Can iPhone growth outpace decline in Apple's laptop sales?
Jul 21st 2009 8:00AM
Updated Dec 4th 2009 6:22PM
With Apple (AAPL) set to report its third quarter earnings today after the closing bell, expectations for the computer, mobile phone and software company are running rather high. So high that some analysts are expecting blow-out earnings numbers from the Cupertino, California company.
A number of prominent Wall Street analysts who follow Apple have come out with projections that the company will record a very strong quarter in terms of notebook sales, after a report from retail trend tracker NPD noted favorable Mac sales numbers. But tech consulting company IDC also issued Apple computer sales figures for the previous three months, and its conflicting report showed a decline of 12.1 percent, year over year.
The two divergent views on Apple are likely the key to understanding whether Apple merely beats earnings or completely obliterates Wall Street's expectations. And it's important to understand the differences between the two reports.
The NPD report is for U.S. sales of Apple computers. As such, it does not capture international sales number. The NPD report also is primarily derived from sales of Apple computers at chain stores such as Best Buy. The numbers, to the best of my knowledge, do not include sales of computers from Apple's own retail stores or its online stores. Nor do the numbers include direct sales from smaller Apple resellers, educational sales, or large e-tailers such as Amazon.com. For that reason, the NPD report represents a significant, but still limited, slice of the market.
IDC numbers have a less transparent methodology. IDC primarily tracks shipments of products rather than actual sell-through. This is a key distinction as PC makers often build up inventories in anticipation of the busy back-to-school and holiday buying seasons. While IDC is not tracking unit sales at the actual point-of-sale, the IDC numbers have carried fairly strong weight for relative accuracy.
In other words, its a toss up as both methodologies are clearly flawed. Personally, I feel that Apple might see strong -- but not remarkably strong -- Mac sales. Sales of the highly profitable MacPro line, aimed at graphics and production professionals, will likely be very, very weak due to the slowdown in advertising and the creative fields. Sales of Apple laptops will likely come in strong, spurred by some shopping for Macs after the company slashed prices and improved feature sets on its low-end laptop, the MacBook.
The multi-billion dollar question is this. Will rock star iPhone numbers render struggling laptop and Mac sales irrelevant in the grand scheme of things? That appears highly likely. Apple has been breezing past even bullish analyst predictions on sales of the new iPhone 3Gs. In its first weekend, the speedy new version of the iPhone sold over 1 million units, nearly double the initial estimates of Apple super-bull Munster. iPhones are extremely high margin products for Apple, with gross margins on the line probably close to 50 percent and a chunky deferred revenue stream that keeps on giving to the bottom and top lines for a full two-years after sign-ups.
In a nutshell, if Apple can clear $8 billion or greater in revenue (as opposed to current guidance of $7.9 billion) and post gross margins of 37 percent or higher, then it's clear all is well in the Apple Universe.