Apple Social Media

An Earnest Discussion About Q3 2014 Mac Sales

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My website captures so few comments that I consider turning them off. There is engagement around posts, but the extended storytelling typically takes place somewhere else—primarily on social networks. The interaction, while valuable, provides no context here, where it belongs.

I don’t know where Facebook, Google+, Twitter, or any other social network will be five or 10 years from now. A decade ago, MySpace sizzled with popularity. Now it’s a ghost town. So I feel compelled, and disturbed for the need, to post some comment interactions that take place elsewhere—particularly those where my responses are lengthy. 

Over at Google+, Harry Evangelou and I had an engaging discussion about my Mac sales analysis, which offers reasons why they’re up while iPad is down. We dispute some of numbers, and what they mean.

Harry: Also remember guys that Apple’s September quarter included all those back to school sales. BTW, Chromebooks grew 67 percent, while Macs 20 percent, and of course this is while PC sales are down. So if anyone is killing it is Google and Chromebook. One thing is certainly clear: iPads are dying, down double digits the last 3 quarters. Chromebook shipments leap by 67 percent.

Joe: Chromebook’s growth is from a much smaller base, and the vast—and I mean vast—majority of sales go to a single market: Education. As for Mac sales and education, the higher number is unusual even for third quarter.

Harry: I don’t mean to say anything but what smaller base are we talking about? Here Macs have untold years upon years of customers and brand recognition, and all they managed to sell is 5.52 million out of 80 million units in the 3rd quarter or 7-percent market share. Yes, their number was up 20 percent from last years but that just shows from what a pathetic smaller base given the years of sales and customers. So you better believe the Chromebook growth and sales number are a lot more than ‘smaller base’ given how young Chromebooks are.

Joe: The average selling price was $1,200. What do you think it was for HP, Dell, or Lenovo? The extremely higher ASP—in the United States 2.8 times higher than Windows PCs. What would say if in the U.S., Apple earned as much revenue as all Windows PCs combined? That’s a realistic scenario.

Harry: With only 7-percent market share they would have to have ASP more than 7x higher to have as much revenue as all the others combined, and that’s never going to happen. Apple may sell higher ASP units but they are selling them to the same small number of people. Their iPads sold more than twice as many units as their Macs (12.3M vs 5.52M) and that’s a rapidly declining business (-13 percent YoY).

Joe: Mac is considerably more profitable than iPad. How do you figure 7 times? If the ASP of the PC is $400 and the Mac $1,200, six PCs equals two Macs on revenue, but the Macs generate far greater profit because the margins are so much larger on $1,200 than $400.

Harry: Where did you get that the rest of PC sales (93 percent) ASP is $400??? Link please.

Joe: In the United States, the ASP for Windows PCs is $458, according to NPD, as clearly stated in my analysis. That’s the source; you have the link. I chose $400, to make the math simple when demonstrating that your 7 times figure makes no sense.

Apple’s ridiculously high-selling price is one of the article’s main points—and major reason for writing the story. Because the Q is: Why do so many people pay more when there are options costing so much less?

So, let’s try this differently by using IDC and NPD data, which won’t be exact but I’m only trying to make a point. Assuming 88 percent of PCs have Windows (assuming Chromebooks, Macs, and a few Linux boxes total 12 percent), that’s 15,254,800 computers times $458 for total revenue of $6.99 billion.

Take 2.26 million Macs x $1,276 you get $2.9 billion. The difference is nothing like 7 times, but, of course, less than my previous comment, which like this one looks to make a point by illustration rather give authoritative numbers (since the necessary data isn’t publicly available).

Assuming 15 percent profit margin for Windows PCs and 38 percent for Macs you get $1.05 billion and $1.09 billion profit, respectively. Ask retailers or OEMs and many will tell you 15 percent margin on a cheap Windows PC is generous. I assume, based on Apple’s publicly available information, that 38 percent is close, if not conservative.

These numbers are by no means scientific. I make no claims about which is more profitable. The number-crunching, assuming no mistakes in my math, is meant to explain why Apple’s smaller market share is bigger deal than you might think and to respond to your comments and question.

Harry: I don’t buy that $458 from NPD not for a minute (it’s garbage IMO), but even with that number instead of 7x that I said it’s 5x. Seven-percent Mac market share and 93 percent everything else. So you have (458 x 93)/(1200 x 7) = 5.07.

Joe: NPD has an outstandingly good track record tallying this data. The number is accurate. As for the difference between Macs and Windows PCs, profit matters more than revenue. The gap there is fairly narrow.

Harry: I don’t think the $458 is correct cause HP in Q3 had very nice growth in both market share and ASP. So I still say that IMO that $458 does not sound right. Also Lenovo, Dell, and Acer had more YoY growth than Apple.

Here is the Q3 CC from HP where they mention that ASP grew double-digit YoY:

Bill Shope – Goldman Sachs
Could you comment on how gross margins are trending in the industry standard server segment, particularly as the mix continues to shift toward tighter scale and perhaps provide more detail on how your cost structure is evolving with the changing market dynamics? Obviously, you’ve regained plenty of momentum on the market share side but I just wanted to dig a bit more into the margin structure and how you’re thinking about that as well.

Cathie Lesjak – EVP and CFO
Sure. We actually had a good quarter in industry standard service, not just from top line perspective but also from a profitability perspective. And what you see is our AUPs or Average Unit Prices grew significantly double digit year-over-year, high single digits quarter-on-quarter really on the strength of our very strong option attach. We are also doing a really good job of segmenting the market and figuring out where growth is and good profitable growth. And so that’s really helping with margins. We also saw much improved discipline around discounting and we’re driving very strong savings in supply chain. So all of that is really contributing, despite the competitive pricing environment, contributing to improving margins in industry standard server.

Joe: This discussion is about servers, not PCs.

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