is a wonderful
machine. It's also a dispenser of some of the finest Kool-Aid in the land.
After nailing its second-quarter numbers and sharing its customary cautious guidance, Apple laid on the real sales pitch to investors, glossing over the blemishes and putting a fine polish on its aura.
If you didn't know better, you would think Mac marketshare was still growing and the top-shelf prices that Apple commands were holding up just fine in this economy. But that's not true.
Not only did Mac sales fall for the first time in five years last quarter, but computer revenue also fell 16% from year-ago levels. Perhaps even more alarming, in view of the Mac being Apple's core business and the best-suited challenger to the industry dominators
, Apple lost marketshare in the second quarter as sales in North America fell 8%.
As a reflection of how tough times can rough up even the most lofty tech shops, Apple felt the pinch of a tight-fisted buyer last quarter. The combined average selling price for Macs, including laptops, was $1,320, down 6% sequentially from $1,400 in the prior quarter.
Apple's price erosion came from fewer high-end Mac buyers being replaced by less expensive MacBook customers, TBR analyst Ezra Gottheil wrote in a report Wednesday.
So what's taking a bite out of Apple? The economy, obviously, and with it the rise of what Apple deems an entirely distasteful and unworthy rival: netbooks.
As with any confidence game, there's a fair share of trash talk. For his part, acting chief Tim Cook offered a somewhat accurate and blistering assessment of the wildly popular netbook fad.
"When I look at what is being sold in the netbook space today, I see cramped keyboards, terrible software, junky hardware, very small screens, and just not a consumer experience, and not something that we would put the Mac brand on," Cook told analysts on a conference call Wednesday.
The problem is that yesterday's junky netbooks have already made a dent in Apple's business. The bigger threat is that tomorrow's improved netbooks and notebooks will offer sleek designs and a performance comparable to Macs at half the price, said Collins Stewart analyst Ashok Kumar, who cut his rating on Apple to hold Thursday.
Cook's response to the challenges ahead was to offer a heart-warming look back at Apple's greatness.
"The product pipeline is fantastic for the Mac," Cook said on the call. "We are, as we look back over ... 17 of the 18 quarters of the last four-and-a-half years, we've exceeded the market rate of growth."
As the luxury goods purveyor in a bargain hunters' market, that history will be tougher to repeat.
An abundance of dirt-cheap components will help keep Apple's profit margins comfortably plump, even if the company bends even more on price. But with iPod unit growth having peaked and Macs in decline, the "revenue upside will be limited" Kumar warns.
"I'm just not sure how Apple can sidestep that trend," Kumar says.