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Apple's (Nasdaq: AAPL) App store surpassed the 2 billion download mark this week, and now has more than 85,000 apps in the offering. Meanwhile, the iPhone is going into new markets overseas.
Apple's books could see a boost with new accounting rules, and there appear to be strong indications that Cupertino will soon introduce new items in its line of desktops.
Ruler of the App World
On Monday, Apple announced that more than 2 billion apps had been downloaded worldwide from its App Store and that the store now carries more than 85,000 apps. Other statistics: There are more than 50 million iPhone and iPod touch customers worldwide and 125,000 developers in the iPhone Developer Program.
Apple CEO Steve Jobs said in a statement that more than 500 million apps were downloaded worldwide this quarter.
The surge in demand for apps comes as no surprise to Carl Howe, Yankee Group's director of anywhere consumer research. "I had predicted that Apple would pass the 2 billion downloads number this month just from its prior run-rate," he told MacNewsWorld.
That demand for apps is going to be important to Apple's future for two reasons. First, the apps are the lure that gets people to buy iPhones and iPod touches. Second, the apps market is going to grow exponentially, and app stores are going to be generating a nice chunk of change.
The Yankee Group predicts that in the United States alone, the number of apps downloaded will grow by more than 500 percent in the next four years. One billion apps were downloaded in the U.S. this year, and this number will increase to more than 6 billion by 2013, according to its figures.
The U.S. mobile phone apps market will rake in US$4.2 billion in 2013, the Yankee Group predicts. "Not bad for a business where 80 percent of the products are free and most of those that sell go for 99 cents," Howe said.
However, the raw figures may not be the clearest way to look at this picture. "People often download apps they don't use," explained technology consultant Jay Freeman, who set up the Cydia app store, which serves apps to jailbroken iPhones. "There are probably over 1 million users of Winterboard, one of the most popular apps on jailbroken devices, but there are way more millions of downloads of the app."
Keep in mind, Apple may not rule the mobile app roost forever. "Apple might have a big percentage of the mobile app market, but I think that Android platforms and RIM will fight them for dominance," Yankee Group's Howe said. "I don't see any one vendor grabbing 90 percent of the market as happened with PCs."
The Effect of New Accounting Rules
Last week, the Financial Services Accounting Board (FASB) ruled that Apple and other vendors that sell bundled hardware and software products for which they receive payments over time can book more of the revenue and profits at the time of sale.
Before the ruling, such vendors had to go through a complex process in which the revenue and profits from the hardware was booked immediately, while revenue and profits from the software were booked over the life of the product.
Apple, Palm, IBM (NYSE: IBM), Cisco (Nasdaq: CSCO) and other companies have been urging the FASB to make the change.
The old system, which came under the Generally Accepted Accounting Principles (GAAP), ironed out the differences between quarters; the non-GAAP system of accounting now approved by the FASB will put earnings on more of a roller-coaster ride.
Barclays Capital analyst Benjamin Reitzes expects the switch to non-GAAP accounting will benefit Apple and boost its earnings per share. He said in a report that Apple remains his top pick "given its new product pipeline and prospects for strong free cash flow."
Piper Jaffray analyst Gene Munster drove up his target price for Apple shares from $185 to $235 after the FASB announcement. He said fiscal 2010 GAAP earnings could go up 48 percent because of the ruling.
Ultimately, though, what investors need to look for is products being made and sold. Non-GAAP earnings are just a transfer of revenue and profits on paper. The overall free cash flow will remain unchanged, but will be reported earlier under non-GAAP rules rather than later. As long as Apple has a good product pipeline, it should be a good stock to hold.
New Markets and Products
Incidentally, the product pipeline for Apple looks good right now. The iPhone is aimed at spreading to new markets, notably China and South Korea.
China Unicom has finally announced details for the launch of the iPhone in that country. The device will hit the market Oct. 1 and be priced at 5,000 yuan, or about $730, according to Reuters. China Unicom will offer eight service packages and provide subsidies of between about US$130 and US$620 to customers who sign up for its plans.
Meanwhile, South Korea has decided to allow sales of the iPhone within its borders. Already, local service providers there are reported to have begun talks with Cupertino on distributing the device.
Apple's product pipeline also looks to be strong in the hardware section. Reports that Apple is going to introduce new desktop computers soon in its iMac and Mac mini lines are floating around the industry. They have been fueled by Apple's informing its direct sales channels that it won't honor new orders for these computers, according to the AppleInsider blog.
Existing orders for these items will be filled from the shelves of Apple's partners, such as J&R Music and Techno Intelligence, AppleInsider said. Apple will not restock its brick-and-mortar shelves with more iMacs and Mac minis.
Apple's share prices fluctuated within very narrow margins on Tuesday, closing at $185.38. This could possibly be due to overall uncertainty about the market as reports showed a larger-than-expected decline in consumer confidence coupled with a third straight monthly increase in home prices.
