Only a few years ago,
high-end computer fare seemed stuck in a dusty corner of the market reserved for cult favorites. But with the breakaway success of its iPod music player, the company run by design snobs is veering surprisingly closer to the mass market.
Apple shipped a stunning 2 million iPods in the just-reported September quarter, almost double what analysts had expected. iPods were largely responsible for a massive upside surprise in profit for the period and led Apple to predict another blowout financial performance in the quarter now under way.
The widespread appeal of the pricey gadgets has helped launch a surprising turnaround for the trailblazing technology outfit, which had seen its influence dwindle steadily over the past decade.
But while iPods have put Apple back on the consumer map, there hasn't been a related surge of interest in the company's flagship computers, which accounted for 52% of sales in the most recent quarter. Apple accounted for a surprisingly small 3.7% of PC shipments in the U.S. during the second quarter, according to IDC. That's actually down slightly from its PC share of 3.8% a year ago.
Though many analysts think Apple will soon begin to expand that share, it would be a long, slow climb back to its peak in 1993. Back then, the company ranked No. 1 in the U.S. PC market, claiming over 13% of market share, just ahead of
Beginning in 1995, Apple's market share took a sharp hit after the introduction of
Windows 95 operating system -- and has declined ever since.
Regaining some of that lost share is key to ensuring Apple's revenue growth. Merrill Lynch analyst Steve Milunovich estimates that each half-point of share that Apple can add is equivalent to about $1 billion in revenue.
But few tech watchers believe Apple can regain its former market-share heft in the computing arena. Research firm IDC's Roger Kay, director of client computing, said that could come to pass only "if Apple were to execute perfectly, the drumroll of new products continued at the same pace, and the other guys screwed up." But he counts that as a "very low probability."
For that matter, Apple executives have been quite upfront about the fact that PC share gains aren't a primary company goal -- a sentiment verging on heresy in the share-obsessed computer industry.
Instead, Apple is focused on broadly boosting growth in the top and bottom lines. As CFO Peter Oppenheimer explained on a conference call Wednesday, "We're not focused on market share because we're really not participating in the low end of desktops at $800 and below. We don't think we can make a lot of money there."
In other words, for all the democratic appeal of the iPod, Apple still sees its computers as premium products. It would rather reach its revenue targets by selling fewer, more-expensive computers than by hawking lots of cheap boxes.
In a PC market increasingly ruled by price, it remains to be seen whether that philosophy will resonate with computer buyers. For its part, Apple points out that the wild popularity of iPods has helped lure more newcomers into the company's 84 nationwide retail stores, where consumers can view its sleekly showcased computer products. Half of the company's Mac PCs sold in retail stores were bought by first-time Apple users.
Weekly visitors to Apple retail stores averaged 7,400 per store in the company's most recently reported quarter, up from 5,600 in the preceding quarter.
But analysts still want to see more growth in Mac revenue. In the second quarter, Apple computer shipments rose 9.3%, trailing broader market growth of 10.9%, according to IDC.
A shortage of IBM-produced G5 chips is partly to blame for slow desktop sales. With supply expected to improve markedly this quarter, investors will be watching closely to see if Apple's computer sales show signs of accelerating.
"Is Apple more than a one-hit wonder?" mused Milunovich in a note expressing concern with September-quarter computer sales growth. iPod is such a big hit that it may not matter now, he said, but over time it will.
Of course, skeptics
who doubted Apple's turnaround are likely nursing regrets over lost potential profits.
Apple shares have marched steadily upward since the launch of the iTunes music store in April 2003 -- in retrospect, the stroke of genius that kicked off iPod sales in earnest. Counting a 15% gain since last Wednesday's barnburner earnings report, the stock has more than tripled since the day before the iTunes launch (when it closed at $13.35), based on Friday's final trade of $45.50.
While the steep gains have left even bullish tech-watchers wondering how long the ascent can continue, consumer lust for iPods shows no sign of flagging, and keeps Apple top of mind for PC buyers. And counting Wednesday's report, the company has now surpassed analyst expectations for seven quarters in a row. That doesn't sound like a company to bet against.