Apple sets sales records 'as if recession never happened'

Mac and iPhone sales 'spectacular,' hints of new products this quarter

Apple reported today that it sold more Macs and iPhones last quarter than in any other three-month period in the company's history, with executives using words like "phenomenal" to describe its performance.

"It was a spectacular quarter," said Ezra Gottheil, an analyst with Technology Business Research. "It's as if the recession never happened to Apple."

In the quarter that ended Sept. 30, Apple sold 3.05 million Macs worldwide, an increase of 442,000 over the next-best quarter, which was the same calendar quarter in 2008, said Peter Oppenheimer, Apple's chief financial officer.

"This was Apple's most profitable quarter ever, and Apple had more sales of Macs and iPhones than any quarter ever," Oppenheimer said during a conference call with Wall Street analysts.

Apple's sales have outpaced the industry average for 19 out of the last 20 quarters, Oppenheimer added. The one exception: This year's first quarter, when Apple failed for the first time since 2003 to grow Mac sales year-over-year.

Oppenheimer also said that Apple was "thrilled" to set an iPhone sales record, moving nearly 7.4 million units of the smartphone in the last three months. Apple will also start selling the iPhone in China, the world's largest mobile phone market, later this month, said Oppenheimer.

Globally, Mac sales were up 17% compared with the same period a year ago. Although Apple didn't break out U.S. sales separately, numbers generated in the Americas and at retail -- most of its retail stores are in the U.S. -- totaled 1.92 million Macs, up 11.6% from the 1.72 million it sold in those same categories last year.

Last week, IDC and Gartner, the two research firms that estimate Apple's U.S. sales each quarter, pegged Apple's U.S. sales for the third calendar quarter at 11.8% and 6.8%, respectively.

Desktop demise

"The last quarter was the quarter of the portable," said Tim Cook, Apple's chief operating officer, the executive who ran the company for several months when CEO Steve Jobs was on medical leave. "Sales of Mac portables were up 35% year-over-year. This was a blow-up quarter."

There was considerable truth to Cook's characterization. In July, August and September, Apple sold 2.3 million Mac notebooks and only 787,000 desktops, posting a year-over-year gain in the former of 35% and a year-over-year decline of 16% in the latter.

"Desktop sales have reached a point where they're never going to come back," opined Gottheil. "The turnover point has been reached, when whole new configurations are in the home, in dorm rooms. People may have a screen they use for other purposes, too, but people aren't having a box any longer."

The average sales price (ASP) of Apple's Mac laptop line was also up, noted one Wall Street analyst during the question-and-answer portion of the earnings call. "That was a result of a higher mix of MacBook Pros," explained Oppenheimer, repeating a refrain the company gave in July when it discussed Mac sales for the second quarter, particularly sales after the early-June refresh of the line.

"[Portable sales] were a direct result of the line-up we announced in June," said Cook, noting that for a time, Apple had a backlog of orders for some MacBook Pro models.

At the same time that Apple revamped the MacBook Pro line-up, it also cut prices of many of the models. Apple, however, has contended that the price cuts have actually helped boost the ASP, as many users have simply "moved up" from the $999 entry-level MacBook to the $1,199 MacBook Pro.

Gottheil seconded that today. "The MacBook Pro is pulling people from the bottom of their line, people are saying 'for $200 more I can have a more substantial computer'," he said.

Overall, Apple's revenues jumped 25% for the quarter compared with the same period in 2008, based not only on better Mac sales, but soaring sales of the iPhone. Sales of the iPhone, for instance, were up 7% year-over-year for the quarter in units, but iPhone revenues leaped 185%.

Apple will finally enter China's potentially-lucrative mobile phone market at the end of next week, said Cook. "We're thrilled to be launching [the iPhone] there on Oct. 30 on China Unicom," said Cook, confirming reports in August that the country's second-largest carrier had reached a three-year deal to sell and support the iPhone.

Some analysts have predicted that China will account for between 15% and 20% of Apple's worldwide iPhone sales next year.

"None of us are competent enough to estimate China's part in iPhone sales," countered Gottheil. "It's clear that there a substantial number of people there who can afford a substantially more expensive phone, but the question is, how many of them already have it?"

Apple has several times, including today, made that same point, noting that it suspects a significant number of iPhones have made their way into China, even without a sanctioned carrier to support them.

'Upcoming new products'

The most intriguing points raised during the call with analysts, however, were what Gottheil said were those that "planted hints about new products." When Cook and Oppenheimer answered questions about Apple's estimated gross margins for next quarter, they used the phrase "upcoming new products" as well as existing products to explain why margins would be lower.

Gottheil read between the lines, and said that it was clear Apple would introduce something new between now and the end of the year. "They'll have something new," he said, "because they're planning that gross margins will be down."

Although it's impossible to predict exactly what Apple will roll out this quarter -- perhaps refreshed iMacs, maybe a lower-priced entry-level MacBook -- when Apple talks about margins sliding, it almost always means that new products, which are built in smaller numbers and have major R&D costs attributed to them, are not as profitable as longer-running models or lines.

"One likely candidate for the lower margins would be lower prices," Gottheil speculated. "But it could also be an $800 tablet that has a lower margin, not because they won't sell many, but because that's what it costs them to build it."

This past quarter, however, was simply stunning, Gottheil concluded. "They've clearly gained share across the board," he said, pointing to impressive sales gains in Europe (up 25% in unit sales compared to the same period in 2008) and Asia.

"This seemed like kind of a non-recession quarter for them," Gottheil continued. "Not as good as other non-recession quarters, but still very strong. I think it's because people are buying Apple's argument that they're providing ever-increasing value, not just with the hardware, but with the added services like support, and for the iPhone and iPod Touch, the App Store."

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