For all the negative associations with outsourcing in the West, it’s really important to keep in mind the miraculous benefit it has on equality at a global scale over the last 20 years:

Source: UN Millennium Development Goals 2011 Report

Apple reports their Q3 earnings tomorrow (7/19) after the bell. After reading Fortune's Analyst roundup, I decided to put together my own revenue estimates based on their last 10-Q.

Here's a pretty conservative forecast:

Basically, I assumed a 20% bump for Mac, and a 50% bump for iPad, -20% for iPod, flat for iPhone (most analysts were bearish on iPhone units, so let's assume the worst), and 10% for everything else (not really material). This gives us a revenue of $27B, which is a 72% YoY growth rate.

If we bump up just the iPhone growth to 10%, that would be total revenue of $28.2B, or 80% YoY growth. With 20% unit growth, that's $29.5B, or 88% YoY growth. Of course, some analysts are predicting a drop in iPhone unit sales, but really, I don't see how that can happen in an industry expected to grow 55% this year, not even accounting for the cannibalization of RIM.

Apple's revenue distribution is also interesting:

1. It's really all about iPhones. Apple might as well rename themselves Apple Mobile, Inc.
2. iPads could soon earn Apple as much as laptops do.
3. iTunes + App Store revenue is about 10% of total.

So, we're looking at topline growth of between 70-90%, at a current P/E of 17.4. If we take the low end (70%) number and apply it to the whole year, the P/E at year end will be 14 at the current price. For perspective, about 70% of the Fortune 500 have a higher P/E than AAPL right now, companies that include Google, Oracle, Pfizer, Wipro, Pepsi, and Toyota. If you believe that Apple will maintain it's current P/E, then the stock price needs to go above $450 by year end.

So, my prediction is that we'll see a bump this week.

Disclaimer: I’m long AAPL Shares. Make sure to do your own thorough research before investing your hard earned money in the stock market.

Hardly a day goes by without some announcement of the next Tablet device. You know, the one that will finally beat the iPad? The most recent, and probably the most serious contender to date is HP’s TouchPad. It’s clear that they are taking a fast-follower approach to the market. If you watch their promo videos, you’ll see point-by-point comparisons to the iPad that include:

• A web browser, mail, and calendar
• The Kindle reader / bookstore
• Video calling
• “Social Networking” (although I couldn’t find the demo of what this was")
• Wireless printing

They also have a pretty neat “Wow-factor” differentiator: Touch another WebOS device to the TouchPad to transfer URLs.

The problem is that none of this matters, because none of this answers the question “Why should I buy an HP TouchPad over an iPad?”

Since they are at the same price point, and the iPad offers quite a lot more in terms of Apps, a larger screen, lower weight, and more developed ecosystem, the HP TouchPad is pretty much doomed from the get-go.

And I believe all similarly positioned “media tablets” are likewise doomed.

A Sea of Lemmings

Let’s think a little about how the Tablet market came about. Firstly, Tablets are not a new idea. Star Trek has featured them since the 60s. The Palm Pilot came out in 1997, and Microsoft has been trying forever to build a popular TabletPC or PocketPC device. There was some excitement when next-general Palm killers like the Dell Axim came out in 2002 and around the Ultra-Mobile PCs in 2006. Then the whole Tablet initiative seemed to get stuck in an inescapable rut for a few years.

Then Apple announced the iPad in 2010.

A strange cargo-cult-like phenomena started to happen. All of a sudden, it was like a light was turned on and every tech company was working to get their own Tablet out the door. It was like “Wow, Apple has proven that people really ARE willing to spend as much money on a keyboard-less netbook as on a PC. We just need to follow what they did!”. The logic was that if you could get an iPad-like device out there, hopefully for a little cheaper, you could capture some of this “emerging market”.

This is almost the definition of insanity. Does any tech executive seriously believe that they can build a rival hardware AND software platform overnight to compete head-to-head with the iPad? Apparently many do. Don’t forget that the iPad is built on the iPhone’s OS, service (iTunes), and App ecosystem, which has a 3-year lead.

These guys could have stood a chance, had Apple introduced the iPad at a higher price point. However, as I wrote about at the time, Apple made the aggressive and brilliant decision to price the iPad at $499, impossible for any credible competitor to beat, even a year later.

Wait, what about Android Phones?

If this is true, then how did Android phones gain overnight parity with the iPhone? Won’t the same thing just happen with tablets?

That sounds like an alluring analogy, but it it flawed.

Firstly, when most people buy a phone, even a smartphone, they are buying a phone first, and the platform second. It’s like buying a car and getting some brand of stereo that comes with it. Likewise, it comes time to upgrade my Verizon phone, so I go pick the one that most strikes my fancy, and oh, it just so happens to come with this Android thing. This isn’t the case with Tablets. People didn’t have a Tablet-need before the iPad came out. This is a new market (and for now can be rightly called the iPad market).

Second, with the iPhone, Apple was hobbled by the AT&T deal in the U.S. Had they somehow managed to launch the iPhone with multiple carriers, the story would have turned out quite different. Since most people are locked into multi-year carrier contracts, and there are significant (real and perceived) switching costs, this effectively limited Apple’s initial addressable market for iPhone.

Third, Apple made a huge pricing mistake with the first iPhone, making the purchase price too high instead of hiding it in the carrier subsidy. They fixed it when the iPhone3G came out – lowering the sticker price, but raising the data charges (so that you actually paid more for one after the 2-year contract was up compared to the original iPhone!). With smartphones, competitors can play all kinds of pricing tricks (“2 free phones with a 2 year contract”). Tablets don’t work well with carrier subsidies – most people buy one without 3G – so it’s a more direct shootout. Apple’s aggressive iPad pricing ensures what no competitor can beat them on price for similarly spec’ed machines.

So what’s a competitor to do?

In the consumer space, the only viable strategy in the short term is to attack from the bottom: Field a cheaper ($249) and smaller (7”) tablet that only promises to let the user do a few basic things really well:

• Read books
• Watch videos (Netflix, Hulu, and Flash)
• Facebook and Twitter
• Email
• Browse the web
• View their photos

Note that this isn’t just a cheaper device (like the Dell Streak), it’s a cheaper device with a ready-to-go service and ecosystem. Such a device could be fully cloud-connected and not need a lot of onboard storage nor even support 3rd party apps. It would be basically a super-Kindle, and my bet is that this is exactly what Amazon plans to release this Fall.

The reason this will work is that it has already worked: For the iPod Touch. While there are millions of people who are willing to pay $499 to get the full tablet experience, there are millions more who would pay $249. We know that this price point is achievable: Lesser known companies have already delivered hardware for less. What’s missing are the integrated ready-to-go services and marketing.

The majority of those iPad owners use them for the fairly simple needs above, at least most of the time. The iPad has already overshot the needs of a large segment of the population. This is an opening for an enterprising competitor to take.

I stumbled upon this gem today (via this article). It’s a video of a 45-minute long raw Q&A session with Steve Jobs by developers at WWDC 1997, when he was still an advisor to Apple and Gil Amelio was CEO. In it, Steve gives pretty clear answers to some tough questions, and gives us a glimpse into what it was like to turnaround Apple from the brink of disaster into the powerhouse it is today.

Though slightly dated, this video is a great case study for what great leadership looks like, especially in times of crisis. Keep in mind that this was before there was any indication that Steve Jobs would be the next CEO of Apple, and the fate of the company was hanging by a thread. There’s irony, given Apple’s reputation for secrecy, in how candid Steve is to this audience of 3rd party developers. There’s no question that Steve totally gets it about the industry. He doesn’t mince words, or try to BS his way out of hard questions. Equally remarkable is how clear and consistent his vision for success was, and how you can now trace much of what Apple has since accomplished back to the points he made 14 years ago.

A few of my favorite takeaways and snippets:

1. On focus: “Focusing is about saying no.” The very first question out of the gate was a hardball one about why Steve and the new management cut so many seemingly promising projects like OpenDoc. Steve’s response was that due to bad engineering management, too many projects had been started and allowed to continue in multiple directions without coherence. The result of which was less than the sum of the parts. The solution was to cut things, even locally promising things, that did not contribute to the larger goal.

2. On Better vs. Different: “It’s important that Apple be perceived as Much Better, not Different.” The key is to focus on the 10-20% of stuff that you can make much better, and reuse the rest. It’s a failed strategy to try to reinvent the wheel in every case.

3. On the stock price: “[focus on executing and] the press and stock price will take care of themselves… if people are selling Apple stock short, go out and buy some, that’s what I’ve done.”

4. On “Cloud computing”: Although he never used the word “Cloud”, here’s a segment where Steve Jobs gives a pretty spot-on description of what Cloud computing should be. 14 years later, you’ll find this eerily similar to what iCloud is now trying to do.

5. On where great products come from: “Every good product is because a group of people cared deeply about making something wonderful that they and their friends wanted.”

6. On the customer experience: “You need to start with the customer experience and work backwards to the technology.”

7. On the future of mobile communication: “What I want is a little thing with a keyboard that’s connected to the net… I don’t want a little scribble thing”.

After watching this, I only wish all companies were run by people with even half this level of candor and get-it-ness.

I’ve been eyeing the new MacBook Air to replace my 2009 13” MacBook Pro. I was excited to hear that Apple might be releasing the Sandy Bridge refresh of the MacBook Air this week, only to be disappointed when it didn’t happen.

My main motivation to get the Air is the higher screen resolution. The 1280x800 resolution on my MBP is starting to feel a little cramped. Up to this point, my main concern with the Air is the 4GB RAM limit (I find that 6GB is the sweet spot that avoid unnecessary disk swapping), and the limited disk space (256GB max). The Sandy Bridge refresh is supposed to up the memory limit to 8GB, though the disk space is likely to remain the same.

This is where iCloud becomes important. For the most part, 256GB and even 128GB is plenty of space, if it were not for music and photos. I actually have a 120GB SSD and a 500GB hard disk (on an Optibay that replaces the DVD drive) in my MBP. All my Apps and documents fit fine on the SSD. The hard drive is mostly empty at the moment, filled mainly with:

Music     - 36 GB

Photos  - 50 GB

Movies – 19 GB

The movies are mostly ripped DVDs that I figured I might someday watch again on a long flight, but have never ever done so, and they are really not needed in the age of Netflix. With Apple’s $25/yr. iTunes Match, I could theoretically eliminate the need to store my entire music collection on my laptop.

PhotoStream is a brilliant idea, but I also want a way to have my entire photo archive available to me over the Cloud. I hope Apple revamps iDisk for iCloud, but if not, I could also use a PogoPlug.

The MacBook Pro is already my only computer. With iCloud, I see the potential that a MacBook Air with less storage could be my next only computer. This means that for many people, the day when an iPad or an iPhone could be their only computer is not too far away.

The concept of Combined Arms Warfare is as old as strategy itself: Diverse forces working in concert can decimate larger and less organized opponents. This week, Apple has demonstrated itself to be the ultimate master at orchestrating this level of integration across its entire product line. This is also the culmination of a decade-long maneuver.

The 10 Year March.

When Apple announced the iPod in 2001, there was more than just a little head scratching. Music players had little to do with Apple’s core (and diminishing) product line of desktop and laptop computers at the time. Most people assumed it was just a desperate move by a dying company. Yet, through incredible execution and focus, Apple was able to build an entire industry out of the insight that portable computing devices like the iPod and later iPhone were the way of the future.

The problem was that this created two Apples: The old (and at the time tired) Apple Computer, and the new hip music-focused Apple, Inc. - With the success of the iPod, and later iPhone and iPad, it seemed that Apple was in the process of ditching the latter in favor of a device-centric future. Over the last 10 years, Apple appeared to be fighting two different wars, one against traditional PC-dominated computers and another against the device makers of the world, and miraculously able to succeed at both at the same time.

That has changed as of this week.

The biggest news announced at WWDC ‘11 this week was of course iCloud, but the most striking thing is what iCloud, Lion, and iOS5 represent together: That Apple has now aligned all of its divisions and will henceforth be able to launch combined product offerings.

The iWorks suite gives the best glimpse of what this will look like: A suite of Apps across the desktop, phone, tablet, and cloud that all work seamlessly together. Before, you would compare buying a Mac against a PC depending mostly on what Apps could run on either platform, but now you have to compare the value of a Mac+iCloud+iDevices against a PC, which has no comparable offering. Similarly, it’s the same iPhone/iPad+iCloud+Mac against Android.

Each part multiplies the value of the others. It’s an equation no single-dimensional competitor can hope to match.

What’s Google to Do?

Doubtless, there are frantic strategy meetings going on at Google HQ right now. It seems bizarre  at first glance that they weren’t able to beat Apple to this punch, given their stature as a cloud-savvy company. After all, Google Apps have been for sale for a long time. Surely it can’t be hard to integrate them into Android? I’m sure that’s what teams of engineers are furiously working on right now, but there are at least 2 big problems with this:

1. Google is still fundamentally a Search/content/advertising company. Making money off apps and devices is not in their DNA. To succeed financially, they need to grab eyeballs who are willing to view ads and (even better) buy an advertiser’s good online. Apps are notoriously bad ad-revenue generators – even Apple can’t seem to make money off App-based advertising.

2. When they launched Android, Google basically made a deal with the devil: In exchange for rapid adoption and market share growth, they gave away most of the control over Android. Each carrier has tremendous leeway in dictating the contents and restrictions on the devices. You can bet they will demand their cut of any Google-hosted online service offering, and will certainly veto any efforts like iMessage or Facetime that could shift revenue dollars away from them.

Yes, Google is trying to claw some of that control back, but heck even Amazon is rumored to be planning their own line of Android-powered devices. That genie ain’t going back in the bottle.

The Power of Free.

Apple made a bold move by offering the core iCloud service free to all users. This may appear to be a cannibalization of their just discontinued MobileMe’s $99/yr. subscription, but it is a very powerful offensive and defensive play. Not only will this virtually guarantee overnight adoption by the vast majority of their user base, it is a price their competitors will find hard to match.

The reason: Apple makes their money from selling expensive devices with 40% margins. They can easily afford to throw in free cloud services that at most cost a few dollars per year to everyone who buys an iDevice or Mac. None of their competitors have that. Android actually costs money by Google to promote, and Microsoft makes a small fraction on OS licensing fees. If they could do it and wanted to, they would have certainly done so by now.

iCloud raises the table stakes of the mobile game. Competitors will be forced to respond in some form or another, and doing so will diminish their margins at a greater rate than Apple’s.

Completing the Circle.

I’d bet that it’s no accident that the design of Apple’s new campus (which was announced the same day as the WWDC keynote) is in the shape of a perfect circle. Steve Jobs is known to love this level of symbolism. iOS+iCloud+Mac represents the completion of the circle for Apple, and the core of all three divisions will soon be housed under the very same roof.

Flock is an interesting project that seeks to combine the best of a browser with social networking. Among the myriad of tools it has is a pretty good blog editor. However, it does have its limitations. I haven't been able to figure out how to upload photos without the need for a third party photo hosting account like Flickr.

So the "Back to the Mac" event ended up being a bit of a dud. The iLife update borders on laughable - iPhoto now comes with Full screen view! Really? I can't believe Apple has the gall to charge $49 for an upgrade. Pretty much the only memorable thing was the iMovie trailer templates, and even then that's pretty much a novelty feature.

Only a few choice details of Lion, the next OSX version, were revealed, but the direction was clearly spelled out: Apple intends to merge the iOS and OSX platforms. The inevitable conclusion of this would presumably be a multi-touch screen iMac, as previously discussed. If you accept that, then the choice to release the Mac App Store early is a little strange. By releasing early, the Mac App Store will initially be populated with Apps that would not be multi-touch capable. Most existing Mac software won't fit well into the new full-screen Launch Pad paradigm:i.e. this only makes sense for games and little else.

The idea that a multi-touch trackpad is like a multi-touch screen is absurd. The UI paradigms are completely different: A mouse cursor vs. direct manipulation. The focus on "multi-touch" vs. "direct-manipulation" is a clever smokescreen. The problem is that Apps that target one or the other must be constructed completely differently: For starters, UI element sizes and placements have to be different, but it extends even to the whole structure of an App.

My guess of what's really going on is that Lion will be multi-touch direct-manipulation capable, and the next iMacs will have capacitive multi-touch displays. Apple did not reveal this simply because they don't want to cannibalize existing Mac sales. The timing of Lion's release next Summer coincides with the next iMac hardware refresh cycle.

In many ways, doing multi-touch on the desktops (vs. laptops) first makes sense: Apple already has the tablet market cornered, and a multi-touch laptop will only serve to confuse. Multi-touch desktops, though, represent another brand new untapped market. If Apples does indeed go for that next year, they will catch all their competitors gunning for the tablet market by surprise, yet again.

Like many other bloggers, I have finally had enough battling spam and upgraded to BlogEngine 1.6 which comes with much better comment moderation. So long spammers!

Apple has recently announced a “Back to the Mac” event for this Wednesday. The teaser invitation shows the Apple logo slightly pivoted with a lion peeking out from behind it.

We are almost certain to see at this event:

1. The next version of iLife

2. The launch of a new MacBook Air

3. A preview of the next version of OSX

But let’s indulge in some wild speculation. The invitation shows the Apple logo pivoting, like a convertible tablet would. There’s also an interesting choice of wordplay in the invitation, reminiscent of the MacBook Air’s original launch:

The MacBook Air is also the most likely candidate for an initial laptop-tablet hybrid model. It is the lightest MacBook, and also commands a premium price. If Apple enters this market, it would make the most sense to enter at the high-end, as the iPad is already entrenched at the low end ($500-$1000). Introducing a premium (say $1800) tablet hybrid model will allow new Apps to transition to the desktop space without cannibalizing the existing iPad market.

It’s also clear that OSX is coming to the end of its (almost 10-year) lifecycle. The time is perfect for Apple to introduce the next generation OS (OSXI?). It’s clear that multi-touch is going to be a big part it, and Apple will undoubtedly want to take advantage of the thousands of Apps written for iOS that could be easily ported over.

As I have written before, adding iOS emulation on top of OSX would be technically trivial to do. The real challenge is going to be in getting the physical form factors right. A problem with existing convertible tablets like the Lenovo X201 is the awkward hinge. It’s hard to imagine something similar on a MacBook Air. But if anyone can solve that problem, it’s Apple.