Mac, iPad sales push Apple to record revenue

iPhone 4 case giveaway expected to cost Apple $175M

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Apple's executives seemed genuinely surprised by the success of the iPad, which some analysts had once said would do fewer units for the entire year than Apple claimed it sold in just one quarter. "We've been pleasantly surprised how fast this product has gotten out of the chute," said Cook, who added that Apple was "selling every [iPad] unit that we can make," after an analyst asked when the company would balance supply and demand.

iPad orders are currently backlogged seven-to-10 business days on Apple's online store, and the supply will likely get even tighter; Apple plans to launch the tablet in nine additional countries this Friday.

The success of the iPad has forced several research firms to revise their sales estimates for either Apple's tablet or tablet-like devices in general. Before Apple's earnings call, iSuppli upped its iPad projection from an April estimate of 7.1 million units to 12.9 million iPads for the year. Also on Tuesday, ABI Research almost tripled a sales forecast from six months ago to 11 million for 2010.

"Apple is now a four-product company, that's pretty darn clear," said Gottheil, referring to Apple's iPhone, Mac, iPad and iPod lines.

Gottheil also saw confirmation in today's numbers that the iPad hasn't, at least yet, taken dollars from Apple's own pocket. "Cannibalization isn't a big issue for Apple, certainly, or for anyone else for that matter," he said. "As prices for devices come down, it's more a matter of people having more devices, not having to decide on just one."

Cook dismissed talk of cannibalization as well, at one point saying it was "too early to tell" if the iPad was taking away sales of iPod Touches or Mac notebooks. Later, he said that if it does happens, it's actually good news for Apple.

"This is where it's great to have a lower share, because if it turns out the iPad cannibalizes PCs, I think it's fantastic for us," said Cook. "There's a lot of PCs to cannibalize."

The one question Gottheil and Marshall had about the iPad was how soon Apple could drive down its cost, and increase the margin it makes on the tablet, which Marshall estimated is currently in the low 30% range. The iPhone, on the other hand, now enjoys a margin of about 60%.

"Will those [margins] scale up over time?" Marshall asked.

Gottheil seemed confident they would. "I think they're well prepared to ride down the price curve on these devices," he said. "Ultimately, say in a couple of years from now, tablets should be south of $300. They should be less expensive to make than a netbook, with fewer moving parts and fewer licenses to pay."

Apple also estimated that it will cost the company about $175 million to fulfill CEO Steve Jobs' promise to give away a case to all customers who purchase an iPhone 4 through the end of September.

"Seems high to me," said Marshall of the $175 million. "But that's an inconsequential number for Apple."

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

Copyright © 2010 IDG Communications, Inc.

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