Apple levitates: Financial quarter, by the numbers

Posted on January 26, 2010 by Ian Betteridge

Joe Wilcox goes through Apple’s numbers for the quarter thoroughly (and dispassionately – something that I appreciate when it comes to numbers).

What sticks out for me is that Apple has managed a pretty astounding feat: preserving unit sales (or expanding them in many product lines) while pushing margins even higher, something that should barely be possible when the world is in the grips of the worst recession since the 1930′s. There’s been a lot of focus on the bottom-line revenue numbers, but the truth is that given the changes in the way Apple accounts (driven by a revision to the rules by the Financial Standards Accounting Board) it’s hard to really see clearly how well Apple did on that score. The best estimate is “very well, but not as well as the figures look at a glance”.

That’s why my focus in looking at these figures would be on unit sales and margins, and in both cases Apple did well – outstandingly so, in the case of its margins.

Put together unit sales on iPod and iPhone – something that’s a valid idea, I think – and they moved from 27.1 million in the equivalent quarter last year to 29.7 million units this quarter. The mix of products is high-margin items (iPhones) up, lower margin items (iPods) down. More product, at higher margin, is pretty-much all you could ask from any company at the moment. I am absolutely certain that many tech companies that are being driven to slice margins more thinly in the recession will look at Apple’s figures with a massive sense of jealousy.

As for unit sales in Macs, they seem to be broadly in line with IDC numbers, certainly for the US. In the US, IDC had estimated unit sales increase of 31%, and Apple hit 30%. Those are very good figures, but it’s worth remembering that IDC also estimated that Toshiba had upped its sales by 78% and HP by 45% in the same period. And neither Toshiba nor HP concentrate on the “cheap junk” end of the market: while their margins won’t match Apple’s, this isn’t a case of people flocking to netbooks rather than expensive PCs.

(UPDATE: But see an excellent point below by Piot on worldwide market share.)

Given these figures, don’t be surprised if Apple actually loses market share in the US this quarter. How much value you apply to market share figures is up to you – personally, I think that as long as Apple is selling enough Macs to sustain itself and keep the third-parties interested, it doesn’t really matter. The days when its market share was sinking at a worrying rate are clearly over and I doubt they are coming back.

It’s worth remembering there were many predictions that Apple’s unit sales in Macs would actually slide during a recession, as customers looked to significantly cheaper PCs or (if they were dyed in the wool Mac users) deferred purchases. That simply hasn’t happened. Without detailed, qualitative data on customers’ purchasing choices (why they’re buying what they bought) it’s hard to say for sure, but my best guess is that while Windows 7 has slowed Apple’s growth compared to the rest of the PC market, it hasn’t drawn back any of those customers who switched from Windows to Mac over the past few years.

In other words, once you’re Mac you don’t go back. The net migration from Mac to Windows which characterised the 1990′s is over. Instead, the chief characteristic is now net migration from Windows to Mac – something that Windows 7 has slowed, but not halted.

(Image by Photo by Checiàp – http://flic.kr/p/5n9bi)

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  • tcrooks

    The big surprise that seems out of step with the market is growth in desktop computer units – the new iMacs. As the average selling price of a Mac is at least 2-3 times that of most other vendors, smallish changes in unit volumes translate into sizeable changes in revenue.

    Most Wall Street analysts produced both GAAP and non-GAAP estimates in the knowledge that Apple might switch to the new accounting standards at any time in 2010. These analysts were wide of the mark on revenue because they got the product sales mix wrong.

    Not sure about lumping iPhone & iPod units number together. I see the case for iPhone and Touch units, these having much higher average average selling prices than Nano & Shuffle. It looks like the analysts got the unit numbers for that handheld tablet, the Touch, very wrong just because they treat it as an iPod. My guess is that analyst models will lump together Touch, iPhone and the iWhatever together in order to translate these high margin/price products into revenue estimates that hold credence.

    Nice article – more considered than Joe’s!

  • http://www.technovia.co.uk Ian Betteridge

    Good point about the growth in desktops. That may be where the recession has bitten a little – customers buying desktops rather than laptops to get “more bang for the buck”.

    I know what you mean about lumping together iPod and iPhone. Without doing some serious qualitative research on purchasing patterns, I wouldn’t put too much weight on it. But what I suspect is that people who might have bought a new iPod are, instead, buying the “phone that can do everything”. I know that’s what happened with me… :)

  • http://nicksweeney.com nick s

    Anecdotally, I know people who’ve bought iMacs instead of Mac Pros, but I also think that iMacs are attractive as a somewhat futureproof desktop workstation or even a HTPC.

    There’s a lot of pricing room now between the bog-standard Windows desktop system and the bottom-end iMac. You’re seeing an attempt by the Windows OEMs to go there with all-in-ones, and being able to charge closer to $1000 than $500 — the Lenovo IdeaCentres make for nice home kit, though I’m not entirely convinced by them.

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  • Piot

    Warning: Market share anorak!

    “In the US, IDC had estimated unit sales increase of 31%, and Apple hit 30%.”

    Yes, but globally IDC pegs the PC market growth, for Q4 at 15%. Mac sales grew by 33%

    Methinks Mr Wilcox is making a rather big deal about Apple possibly losing a little US share while it grabs considerably more elsewhere. He may be dispassionate, but some of his reasoning is flawed.

    “And neither Toshiba nor HP concentrate on the “cheap junk” end of the market”

    They may not be junk but these companies do seem to offer a lot of ‘inexpensive’ notebooks. On their US sites HP and Toshiba have around 20 netbook/notebook models priced at < $500.00.

    While Gartner calls Q4 "The Strongest Growth Rate in Seven Years", it would be interesting to see how much this has 'cost' the PC OEMs.

    After Microsoft announced their results one executive claimed that netbooks now accounted for 11% of the PC market. If that figure is correct, that means over 30 million were sold in 2009. (Probably quite a few at Christmas!) Nearly 20 million more than 2008. Add another million Macs, and that results in conventional notebook/desktop sales actually falling.

    It appears there is a consumer migration to smaller screened, harder to use keyboarded, cheaper, less powerful, lower specced computers. I wander where that might lead?

  • Ian Betteridge

    Piot – excellent point on worldwide market share. I’ve added in a reference to your comment in the body of the post.

    I don’t think that there’s any doubt that “conventional” notebook sales are falling – but I wonder if the distinction between “conventional” and “netbook” is actually meaningful any more. Companies are now marketing machines which contain better-than-Atom processors and 11-12in screen as “netbooks”. As Steve Jobs said, netbooks are really just cheap, low-powered laptops – at least to the PC vendors.

    (As an aside, this is something that I fundamentally disagree with. While a machine with a 12in screen might be being marketed as a netbook, it misses out on the fundamental point of what a netbook is. To me, the point of netbooks – and the thing that makes them game-changers – is that they’re small and light enough to carry anywhere, while being more capable of real work than a smartphone. A 12in machine isn’t in the “small” segment, no matter how it’s marketed.)