How Apple Keeps Defying the Odds

On Monday, Apple announced $1.67 billion quarterly profit on record Mac and iPhone sales. How does Apple keep shining?

Apple’s rosy quarterly earnings come during one of the worst economic environments in recent history. Apple’s pricey Macbooks face fierce competition from cheap netbooks, even in Apple’s core education market. And the storied iPhone has watched serious competitors line up against it, such as Android handsets.

[ New App Store rules spell good news for iPhone users, reports CIO.com | Yet here’s five other fixes for the App Store. ]

One of the keys to Apple’s success is its global branding and demand for its products. “A surprise was their strengths in shipments volume outside of the U.S., especially mobile PC growth in Europe,” says Gartner analyst Mikako Kitagawa. In the Asia-Pacific market, Mac sales increased 42 percent from the year-ago quarter. Overall, Mac sales continue to outpace the growth of the PC market.

Regarding the iPhone, Piper Jaffray analyst Gene Munster wrote in a research note that worldwide demand for the iPhone 3GS is outstripping supply. “While supply constraint is a issue near-term, we see it as a long term positive, as worldwide demand appears to be very strong for the iPhone 3GS,” he wrote. Global demand for the iPhone is poised to skyrocket, as the iPhone makes its official debut in China this month.

You’d think Apple’s high prices for Macbooks would be a turn-off in this economy, coupled by the emergence of cheap netbooks offering a viable alternative. Apple, however, has been able to insulate itself somewhat from the economy’s major impact. While PC sales have taken a beating in the U.S. professional market, Kitagawa says, “Apple was not affected by weakness due to their limited presence.”

Anecdotal evidence suggests netbooks have taken a bite out of Apple’s core education market, but again Apple has made moves to check its impact. Sales to U.S. schools rose 12 percent to mark Apple’s highest quarterly sales in the education market, which “seemed to be boosted by the Main deal,” Kitagawa says. Apple sent 50,000 Macbooks to Main as part of the ongoing 1-to-1 Learning initiative.

“We do not have enough research results to say if the overall U.S. education market was strong or if it was Apple-specific at this stage,” Kitagawa says. “Also, it is too early to conclude if education institutions were hesitating to adopt netbooks even though hardware prices were very attractive.”

What is clear is that Apple benefited from its overhaul and price cuts to the Macbook line in June. When an analyst commented on the earnings call about the laptop price cut working out for Apple, Chief Operating Officer Tim Cook responded, “Yes, it did!”

Apple’s game-changing iPhone has also been able to ward off competition, but not because of price cuts. The iPhone continues to enjoy first-mover advantage in the form of the fast-growing, always-evolving App Store, which just surpassed 85,000 app offerings on its virtual shelves.

In other words, the iPhone is no longer the field of battle, rather it’s the App Store apps that bring the real value to the smartphone. “I think [iPhone competitors] are trying to catch up with the first iPhone that we released two years ago, and we’ve long since moved beyond that,” Cook said, according to Venture Beat.

The iPhone and the App Store are shining examples of how Apple’s ability to innovate has led to rosy earnings. With the much-rumored Apple tablet on deck, Apple might defy the odds again. And the tablet might hit stores by this holiday season, which has traditionally been Apple’s biggest quarter of the year.

During Apple’s earnings call, Apple execs alluded to a big, mysterious product release for the holiday season, Ian Paul of PC World points out. Apple is spending more money than usual on airfreight for something “extra, extra special, and it’s not the iPhone,” Cook said.

Tom Kaneshige is a senior writer for CIO.com. Send him an email at tkaneshige@cio.com. Or follow him on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline.