As its third-quarter figures show, Apple (Nasdaq: AAPL ) is taking a bite out of all kinds of competitors. Names such as Hewlett-Packard (NYSE: HPQ ) on the PC end, Sony (NYSE: SNE ) in the MP3 biz, and Motorola (NYSE: MOT ) in the cell-phone industry are all feeling the heat.
Steve Jobs and company are legendary for keeping a tight wrap on their upcoming products, so as expected, the latest quarterly earnings conference call provided no detail whatsoever on new releases on the way. Nonetheless, management did give us a nice picture of how its three primary consumer-electronics brands -- the Mac, the iPod, and the iPhone -- are performing. All three are doing extraordinarily well, but since the iPod and the iPhone are the ones that usually dominate the press, I thought it would be nice to give the Mac a little love.
Let's take a closer look at the stellar sales figures for the Mac, as well as the potential that awaits it on the retail front.
Apple has a pretty good thing going in the PC segment. Mac products and services represent 60% of the company's net revenue. This category grew by 33% over the same period a year ago. That's impressive. To put the bump into context, consider another red-hot brand right now, Hewlett-Packard, which increased sales from its Personal Systems Group by 24.2%.
Apple CFO Peter Oppenheimer gave us a fuller picture of Mac's strength -- he said sales from the PC segment were more than four times the estimated industry growth in the U.S. during the quarter that ended in June. And it's not only the U.S. market that's doing well for Mac. Internationally, Oppenheimer said, it outpaced the estimated industry growth by more than two and a half times. Folks, Mac is gaining some serious market share.
The iMac is a major contributor to Apple's successes, too, but it's the MacBook that's really taking things to another level. Fueled by new MacBook and MacBook Pro releases, the latter of which, Oppenheimer said, "includes the industry's first LED display," sales increased 42% year over year, to represent 64% of all Mac sales.
Mac to get a retail boost
The momentum is very much in Mac's favor, and I don't see the momentum dissipating any time soon. Don't forget about the partnership with Best Buy (NYSE: BBY ) to do a store-in-store concept. This program is still in its infancy, and we learned in a Best Buy conference call in April that the plan was to get 200 of these concepts up and running by the fall. That would account for about a quarter of all Best Buy stores in operation.
In the question-and-answer session of Apple's most recent call, we learned a little more. COO Tim Cook revealed that by the end of the quarter, 75 of these concepts were operating, compared with 50 at the beginning of the period. The plan for 200 by fall is expected to rise to roughly 300 by the end of the calendar year.
The concepts should begin to have a material effect on sales as more of them come online. Consider that by the end of the third quarter, 185 stores sold 330,000 Macs in all, good enough for 53% unit growth. Now, imagine what 200 Best Buy-Apple store-in-store concepts will do in the fourth quarter. We're talking serious damage here.
We do need to temper our enthusiasm a bit, however, because I do expect there to be some cannibalization in sales between Apple and Best Buy locations -- basically, one store may eat up some sales that another store could be ringing up. But even accounting for this possibility, the partnership with Best Buy should provide a major boost to Apple's revenue in the coming quarters.
Overall, the Mac business looks outstanding. You'd think it would feel the challenge from Microsoft's (Nasdaq: MSFT ) Vista fully uploading into the PC industry, but remarkably, it is as if Mac were oblivious to Mr. Softy's looming presence. Oppenheimer put his stamp of approval on Mac's most recent performance: "This past quarter is the highest Mac sales the company's ever had, and the Macs we're shipping today are the best products we've ever shipped."
Look out, competition!
A Mac world
The iPhone, the iPod, and iTunes seem to get all the press, and they should. Each one has been a stellar performer in its own right. iTunes, for instance, just became the third-largest music retailer in the U.S., surpassing both Amazon and Target. Meanwhile, iPods still dominate the MP3 market with a 71.5% share. And, of course, the iPhone rocketed out of the gate in the third quarter and is on pace to sell 10 million units by the end of 2008. These are all impressive feats.
But as we applaud Apple's other hot brands, we do not want to lose sight of the Mac's growing presence. I expect its surge to continue as the brand re-emerges to a place of prominence in the PC industry.
What a ride for Apple shareholders in recent years! The Mac has a lot to do with it, and it's definitely one reason the party isn't over yet.