Apple sells 2.6M Macs, ponders uncertain future

Sets new sales record for second quarter running, but Jobs acknowledges downturn clouds picture

Apple sells 2.6 million Macs, ponders uncertain future

Sets new sales record for second quarter running, but Jobs acknowledges downturn clouds picture


As CEO Steve Jobs acknowledged that the gloomy economic picture may affect sales at Apple Inc. in the future, the company announced yesterday that it had sold more than 2.6 million Macs in its fourth fiscal quarter, setting a single-quarter record for the second straight period.

"Some remarkable things are happening at Apple, but everything is now set against this global economic slowdown," said Jobs, who rarely joins other executives on the quarterly earnings calls with Wall Street analysts.

Apple sold 936,000 desktops and 1.68 million notebooks in the quarter, which ended Sept. 30, increases of 15% and 24%, respectively, over the same quarter last year.

Overall Mac sales were up 21% year-to-year, while total revenues from Mac computer sales, which totaled $3.62 billion for the quarter, were 17% over the same period last year, and accounted for 46% of Apple's total revenues of $7.9 billion for the quarter.

"Even with the softness in the market, they had a spectacular quarter," said Ezra Gottheil, an analyst at Technology Business Research Inc. However, the numbers, while impressive, were not up to recent performances. "Mac unit sales were up 21% year-to-year, a number most companies would be proud of, but it was the smallest growth Apple has posted since [the second fiscal quarter] of 2006, when the company transitioned to the Intel platform," he noted.

The slip in revenue growth for the Mac -- at $3.62 billion it was 17% above the same quarter last year -- was due, Gottheil said, to two things: The annual back-to-school promotion, which offered rebates of up to $299 to buyers who purchased an iPod with a new Mac, and second, consumer caution. "Even Mac consumers were more cautious in the quarter," Gottheil said.

Peering into the future, Jobs and other company executives said they're not sure how the economic climate will affect sales of its Macs going forward. "We're not economists," said Jobs at one point during the call. "Your next-door neighbor can likely predict what is going to happen as accurately as we can."

A slowdown in sales during the last weeks of September and the first weeks of October, in fact, may be a clue, said Tim Cook, Apple's chief operating officer, although he also attributed the fall-off to customers postponing purchases in anticipation of revamped machines.

"There were rampant rumors and lots of press reports about a potential portable transition, and we saw some slowing toward particularly the final weeks of September and the initial weeks of October," said Cook. He maintained that once the new laptops hit stores, sales rebounded.

Last week, Apple introduced redesigned MacBook and MacBook Pro notebooks, and dropped the price of the previous generation's entry-level MacBook by $100.

Gottheil wasn't sure that Apple would be able to maintain its growth pace, which has consistently outdone the computer industry average by wide margins. "Because Apple specializes in premium products, we believe the company will be affected more than competitors by a severe sustained economic downturn," he said. "Nevertheless, we believe the company will continue to be profitable, and will successfully weather difficult conditions."

Jobs was on the call exactly because of the uncertain future, Gottheil added. "Everyone is getting really nervous, and Jobs' main answer to that was that Apple's customers are loyal," he said. "They may defer sales, but they're not going to quit buying, or switch to Windows."

Gottheil also said Jobs' participation was another move by Apple to calm investors who have worried about his health.

Apple executives also noted that the lower margins they had predicted in July -- and the vague "product transition" they had also talked up then -- had resulted from the new MacBook manufacturing process, which features a "unibody" aluminum case of its new notebooks. "The unibody precision aluminum enclosures would normally cost hundreds of dollars by themselves," Jobs said.

"They were initially going to have higher costs," said Peter Oppenheimer, Apple's chief financial officer, referring to comments he made in July when he talked about lowered profit margins for the fourth quarter. "[But] through volume manufacturing and cost engineering, we're going to work down, work to get down the cost curve over time."

If nothing else, Apple is well-positioned to weather tough times, Gottheil said. The company has $24 billion in the bank and can afford to tough it out. "Jobs' messages was that 'we got rocky economic times ahead,' but he also bent over backwards to say there's nothing to worry about for Apple."

Copyright © 2008 IDG Communications, Inc.

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