Stable Mac prices fuel reliable profit engine

Mac division's operating margin is actually higher than Google's

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"I maintain a very bullish narrative on Mac Sales," Bajarin said on Twitter during Apple's second-quarter earnings call of July 22.

For Bajarin and others who share his thinking, the personal computer industry, long in a slump -- nine quarters of contraction and counting -- will make a comeback of sorts as consumers inevitably upgrade old machines. Under that theory, the Mac, although now only about 6% of all machines sold worldwide, has a chance of gaining ground because as consumers realize they need fewer computers, they may opt for better-built, longer-lasting -- and higher-priced -- devices. That's the Mac's wheelhouse.

The evidence suggests that Macs have become mainstream: Of the last 33 quarters -- more than eight years -- Macs have beaten the industry average's growth rate in all but one. In the June quarter, for example, research firm IDC pegged the overall PC business as down 2% from the same period the year before. Meanwhile, Apple sold 18% more Macs in that quarter than the year prior.

Growth of Mac sales in the enormous China market, said Apple, was 39%, more than twice the global rate. In that market, said IDC, shipments of all personal computers were down 10% year-over-year.

A 12% share of the global market for the Mac -- about twice the current share -- would put another $20-$25 billion in annual revenue on Apple's books, and another $6 billion of profit in its pockets each year.

Many have looked at new features in OS X Yosemite, the upgrade slated to ship this October, and seen clues that Apple realizes the opportunity for increased Mac sales and has begun to act. Continuity, the umbrella term for several components that promote sharing and interaction between iOS and OS X, and specifically the "Handoff" feature, which lets users start a task on an iPhone or iPad, then pick it up on a Mac, have been the basis for such thinking.

Continuity in general, Handoff in particular, promotes a greater commitment to Apple's hardware ecosystem: It only works with iOS 8-powered mobile devices and Macs running Yosemite. Because there are far more iPhones than Macs, a boon from Continuity should result in more sales of Macs than, say, iPhones, as people with the latter but not the former decide they want the feature, and buy accordingly the next time they purchase a computer.

Another factor: Continuity appears to require a relatively new Mac -- two to three years, or younger -- because of the need for Bluetooth LE (low energy) technology, perhaps a prompt for current Mac owners to upgrade. In other words, more sales.

Apple's price changes, especially those for the MacBook Air in April, also had an impact on sales, another clue that the company understands that when the larger industry has problems it has a chance to grow volume. It used that tactic to some success when Microsoft's Windows Vista was widely panned in 2007 and 2008.

In last month's quarterly earnings call with Wall Street, both CEO Tim Cook and CFO Luca Maestri credited notebooks, the MacBook Air in particular, for fueling sales. "The [18% year-over-year] increase was driven by portables, thanks to very strong growth of MacBook Air," said Maestri.

The growth was fed by price cuts to the MacBook Air early in the quarter. Those cuts, $100 off for each of the line's four stock models, represented discounts of between 7% and 10%, and resulted in the first sub-$900 notebook from Apple.

Those price cuts dropped the ASP by 7% -- probably no coincidence that the decline was in the price-cut range -- compared to the prior quarter, but the slip came after two quarters of sequential ASP growth.

The decline returned the Mac to the same ASP from nearly four years ago.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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Copyright © 2014 IDG Communications, Inc.

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