NEW YORK–While Microsoft showed off Windows Phone 7 yesterday as its answer to the
iPhone, many are still wondering what the company’s response will be to the
iPad.

CEO Steve Ballmer has noted on several occasions that there will be some
Windows 7 slates this year, but that’s not the answer to the question–Microsoft has had tablets for years. The real issue is how Microsoft plans to respond to the iPad’s instant-on abilities, it’s long battery life, and the fact that it’s easily navigated with just a finger and no need for a keyboard.

Steve Ballmer, speaking with CNET on Monday after Microsoft’s New York launch of Windows Phone 7.

(Credit:
CNET)

“You will see a set of things from our partners, essentially around the holidays,” Ballmer said following the launch event here for the new mobile OS. He added that Microsoft’s position will be strengthened with the arrival of Intel’s Oak Trail processors next year.

Asked whether Microsoft needs to do more than customize full-blown Windows for the tablet, Ballmer demurred.

“I think probably the things of tomorrow are best left for tomorrow and the things of today are best discussed today,” he said.

In part one of our interview with Ballmer, we talked primarily about Windows Phone. In part two, we moved beyond the phone, hitting on tablets and the PC market as a whole. Here’s an edited transcript of part two of our interview:

Q: You talked about Google as chaotic in the Android space. They are talking about your computer being your memory, some stuff that potentially sounds a bit creepy. Do you see an opportunity to sell yourselves as the big tech company that is not creepy?
Ballmer: I hadn’t thought about it that way. We can pitch ourselves as the guy who is coherent but flexible. The chance to do that, to always have a great experience, and to be wonderfully individual is a unique thing we get to do.

Tablets are clearly an important piece of the consumer puzzle. You guys have had tablets forever, but one of the things that makes the iPad compelling is its really long battery life and instant-on abilities. Can full-blown Windows slim down fast enough or do you see a need for, say, a grown up Windows Phone device that is bigger?
Ballmer: I think probably the things of tomorrow are best left for tomorrow and the things of today are best discussed today. So today, I will focus on Windows Phone.

There’s very little I won’t do when I am on my phone. I certainly do the typical e-mail. I make phone calls, not surprisingly, a lot of them and I don’t want those phone calls dropped. I actually am fairly active on Facebook.

Might there be an opportunity for both Windows tablets and Windows Phone-based tablets to both co-exist?
Ballmer: I think when there is something to say we’ll say it

You said recently, I think it was when you were in Europe last week, that you can look at a room and know how many iPads are there, how many Macs, how many PCs. Are you concerned with the number of iPads you see in those rooms?
Ballmer: You certainly see more. You certainly see more than I would like. One is more than I would like.

On the other hand, it depends what people are doing. Certainly someone who wants to sit and do an interview and take notes and scroll around, they are unlikely to find that device very comfortable. It doesn’t stand up on its own. It doesn’t have a big screen and keyboard. I’m not taking anything away from what Apple has done and certainly we have our work cut out for us.

We’re starting to enter the holiday period. I guess the decorations are already going up. How is the PC market looking?
Ballmer: We’ll see. I don’t want to make any predictions. There’s way too many factors–market share, economics, blah, blah, blah, but PCs have been healthy; they are growing. Most forecasters have PCs up double digits and that’s on a base that’s 350 million. On the other hand we’ve got more competition for the PC than we ever have.

The board in its annual evaluation faulted you for not moving fast enough in mobile. Do you think that’s just a criticism of the past and you are moving fast enough now. Or is it still an area where Microsoft needs to move faster than it is?
Ballmer: I think we’re moving fast. We’ve got to see how the market responds. I think we are going to get great response to the new Windows Phones and that’s the key. If we get that done and we keep up the pace of good work that we are doing, I feel pretty good.

What do you do on a phone? What are the things that matter the most to you?
Ballmer: There’s very little I won’t do when I am on my phone. I certainly do the typical e-mail. I make phone calls, not surprisingly, a lot of them and I don’t want those phone calls dropped. I actually am fairly active on Facebook.

I do, in fact, travel a lot, so the fact that I can take my Office with me is important. And I can take some videos to watch and music to listen to. It’s all great for me as a mobile person.

Are there things that you think we will be doing a couple years from now on our phones that we don’t do today that you want to be positioned to be able to do well?

Ballmer: I think we are going to see a continual evolution of the way these things interact. This will be a projector some day. We’ll be able to do more and more with sensors. You’ve seen what we’ve done with Kinect. You can let your mind run wild of what that might mean in a mobile context.

The question I get asked the most is what is Microsoft thinking about tablets. You guys have had tablets since 2003. They are a little surprised that the iPad has been out there for almost a year and we haven’t seen that direct competitor. You said at the financial analysts meeting that it is priority number one. How long do you think it takes to answer that question, to have something that directly competes?
Ballmer: Like I said, you will see a set of things from our partners, essentially around the holidays. And then they will get an enhancement (next year) , which I highlighted, from Intel, which will be very valuable, as we get their next generation Oak Trail processors. It’s also an important part of our road map.

What kinds of things do you think people want to do on a device of that type? Do they want a full PC experience?
Ballmer: People want everything they can do on their PC and more. They want long battery life. They want instant-on and they want everything they can do on their PC. They really want all of those things.
Today, there is a set of compromises. They want a variety of hardware form factors–with a physical keyboard, without a physical keyboard. People really want choice and diversity, I think. We’re working hard to provide what we think is the solution that people want. I know others are too. That’s why competition is a great thing.

Ballmer on tablets, PCs and more (Q&A)

SAN LEANDRO, Calif.–While it’s unlikely that we can tweet our way out of the obesity epidemic, social media does offer some opportunities to shift some of the factors that have led to our society’s expanding waistlines.

Already there are plenty of services aimed at creating online communities for dieters or for people to post their workout successes online. And it’s clear that Twitter and Facebook offer opportunities for positive reinforcement, online community and peer pressure to encourage healthier choices. But, despite a lot of innovation, just how to best harness social media is still a tricky challenge.

“How do you change the choices that people make?” said Fred Trotter, who works using open-source software in the health care field. “My doctor tells me the same thing every time I go–you need to lose weight. I still can’t lose 30 pounds.”

One of the keys is that, to be successful, programs have to be fun, said Rod Falcon, of the Institute for the Future. He pointed to a program–Cryptozoo–that his group created in partnership with the American Heart Association. The effort encouraged people to do various exercises in public places to unlock virtual “urban monsters.”

“A lot of us when we look at physical surroundings, we really don’t see it full of opportunities to play,” Falcon said. Cryptozoo could have been made even more fun by tapping social media and technology to bring the program’s characters to life.

The discussion on social media yesterday was part of HealthCamp SFBay, an “unconference” devoted to looking at how technology can be used to improve health and fitness. The unconference part refers to the fact that most of the time was spent in sessions organized spontaneously by the participants themselves.

After a few introductory comments from Permanente Federation Executive Director Jack Cochran and Health and Human Services CTO Todd Park, panelists threw out options for different break-out sessions. Nearly all of the suggestions were written down and pasted into one of dozens of slots. For the next four hours–the bulk of the event–participants met in small groups to discuss the topics the attendees had created.

In addition to the unusual format, the event also had an unconventional location–Kaiser Permanente’s Garfield Center, a lab that the health care origanization uses to try out new technologies before moving them into the real world. Because it has few conference rooms, the sessions were held in locations ranging from a prototype future operating room to a new mini-clinic that Kaiser imagines adding to existing locations like community centers and corporate campuses.

The social-media session brought together several people from Kaiser, a few people from fitness-related start-ups, as well as a number of people intrigued by the topic. Several members of the Kaiser contingent pointed to an internal effort the company had called Thrive Across America, where Kaiser workers entered their exercise online and earned points that could unlock video tours of other Kaiser facilities. There was also a competitive element, allowing employees to gather in teams.

“It was great,” said Kaiser employee Royce Everone. “I loved it.”

Trotter pointed to the book “Nudge,” which shows how a variety of small changes can have a big impact on behavior. Casinos, for example, do a variety of things to make losing money an enjoyable effort. First of all, they make it easier to stay than to leave. They also eliminate clocks and windows that remind us of time and space. Finally, they add the element of chance and variability. No one would put a dollar in a change machine that returned 70 cents. But plenty of people will play a slot machine that might only return a fraction of what they put in.

Adapting some of those principles to exercise is a good idea, agreed HealthCamp attendee Steven Dean. He noted that he has subscribed to a number of services that sent text messages encouraging him to exercise more. Typically, though, the services sent roughly the same message at roughly the same time.

“After about three days it becomes nagging and I turn it off,” he said. However, he’s been using one service, Healthtxts, for about three months now. The key is that it sends its message at random times. “It’s never felt nagging,” he said.

The discussion on social media was just one of the impromtu panels. Other topics ranged from protecting the privacy of electronic health records to using cell phones to provide care to disadvantaged populations.

In his morning keynote speech, Cochran talked about the need to think creatively about how technology can help bridge the gap between an aging population with greater health needs and a medical staff filled with few primary care doctors and too many nurses nearing retirement age.

Technology, he said, has the potential to democratize health care the way that the printing press freed monks from having to spend their time copying the Bible.

“Our jobs are changing but we are not going away,” said Cochran, himself a practicing physician. “We still need healers.”

Park, for his part, talked about some of the benefits the government is already seeing by making its vast data collection available electronically to researchers and entrepreneurs.

One key, he said, is making health care more interesting to the masses. A real hero, he suggested will be the person who comes up with the Farmville of health care, a reference to the popular Facebook game.

A new initiative known as the “Blue Button” program will allow veterans and Medicare beneficiaries to download their health records to their computer, paving the way for personal health records, improved research, and more.

The biggest thing that government can do, Park suggested, is open up the data and get out of the way.

“The smartest people don’t work for you and they don’t work for the government,” he told the crowd. “But if you can harness their energy you can [do] amazing things.”

Can tech make us healthier?

SAN LEANDRO, Calif.–The U.S. government is adding a new “blue button” to the Medicare and Veterans Affairs Web sites that will allow veterans and seniors on Medicare to download their health records onto their own computers. The program, though live already, is set to be formally unveiled by the White House tomorrow, CNET has learned.

Health and Human Services CTO Todd Park talked about the government’s efforts to open up more of its data, including plans this week to introduce a “blue button” for Medicare recipients and veterans to download their personal health records.

(Credit:
Ina Fried/CNET)

For some time, the government has allowed both Medicare recipients and veterans to view their medical records or claims history, but is only now adding the download option, Health and Human Services department CTO Todd Park said in an interview today at the HealthCamp SF Bay event here. The Blue Button program is being announced by the White House on Thursday.

“It’s a very simple idea,” Park said. “We’ve added a blue button to the MyHealthyVet and MyMedicare.gov portals that allows you to download a copy of your own data so you can take it with you. You can print it, you can download it to other applications.”

Adding the download option will let users add the information to their own personal health records, or share it with practitioners or with medical researchers.

However, it will be up to individual patients to decide with whom they share that data.

“It’s their choice,” Park said during his talk at the HealthCamp event. “I don’t think anyone wants the government making [those] decisions for them.”

Already, developers have been creating apps that can tie into the Blue Button data, and the Markle Foundation has issued a challenge for developers to create innovative programs that can make use of the information. Microsoft, for example, plans to announce this week that people will be able to import their Blue Button data into its HealthVault personal-record service.

Park has been helping lead an effort within the Health and Human Services department to make more of its data available, including an effort to make aggregate data more easily available to those outside the government.

I have a short video interview with Park that will post shortly in which he talks about the Blue Button program. I’ll have more from him and from the conference in follow-up posts, including a bunch more videos, slideshows, and more.

Update, 4:35 p.m. PDT: The video is now live and embedded below.

Medicare, veterans to get downloadable health info

Melinda Gates, shown here in a photo from the Bill and Melinda Gates Foundation, spoke today at the TedxChange event in New York. The gathering was held to mark the 10-year anniversary of the foundation’s Millenium Development Goals, a series of global initiatives aimed to be completed by 2015.

(Credit:
Bill and Melinda Gates Foundation)

The tough economic conditions of the last few years have strained efforts to achieve global goals such as reducing poverty, improving health, and addressing environmental concerns, says Melinda Gates, co-chair of the Bill and Melinda Gates Foundation.

“Realistically in a recessionary time people do pull inward and I think it does become more difficult for certain,” Gates said in a telephone call with reporters last week, held as the world marks 10 years since it set the Millennium Development Goals.

Gates said the goals she and the Gates Foundation are focused on–the ones related to reducing poverty and reducing childhood deaths–are nonetheless achievable by the 2015 deadline.

“We are making progress,” Gates said at today’s TedxChange event which just wrapped up today in New York. “I see sadness and poverty, but you see change and it is the human capacity.”

Others of the development goals, particularly those related to climate change and environmental issues, will be tougher to meet, Gates said. “Some of the ones around environmental sustainability, I think that those are going to be more challenging over time,” Gates told reporters. However, Gates said that is not her area of expertise and one where others, not the Gates Foundation, need to take the lead.

For its part, the Gates is trying a number of new tactics to make people more aware of the Millennium Development Goals, including a Flickr campaign that seeks to have folks submit photos of themselves holding a sign with their own vision for how to create a better future.

Gates was asked about how she got into her philanthropic work and attributed that to a trip she and Bill Gates took to Africa when they were engaged.

“I went to see the savanna and the animals but I was so touched by the people,” she said at the event, which was broadcast over the Internet.

Melinda Gates: Recession pressured global efforts

Bill Gates, speaking with Brent Schlender on Friday at the inaugural Techonomy conference near Lake Tahoe, Calif.

(Credit:
Ina Fried/CNET)

LAKE TAHOE, Calif.–Bill Gates is a glass three-quarters-full kind of guy, but watching the U.S. political system fail to tackle big problems like health care is enough to get even him down.

“You can actually get depressed,” he said, wrapping up a talk at the Techonomy conference here. Earlier, Gates talked about a variety of issues including how online courses will reshape higher education and the need for better software modeling for diseases and other complex systems.

Gates said that the political process hasn’t shown itself to be very good at handling issues that “are complex enough that even the average elite voter has a hard time getting their mind around things”–issues like tax code, controlling medical costs, improving education or relations with China.

These things are just complicated enough that the main people who understand them are people who are biased about them,” Gates said. “The number of experts in these things that are unbiased is so few. So how does society, a democracy that has worked so well, make some of the tough trade-offs that, say to avoid climate change, that need to be made.”

Gates pointed to the recent debate over health care. He initially thought that there might be a responsible discussion about the long-term challenges that are driving up costs in the system, but instead he said it devolved quickly.

“We’ll call you a name and you call me a name,” he told the crowd. “You get money from this funny guy and I get money from this funny guy. No one really looked at what tough things would have to be done.”

Also, he said, that is a rare case where innovation is actually a significant part of the problem.

“It invents more expensive things that you have no mechanism not to pay for, at least in the United States,” he said. In other words, he was pointing out that medical technology creates new cures and treatments and tests, but often at very high costs that add to our overall health care bill.

To recover from the malaise, Gates said he thinks back to what life was like in the 1800s, with horse manure piling up and coal choking the air in cities like New York.

“It would be easy to be discouraged in 1800,” he said.

Bill Gates: Politics can get you depressed

Apple had already publicly denied the Bloomberg report on Thursday, but at Friday’s iPhone 4 press conference, Jobs offered more candid remarks on the subject. Jobs made the comments as part of a question-and-answer session following Friday’s press conference, which included Chief Operating Officer Tim Cook and Senior Vice President of Macintosh Hardware Engineering Bob Mansfield.

“It’s a total crock,” Jobs reportedly said about the story. “We talked to everyone about it. We have a great community of scientists. They debate everything. And it’s healthy. The best ideas win.”

Bloomberg had claimed, in a story filed on Thursday, that Jobs and other Apple executives were warned that the design of the iPhone 4 could lead to reception problems. The report also alleged that a carrier partner of Apple’s had expressed concern about the iPhone 4 external antenna before the device launched in late June.

Jobs also referred to an article from The New York Times issued later Thursday, which said the antenna issues were partially software related, and could be fixed in a forthcoming update to the iOS mobile operating system. “They’re just making things up,” Jobs said of the Times article.

Other interesting comments made during the hourlong question-and-answer session at Friday’s press conference:

• Jobs said the external antenna allows more space inside the phone for features like a larger battery, all while being smaller than the previous iPhone 3GS. The company has no plans to modify its design of the iPhone 4.

• Apple said all companies produce cell phones with weak spots. Making a phone without one is impossible, they said.
• There is a Sept. 30 limit for requesting a new case because the company wants to be able to reevaluate the promotion after some time.
• There is a shortage of cases because Apple couldn’t tell its partners the dimensions of the iPhone 4 before it was announced. Apple will not change its approach in the future, because revealing a new product too far ahead of time will kill the sales of the existing model.
• Jobs, Cook and Mansfield all held out their phones and revealed that none of them use protective cases on their iPhone 4.
• It’s human nature to want to find a successful organization and bring them down, Jobs said. “I see it happening with Google, people trying to tear them down. And I don’t understand it… what would you prefer? That we were a Korean company, that we were here in America leading the world with these products… maybe it’s just that people want to get eyeballs on their sites.”
• Jobs said Apple loves its customers so much, any option was considered, including a recall. But the number of users experiencing the issue and contacting AppleCare about it was so small, that they decided it wasn’t worth it. Customers’ biggest complaint about the iPhone 4: They can’t buy one, because it’s sold out.
• Some users who have called to complain about iPhone reception have received a visit from Apple employees trying to discover the problems. “They’ve sent teams all over the country, visiting these people in their homes,” Jobs said. These people literally get a knock at the door from Apple engineers with a bunch of equipment and want to plug it in and test reception. We’re really serious about this.”
• Jobs said his health is “fine.” He noted that he was doing better earlier this week, when he was on vacation in Hawaii.

Jobs calls Bloomberg story ‘total bull,’ says NYT ‘making things up’

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In the four years I?ve followed Apple (AAPL) grow from a mere mid-sized tech stock to becoming the second largest corporation in the United States in terms of market capitalization, I never imagined that it or any other company of its size would be able to consistently grow its earnings by well over 50% a year.

While Apple is now larger than Microsoft (MSFT), Google (GOOG), Cisco (CSCO), Hewlett Packard (HPQ) and Intel (INTC), Apple still enjoys the growth rate of small cap tech stocks. A few weeks ago I wrote a detailed article entitled Apple?s $63.5 Billion Revenue Year where I offer comprehensive revenue estimates for Apple?s fiscal Q3 and Q4 of 2010 ? a must read for any Apple investor.

This article will pick up where that report left off, and take a look at Apple?s potential 2010 earnings. To get an idea of how deeply Apple continues to penetrate the market, last year the company produced 50% less in sales and over 71% less in earnings than it will this year. That means the 2010 Apple is nearly 50% larger than the Apple of 2009 ? almost an entirely different company. If this growth continues into 2011, Apple will surpass Exxon (XOM) to become the largest corporation in America. Not to mention that it already has more cash than any other company in the United States – $41 billion.

That is absolutely stunning when one considers that Apple recorded a whopping $43 billion in revenue during the 2009 reporting period ? almost double the $24 billion it recorded in 2007. While the market continues to generally slobber over the financial prospects of the iPhone and Apple?s business, I think it?s important to step back and examine exactly where Apple?s business stands. We often hear about the strength of Apple?s stock in very general terms. Yet, we rarely get a broad picture of Apple?s past, present and future growth rates.

Not only is Apple accelerating its revenue, it?s pushing more of that revenue to the bottom line. But while its sales are accelerating, the growth in the cost to run the entire Apple operation is barely climbing. This means Apple is becoming increasingly efficient at printing money as it makes more revenue per dollar spent to run the operation. This is something that every company, big or small, could only wish to achieve. It is very difficult to accelerate sales as a large cap tech stock while tempering costs.

Based on the analysis presented below, I?m expecting Apple to report $15.51 in earnings per share (EPS) on an explosive $63.409 billion in revenue in 2010. That compares to $9.08 in EPS on $42.9 billion in revenue in the fiscal year ended 2009. The two tables below outline my revenue and earnings estimates for Apple?s 2010 fiscal year. For those who would like to see my track record on Apple, you can find that record at Philip Elmer-DeWitt?s quarterly analyst review published in his Fortune column ?Apple 2.0.?

Again, this report will focus on Apple?s income statement based on the revenue estimates I?ve already published. For those who are interested on how I arrive at these revenue estimates, please refer to that article. I will also be publishing a detailed analysis of my Q3 2010 estimates in an earnings preview ahead of Apple?s numbers due out after the bell on Tuesday, July 20, 2010. Thus, to get a full picture of Apple?s 2010 fiscal year, I will present a detailed analysis of how, based on a projected revenue estimate of $18.9 billion for Q4, that a forecast of $4.90 in EPS logically follows.

Gross Margin Estimates: 41.9%

Anyone can draw relatively reliable quarterly estimates for Apple simply by analyzing the seasonal trends of consumer spending of Apple products. Once one arrives at rigorously thought out revenue estimates, he or she must then perform an analysis of each line item of Apple?s income statement starting with gross margin.

Gross margin is the amount of money Apple makes on each of its products less the cost it takes to make those products. The only costs considered are the manufacturing cost, the bill of materials, and the packaging cost. These costs are called the cost of goods sold or ?COGS.? Subtracting the total cost of goods sold from Apple?s overall revenue will give you Apple?s gross margin.

Determining what Apple?s total gross margin will be in any one of Apple?s fiscal quarters requires an understanding of which of Apple?s product tend to carry higher gross margins, a careful analysis of Apple?s guidance for gross margin, the seasonal trend, the strength of the U.S. Dollar relative to the Euro, and whether a newly introduced product carries a higher or lower gross margin relative to the company?s average.

For example, in Q2 Apple reported 41.67% in overall gross margin percentage. The relevant information required to forecast gross margin for Q3 is: (1) Apple?s comments where it guides down gross margin to 36% owing to supposed lower margins on the iPad; (2) the seasonal trend which suggests that Q3 is stronger than Q2 for the past 4 years; (3) the amount by which Apple generally beats its own forecast (its sizable), (4) the number of iPhones Apple sells as the iPhone possesses the highest gross margin of Apple?s products, (5) the collapse of the Euro which suggests that Apple will see some pressure on ASPs this quarter (though Apple has admitted to be hedged for this potential event) and (6) the lower ASP on the iPod and Macintosh this quarter.

Based on an analysis of these issues (which I will publish in my earnings preview), I arrive at a 40.3% gross margin estimate for Q3. For while Q3 generally outperforms Q2, the weakness in the dollar, and the introduction of the iPad will undoubtedly put margin pressure on Apple this quarter.

Yet, when looking at Q4 gross margin estimates, one must consider the fact that Apple will likely sell well over 11 million iPhones due to the introduction of the iPhone 4. Knowing the iPhone to enjoy higher gross margins than Apple?s other products, one should conclude that overall gross margins will strongly benefit from huge iPhone sales in Q4.

Moreover, since the introduction of the iPhone, Apple?s best quarter for gross margins has been Q4. In Q4 2008, gross margin jumped from 36.28% in Q3 to 38.57% in Q4. In 2009, Apple saw a 1% increase from 40.92% to 41.82%. As Apple is set to record explosive iPhone 4 sales in Q4, I?m expecting gross margin to rise to 41.9% from the projected 40.3% I?m expecting in Q3. The chart below outlines Apple?s gross margin percentage from 2006 to 2010, which include my estimates for Q3 and Q4 2010.

Operating Expenses: $2 Billion

Based on the gross margin percentage estimate of 41.9%, I?m looking for Apple to post $7.922 billion in overall gross margin. To arrive at operating income, one must project operating expenses. Operating expenses are all the expenses related to running the Apple operation. The geniuses at the Apple store, Steve Jobs? $1 income, the rental cost of all of Apple?s retail stores, the employees, the paperwork, the Apple campus in Cupertino and all other money spent to run the company are all what is included in operating expenses. Based on the current trend in Apple?s guidance, one can produce almost exact estimates for operating expenses.

There are several quarters where I was able to forecast these expenses almost perfectly because Apple would regularly guide $40 million under the actual results. Picking up on this trend, it has been relatively easy to predict these expenses. Yet, one must also consider the growth trend of these expenses to help facilitate a strong forecast.

For Q3, I arrived at an estimate of $1.850 billion in operating expenses based on Apple?s guidance, and based on the trend. Knowing that Q4 tends to be one of the highest quarters in terms of operating expenses due to Apple mass hiring to meet consumer demand of the iPhone and back to school shopping season, I?m expecting a $150 million bump to $2 billion in Q4. The chart below outlines Apple?s operating expenses from 2006 to 2010. Q3 and Q4 are merely estimates and actual results may vary.

Operating Income, OI&E and Income before Taxes

To arrive at operating income, income that Apple generates from its primary operations, one must simply subtract operating expenses from gross margin. Remember operating expenses are those expenses that only include the costs to run the entire Apple operation. Gross margin, on the other hand, is the amount of money Apple makes on the sale of each of its goods (revenue) minus the cost it takes to bring those goods into existence i.e. to make those goods. Thus, for Q4 I?m forecasting an operating income of $5.922 billion, which is the difference of subtracting $2 billion in operating expenses from the projected gross margin of $7.922 billion.

Yet, companies will regularly make and/or lose money on the sale of property, from interest on their cash deposits, or from investments. Good accounting requires that we keep that income or loss in a separate category because it would be inappropriate to suggest that income from an investment should be part of the income that Apple receives from the sale of its goods.

So under generally accepted accounting principles (GAAP) we have a line item in the income statement called ?Other Income & Expenses? or OI&E. Though the dollar amount of OI&E is generally a small amount compared to Apple?s operating income, it can and will regularly affect EPS and so it should be taken seriously. Based on Apple?s guidance, which generally undercuts or overstates OI&E by $5 million, I?m projecting OI&E to come in at about $50 million for Q3 and $35 million for Q4.

Finally, to arrive at income before a provision for income taxes, one only needs to add operating income to OI&E. In this case, I?m expecting $5.922 billion in operating income, and $35 million in OI&E for Q4. Thus, we arrive at a net income before taxes of $5.972 billion.

Provision for Income Taxes & Net Income

Income taxes can greatly influence the outcome in earnings per share, and thus demands careful consideration. Evidence suggests that Apple will post some very favorable tax rates for Q3 and Q4 of 2010. In Q2, Apple already posted an unusual low tax rate of 23.7%, and looks to continue that rate, based on its guidance, in Q3 and probably in Q4. Q4 is generally Apple?s most favorable tax rate quarter but only slightly better than Q3.

For Q3, I?m estimating a tax rate of 23.4% based on Apple?s comments for the quarter. I?m also expecting a very favorable rate of 23.0% in Q4. Thus, based on a tax rate of 23.0% for Q4, I?m looking for Apple to record a post tax profit of $4.587 billion in fiscal Q4. The chart below outlines Apple?s tax rate, inclusive of my Q3 and Q4 estimates, from 2006 through 2010.

Earnings Per Share

Once you arrive at net income, the job is basically done. One only needs to divide net income by the number of projected outstanding diluted shares to arrive at Earnings Per Share or EPS. Based on a projection of 935 million shares outstanding at the end of Q4 2010, my estimates are calling for Apple to report $4.90 in EPS on $18.906 billion in revenue versus the current consensus of $3.73 in EPS on a conservative $16.54 billion in revenue. The chart below outlines Apple?s EPS growth from 2006 to 2010. This chart presents undeniable evidence that Apple has entered yet another golden age of growth. Apple is truly firing on all cylinders.

Apple?s Earnings History

The four tables below present Apple?s revenue and earnings history from 2006 to 2010. Due diligence begs the average investor to have at least a general working knowledge of these tables. These income statements have been amended to account for Apple?s new GAAP accounting measures. These new accounting measures were implemented in Q1 2010 resulting in dramatic amendments to each of Apple?s fiscal quarters between 2007 and 2010. These income statements can also be found on Apple?s website.

Apple?s Year over Year Growth Rates

The three tables below outline Apple?s (AAPL) year-over-year growth rates for the past 3 fiscal years. The first thing that should be noticed is how Apple?s growth rate decelerated in 2009, and then reaccelerated in 2010. These tables are a very useful guide for performing fundamental analysis and establishing price targets on Apple. Also note the 75% net income growth and the 70.8% EPS growth in fiscal 2010. If this type of growth continues into 2011, then Apple will likely see $350 sometime next year.

Andy Zaky is a graduate from the UCLA School of Law, an AppleInsider contributor and the founder and author of Bullish Cross — an online publication that provides in-depth analysis of Apple’s financial health.
Apple to enter a new golden age in 2010 with 70% earnings growth


It is better to take a few days care before a patient can opt for joining back to his office. It is always good to have prior consultation with doctor.

It is better to take rest for a few days in its true sense. That is why apart from leave taken from house, you need to reduce your household activities as well.

Sometime in post surgery phase doctors ask to take some diagnostic taste to evaluate the medical condition of the patient in post-surgery period. However, the patients should not reluctant in these cases and should follow doctor’s instruction properly.

It is not possible for the patients perhaps immediately to drive; therefore, in post surgery period it is wise to arrange transport to help unwinding pressure from the patient.

It is better if somebody gets to accompany the patient at the place of operation and to stay with the patient for the first night after the surgery is executed.

It might be bothering for a patient to tell all his friends that he/she is going for surgery. In these situations it is easy to let them know that he/she is going for health check ups in a health clinic. It will be realistic approach to expect to look like same or slightly different after the surgical treatment over. This realistic approach will help in face the worse situation if anything happens likewise.

It is always recommended to get all the medications readily purchased, and some nearest relatives are to be aware about the emergency numbers in case the patient feels any problem in post-surgery period at home.

Those who hade undergone facial plastic surgery should apply crushed ice in a pouch on the bandage. It will help to get quick relief from pain, swelling, as well as chance of bruising.

It may take 48-72 hours to be fit after the session of plastic surgery. It is better to arrange for a care staff for this short period so that the patient should be at complete care. It will speed up the recovery process.

Frequent re-hydration is an authentic way to substantiate the loss of fluid due to this surgical process. It is good to take plenty of water and diluted fruit juice to replenish the lost body fluid for faster recovery and better health.

After having plastic surgery on neck or on head, it is recommended to keep head high up. The head elevation will help in speedy recovery as well as this posture will prevent fluid accumulation on the sore caused by the surgery and initiate better pain management.

What to anticipate after surgery

• Expect to look worse before you look better.
  Nearly all cosmetic surgery procedures involve swelling and bruising. As swelling and bruising fades, you will begin to see your result.
• If you had surgery on your face or neck, keep your head elevated for two to three days to minimize swelling and speed recovery. Do not underestimate the importance of elevation: keeping your head elevated will reduce your recovery time, whereas failure to do so will prolong it and may create disturbing asymmetries.
• Ask your doctor when you may shower, bathe, and wash your hair. Often this is allowed within a day or two of surgery.
• You will be able to return to work between three days and two weeks following most cosmetic operations,
  depending on the procedure and your occupation.
• Do not drive while you are taking pain medication because it will alter your judgment and delay your responses. Following most operations, you will be able to drive once you stop taking pain medication.
• Consult with your doctor before taking any vitamins or herbal medications which you may believe are harmless. Some of these medications may cause problems.
• You may resume exercise once your doctor allows it. Do not exercise before that time, even if you feel able. Exercise may worsen your swelling and confound your final result.
• Vitamin E is falsely perceived to minimize scar visibility. Whether taken in pill form or as a topical cream, there is no evidence that it improves scar appearance.
• Use extreme caution when exposing yourself to the sun following surgery. During the first year, protect all surgical sites with potent sun block (SPF 15-40).

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After years of serving as Apple’s main source of revenue, the iPod’s influence on the company’s financial health has diminished to the point of being effectively irrelevant as a revenue driver, marking an end to the ‘iPod era.’

As the halo effect of the iPod reached its maximum potential, reinvigorated Macintosh sales and deep market penetration by the iPhone have completely taken over as the main source of Apple’s revenue and earnings.  Even the iPad in its inaugural quarter will post more revenue and earnings than the iPod, pushing the device to Apple’s 4th largest source of income.  What’s more, the iPod as a percentage of Apple’s total revenue will drop below 10% in 2011.

A few years ago, I wrote an article detailing the iPod?s diminishing importance to Apple?s revenue growth. As Macintosh sales starting picking up steam, and as the advent of the iPhone assumed the helm of Apple?s future growth prospects, the iPod started a slow descent down from its throne as Apple?s key revenue driver.

In January 2006, when Apple hit all time highs of $86.40, I remember how investors and financial analysts feared Apple?s best years were behind it. This fear, while apparently unfounded in retrospect, stemmed from the perception that the iPod was near market saturation, and that Apple wouldn?t be able to innovate further. And though the market akin to a raging bull, investors saw Apple?s share price drop from $86.40 to $50.00 by that July.

Turn the page to 2010, the iPod is a mere afterthought and Apple has since seen its share price grow almost 6 fold. And while the iPod demonstrated a lot more resilience than anticipated by the financial world, posting record quarter after record quarter through 2008, its significance as a revenue driver has now diminished to the point of being almost irrelevant to Apple?s overall growth. In Q1 2006, the iPod accounted for an astonishing 55.55% — or more than half — of Apple?s total revenue.

For the 2010 holiday shopping season, though the iPod posted 250% more revenue than it did in 2006, it only accounted for 21.62% or just a fifth of Apple?s total revenue. That right there is a very tangible example of Apple?s ability to innovate in the face of an inevitable and impending slowdown of its main revenue driver, the iPod. The chart below details iPod revenue as a percentage of Apple?s total revenue from 2006 through 2010. Please note that Q3 and Q4 of 2010 are merely estimates based on a detail analysis I?ve published, and that actual results may vary.

Notice how the iPod?s impact to Apple?s total revenue has been on a consistent and continual downtrend since 2006. It is as if the importance of the iPod wanes by the day. In fact, I?m projecting that the iPod as a percentage of Apple?s overall revenue will fall under 10% for the first time in Q4 of this year. And to get an idea of just how significant that really is, I?m expecting iTunes to account for 6.9% of total revenue in the same quarter. That?s an indication that the iPod is becoming just as insignificant of a revenue driver as is iTunes.

Yet, the chart above is even more impressive when one makes a side by side comparison to Apple?s total revenue in the same period. Even though the iPod has a diminishing impact on Apple?s total sales from 2006 to present, Apple?s revenue has outright exploded.

In Q1 2006, Apple reported $5.75 billion in revenue of which 55% were iPod sales. In 2010, Apple reported $15.7 billion or almost triple what it reported in 2006. Yet iPod sales only accounted for a meager 21.6% of that revenue. Any way you look at it, Apple is no longer dependent on the iPod, and any future signs of weakness should produce nothing more than a yawn. The chart below is a quarterly overview of Apple?s revenue from 2006 to 2010. Please be advised that Q3 and Q4 are merely projections, and that actual results may vary. A detailed look at how I arrived at those estimates can be found here.

Though the iPod is contributing less in terms of percentages, it still makes very hefty contributions in terms of revenue. In fact, while iPod revenue as a percentage of Apple?s overall revenue has been on a constant decline since 2006, the iPod has posted very consistent revenue throughout that period of time. The only thing that has changed is Apple?s product lineup, and an untouchable capacity to innovate. Hopefully this article puts the old adage, ?As goes the iPod, so goes the Apple,? definitively the rest. Apple isn?t just the iPod maker or the iPhone maker, it?s a money maker. 2010 marks the end of the iPod era.

Andy Zaky is a graduate from the UCLA School of Law, an AppleInsider contributor and the founder and author of Bullish Cross — an online publication that provides in-depth analysis of Apple’s financial health.
Special Report: The end of Apple’s iPod era

So far in the Chinese drywall saga, nobody has admitted liability. Let’s be honest, in a raft of lawsuits with an estimated total of billions of dollars, who is?
The only pure victims are the homeowners. They are being left high and dry as their homes deteriorate around them. It isn’t just the property or its value either. There is health to think about too. Many homeowners are claiming to be suffering from health issues as a result of the fumes being given off. While this has yet to be scientifically confirmed, subjective and anecdotal evidence certainly points to a connection between the drywall and health issues.

That isn’t to say the construction companies are sitting pretty though. Many of them have found they have inadvertently installed this material into properties they worked on during the period. For some, that is a LOT of properties. The material was imported during the property boom, and during that time there were several hurricanes, including Katrina, which increased demands on construction and materials. Many Chinese Drywall Repair companies have sprung up to try and make a fast buck off this problem.

The Chinese drywall was seen by the suppliers as a quick way to alleviate the problem and keep the process moving. It is estimated that over five hundred million pounds of Chinese drywall was imported between 2004 and 2007 and that it found its way into over one hundred thousand homes and properties.

It isn’t just residential homes though, the material was used in mid and high rises as well as commercial property. While most of the headlines have understandably revolved around homeowners and taken the human interest angle, there are also businesses and livelihoods at stake. Not only are the construction firms at risk, but any commercial properties with Chinese drywall are also. Not only can firms not compel employees to work in the buildings because of health and safety concerns, but in the worst situations the building may become uninhabitable.

The buildings, whether residential or commercial are suffering damage as a result of this situation. Any made of copper and metal is at risk of corrosion, air conditioning breaks down, any machinery or appliances with copper are corroding and the buildings wiring is also breaking down very quickly.

If the home or business owner files a suit, they can’t repair the property because they would be destroying evidence, and can’t use it if the problem is bad enough. Not everyone has the capital needed to move somewhere else while the situation is addressed. There aren’t too many alternatives in these situations.

The gas given off by the drywall is harmful to health but has yet to be scientifically proven to do so. Symptoms include headaches, eye irritation, shortness of breath, and many other symptoms.

For the most part, this situation is unfortunately in the hands of the lawyers. The class action sees light in September 2010, and the thousands of individual suits will join the queue in their local courts. While the financial costs are being thrashed out in the full glare of society, the emotional cost will be borne alone by the people involved.