Best Mac Quarter Ever

Jim Dalrymple,Pjilips Michaels and Jason Snell
21 October, 2007
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We write a lot these days about all the things Apple makes that aren’t the Mac — iPods, iPhones, Apple TV and so on — but the Mac business has never been better than it is right now. For the fiscal quarter ending June 30, 2007, Apple had record Mac sales — and continued iPod sales growth — for an $US818 million profit. Meanwhile, the company sold 270,000 iPhones in the first 30 hours after the mobile device’s June 29 release, to squeeze into that quarter’s figures. Overall, the company saw $US5.41 billion in sales, a 24 percent increase from the same quarter a year ago.

During the quarter, Apple shipped more than 1.7 million Macs, a 33 percent increase in the amount it shipped in the third quarter of 2006, and 2.5 times the industry-wide growth rate, according to market-research firm IDC. More significantly, Apple’s third-quarter Mac sales marked a record for the company, topping the previous quarterly high of 1.61 million Macs shipped during the fourth quarter of 2006. That’s four straight quarters in which Apple has sold more than $US2 billion worth of Macs.

Desktops versus laptops. Much of the growth in Mac sales came from Apple’s laptop business. While there was a rise in desktop sales for the quarter — 634,000 units compared with 529,000 for the same period in 2006, bolstered by the arrival of Final Cut Studio 2 and Adobe Creative Suite 3 — laptop unit sales skyrocketed 42 percent, to 1.13 million portables. All told, 64 percent of the Macs sold during the quarter were laptops. This growth is especially interesting because recent Mac releases have been essentially relegated to speed bumps of existing products (the new iMac came out after the quarter ended).

In early 2005 Apple was selling less than half a million Mac laptops per quarter. But in this last three-month period, the company sold 1.1 million MacBooks, the most laptops Apple has ever sold in a single quarter. In the past year, 61 percent of all Macs sold have been laptops (back in early 2005, the numbers were reversed — 60 percent of Macs sold in the first quarter of 2005 were desktops).

“It was a great quarter for those product lines,” says Ross Rubin, director of analysis at the NPD Group, a market-research firm. “It seems like they are firing on all cylinders right now.”

Clearly, the power and portability of Apple’s laptop lines provide customers with what they’re looking for in a Mac more than the desktop lineup. Until recently, the iMac design hadn’t changed for three years, and the Mac Pro’s audience remains limited. The new desktop releases, however, may bring Apple’s sales numbers into balance.

The iPod and iPhone. While Mac products and services made up 60 percent of the company’s total quarterly revenue, Apple also sold more than 9.8 million iPods — a 21 percent increase from the same quarter a year ago. Apple says that the iPod enjoys a 71.5 percent share of the MP3 market, based on figures from NPD. This comes even when we hadn’t seen big innovation in the iPod since October 2005.

The highly anticipated iPhone went on sale June 29, the next-to-last day of the third quarter. In the wake of the iPhone’s opening weekend, with press reports of huge lines at Apple and AT&T stores, analysts upped their opening weekend sales forecasts to as high as 700,000.

AT&T announced that customers activated only 146,000 iPhones during that period, but Apple reported 270,000 units sold in the 30 hours of the quarter during which the iPhone was on sale. Or to put it another way, from 6pm on June 29, up until the clock struck midnight to usher in July 1, 150 people were buying an iPhone every minute. Apple suggested that AT&T activation woes were at fault for most of the 124,000 iPhones that were sold but not activated within that 30-hour period, although phones purchased for resale would also be included in that number.

“AT&T said more iPhones were sold in the first weekend than they had sold in the first month of any other wireless device in their entire history,” Apple chief operating officer Tim Cook told analysts during a conference call.

So while the actual number of iPhones sold was below inflated estimates, those numbers hardly conjure up images of tumbleweeds blowing through Apple Stores during that opening weekend. “To sell 270,000 is staggering — the launch was clearly a success,” says JupiterResearch vice president and research director Michael Gartenberg. “The real challenge is what happens now, and that’s all that matters”.

Rubin agrees, contrasting the iPhone’s launch with that of a Hollywood blockbuster. “This isn’t like a movie where the opening weekend is a strong predictor of overall success,” Rubin says. “The launch numbers are blunted because of the realities of most consumers considering a new phone only when their contracts are up.”

Apple expects to sell its one-millionth iPhone by the quarter ending in September (update: it actually achieved that milestone at the start of September). In contrast, it took the company seven quarters to sell its one-millionth iPod. The company says that it’s still on track to meet the goal spelled out by Apple CEO Steve Jobs to sell ten million iPhones by the end of 2008. (Apple’s COO Cook also noted that Apple “saw absolutely no evidence” of iPod cannibalisation during the quarter — no indication that users purchasing iPhones might otherwise buy an iPod).

“The company is on fire, period,” says JupiterResearch’s Gartenberg.

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