 billion, or up 70 percent from the year-ago period. CFO Luca Maestri partially attributed the “particularly impressive” Greater China revenue to the strong dollar.

Maestri said Apple would reconsider its capital return program in April, which has included $57 billion in share repurchases in the past year. Apple still holds $178 billion in cash.

Apple also issued guidance for next quarter. It expects revenue to be between $52 billion and $55 billion, a “significant revenue increase despite foreign exchange headwinds” over the $46 billion in revenue Apple posted in the year-ago period. Next quarter will see the launch of Apple’s first wearable computer, Apple Watch. “Apple Watch will ship in April, right on schedule,” Cook said.

[dataset id=”910214″]

This post was updated several times as more information became available.

Peerio is a chat and storage service with big security claims

A Canadian outfit called Peerio has put its eponymous secure messaging and cloud storage app into public beta, promising a much more usable alternative to PGP email and file encryption.

Peerio was released on Wednesday for Windows, Mac and Chrome (which also gives Linux users an option) – apps for Android and iOS are in the works. It’s not quite perfect just yet, but it’s an intriguingly user-friendly take on secure cloud communications and storage.

“Our goal is for Peerio to succeed PGP in the use-cases of mail and file sharing,” co-founder and lead cryptography designer Nadim Kobeissi told me via a Peerio encrypted conversation. “We’ve developed a system built on foundations that are more modern, stronger, and simpler than PGP. Anyone who uses Peerio for a few minutes will quickly see how it’s years ahead of using PGP with Thunderbird, and never go back.”

Open-source and audited

The two-decade-old PGP is certainly a pain to use — at least, if you want to get it right — largely because of the complexity of PGP key management. Rather than requiring users to have their private key file to hand, Peerio requires them to create memorable (and long) passphrases that are then used to locally generate private keys for each session. The passphrase is used to log into Peerio for the first time on each new device. After that, a shorter, easier-to-type password can be created for that device, and two-factor authentication is also available.

Peerio incorporates the encryption technology of Kobeissi’s Minilock file encryption app. Users have usernames rather than email addresses and their client-generated, abstract avatars are used to verify their cryptographic identity (the client can automatically detect changes.)

From a functionality perspective, Peerio is a cross between email (albeit without the universality) and instant messaging. Files can be attached to messages, and conversations are threaded and searchable. There’s no draft functionality at the moment, which can be a pain when jumping between conversations mid-message, but Kobeissi said this will come soon and drafts will be safely encrypted.

Kobeissi, a PhD student in applied cryptography, is best-known as the creator of the Cryptocat chat app, which had a nasty security scare in 2013 (a bug left group chats vulnerable for months). However, this time round his co-creation has been audited by “expert cryptographers and system penetration testers” (Germany’s Cure53, per Wired). What’s more, the client code is open source and available on Github for scrutiny by whoever can offer it.

Metadata issue

Kobeissi seems pretty confident about Peerio’s security. When I asked whether it was tough enough to be a secure channel for leaking information, he replied: “I think people doing something like leaking state secrets should not depend on the internet at all, personally. But I would say that Peerio can protect the content of people’s communications, even if they’re operating from a highly surveilled context.”

However, the service’s end-to-end encryption only protects the contents of communications, not the metadata about who contacted whom and when. Peerio’s Canadian servers still hold users’ contact lists, the number of files and messages sent, and message timestamps. Kobeissi told me access to this metadata is “quite minimal and well-guarded” and he and his colleagues “pledge to fight any overreaching government requests”, but still, the information is there and, unlike the contents of messages, available to Peerio itself. Will Peerio create a way to encrypt this metadata? “One thing at a time,” Kobeissi said.

Peerio’s team includes four permanent staff, but numbers 12 with hired contractors – the outfit has $250,000 in seed funding. The plan is to make money by charging for premium features such as more than a gigabyte of storage, and by targeting the business market at some point.

For a product just entering public beta, Peerio seems admirably clean, functional and user-friendly. As long as people don’t find nasty vulnerabilities – and the firm deals with its metadata-related issues — it could be a viable mass-market encrypted communications and collaboration service. (A minor warning, though: If you import a contacts list, Peerio will send out an invite to everyone on it.)

Ind.ie scales back, focuses on Heartbeat social networking client

The pro-privacy project Ind.ie, which I covered a couple times last year, has scaled back its ambitions due to a lack of resources – despite having raised over $100,000 in a crowdfunding campaign just one month ago.

Brighton, U.K.–based Ind.ie will now focus purely on Heartbeat, the client for its nascent Indienet peer-to-peer social network. The Indie Phone is no longer on the table for now, and the same goes for the Pulse distributed file synchronization system (as a consumer product, at least) and Waystone “introducer” that I wrote about in November.

Pulse, a fork of the Syncthing engine, will continue as a internal component of Heartbeat and its current source code can be downloaded, but Ind.ie chief Aral Balkan wrote in a Monday blog post that “if you want a standalone synchronisation engine with community support, etc., please use Syncthing instead.”

“Pulse, Heartbeat, Waystone, a phone … it was important to share with you our vision just as you would share the synopsis of a book with your publisher. But, going forward, it would be confusing — especially for a consumer audience — to have all those implementation details thrown at them,” Balkan wrote, adding that plans to release Heartbeat for anything other than [company]Apple[/company] devices had also been scrapped for now. Heartbeat will come out for Mac first (a private pre-alpha will open to some on January 26), then iOS in the “intermediate-term.”

However, the problem with the “synopsis” version of events is that the original grand vision was the basis for the recent crowdfunding campaign. Not surprisingly, some donors are very annoyed.

Balkan denied carrying out a “bait and switch” and offered to refund donations to those who want their money back. To those who decried the choice of focusing on Apple’s closed platforms, he pointed out in the blog post that “unlike [company]Google[/company], [Apple’s] business model is not to spy on you.” He also noted that the Ind.ie team all use Macs.

“We’re under no illusions that Apple is in any way perfect. To start with, they’re proprietary and closed,” Balkan wrote. “But we’re being pragmatic. Apple’s platform is a good stop gap until we have our own independent one.”

The decision to focus is, in my opinion, a good one both from a resources and marketing standpoint. The original vision was grand but ill-defined and confusing. Far better to make the Heartbeat product a demonstrable reality and build from there — the outfit still wants to make a consumer device one day, which may be a phone.

However, the timing of the readjustment is not good. Ind.ie should have figured this stuff out last year before putting its hand out for donations. The decentralization movement is part of the open-source world, which largely runs on community spirit. If the Heartbeat project is to pull through, Ind.ie will need to work on regaining whatever goodwill it’s lost this week.

Critical flaw leads Apple to push OS X update for first time

Apple has pushed an automatic update to Macs for the first time, in order to fix a critical vulnerability in the network time protocol (NTP), which is used to synchronize computers’ clocks.

The company typically uses its software update mechanism to issue security updates, with users consciously being involved in the process, but this one was extraordinarily urgent, and led [company]Apple[/company] to use an automatic update mechanism that it developed a couple years back but had not used until Monday.

Apple spokesman Bill Evans told Reuters that the firm wanted to protect customers as quickly as possible – and indeed, when it was first released on Monday ahead of the automated push, the update was unusually entitled: “Install this update as soon as possible.”

The flaw was discovered by [company]Google[/company] researchers and flagged up by the U.S. government on Friday – it doesn’t just affect Macs, but also systems all the way up to industrial control systems, and the government needed to warn those running critical infrastructure. According to that warning:

These vulnerabilities could be exploited remotely. Exploits that target these vulnerabilities are publicly available…
A remote attacker can send a carefully crafted packet that can overflow a stack buffer and potentially allow malicious code to be executed with the privilege level of the [NTP daemon] process.

Evans told Reuters that Apple was not aware of any exploitations of the flaw in Macs. The update, which doesn’t require a restart, was released for OS X Mountain Lion v10.8.5, OS X Mavericks v10.9.5, and OS X Yosemite v10.10.1.

This article was updated a couple minutes after initial publication to change the word “forces” in the headline to “leads” — it occurred to me that “forces” sounded unnecessarily harsh, given that the company is trying to protect its users from a vulnerability that wasn’t of its own making.

Apple shuts down its Russian web store due to ruble instability

If you head to Apple’s Russian-language online store right now, you’ll find that it’s not up — and Apple’s providing the usual “We’re busy updating the Apple store” message. But Apple’s not adding new products or working behind the scenes. As first reported by Bloomberg, Apple has pulled its online store in Russia because the ruble has been severely devalued today after teetering on the brink of instability for weeks. The online Apple store only launched in Russia last year and the country has no physical Apple Stores. If you’re a hoarder in Russia, look past the traditional gold and greenbacks as stores of value — iPhones could provide a nice return.

Update 3:25 ET: The run on Apple products has started.