Apple Sets Revenue Record During Recession

Despite the deepening recession, Apple set a single-quarter revenue record in the last three months of 2008, selling more than 2.5 million Macs and 4.3 million iPhones in the process.

In the face of a deepening recession and softening sales for its rivals, Apple Inc. today announced that it set a single-quarter revenue record in the last three months of 2008, selling more than 2.5 million Macs and 4.3 million iPhones in the process.

Apple sold 1.8 million notebooks and 728,000 desktops in its first fiscal quarter, which ended Dec. 31, 2008, an increase of 34% for the former, but a drop of 25% for the latter over the same quarter last year. Overall, Apple sold 9% more Macs during the period than it did in the last three months of 2007, although Mac sales revenue was effectively flat year-to-year.

The number of Macs sold in the quarter was down 3% from the previous quarter.

"Mac sales have not suffered as much as one might have feared," said Ezra Gottheil , an analyst with Technology Business Research Inc. "Apple's rate of growth was much slower, but it's clear that the new MacBook was a major winner."

Apple unveiled new all-aluminum "unibody" MacBook and MacBook Pro notebooks in late October, and counter to what many thought at the time, reduced the price only for the remaining low-end MacBook with the plastic case.

During the quarter, total revenues were $10.2 billion, a new single-quarter record, said Apple chief financial officer Peter Oppenheimer in a Wednesday afternoon conference call with Wall Street analysts.

During the call, Oppenheimer used the phrase "extremely proud" several times to describe the bottom line for the period, while chief operating officer Tim Cook bragged that Apple had been able to maintain strong notebook sales even in the face of a generally lousy economy.

"We were very pleased with the overall Mac portable share gain," said Oppenheimer, who called out the unibody notebooks as driving sales since their October launch.

According to outside analysts, however, Apple actually lost market share, at least in the U.S., when desktops were added to the mix. Last week, Gartner Inc.'s Mikako Kitagawa estimated Apple's domestic share of sales had slipped to 8% , down from 9.5% the quarter before.

Oppenheimer acknowledged the slide of desktop sales, which were off 25% year-to-year and down 22% from the previous quarter, but as he did, he put forward a pair of reasons for the plummet. One, he said, was the very strong sales of the just-released iMac in late-2007, and the tough time matching that volume in 2008. The other reason was simply a reflection of the market as a whole, which increasingly tilts toward laptops, he said.

Gottheil added a third: slowing sales in the K-12 education market, which typically buys desktops.

For all the strength of Mac sales, however, Apple's computers accounted for a smaller slice of the company's total revenues than either the quarter before or the same quarter the year prior. Last quarter, Mac sales contributed just 34.9% of all Apple revenues, down from 36.9% in the same period in 2007 and off even more from the 45.8% in the quarter that ended in September 2008.

"The Mac piece of the pie is getting smaller and the overall iPod market is saturated," said Gottheil. "That's why the iPhone is the big propeller behind the overall growth of the company."

Apple sold 4.3 million iPhones in the last three months of 2008, down substantially from the 6.9 million it sold the quarter before. But that still represented an increase of 88% year-to-year over the 2.3 million sold in late 2007.

Gottheil was bullish on the iPhone, in particular the amount of money each one sold brings to Apple's bottom line. "They were even more transparent than they have been in the past," he said, referring to Apple's new habit of noting what revenues the iPhone would have contributed if the company didn't spread out the money over a 24-month span.

Each iPhone, said Gottheil, is a "$600 cash infusion" -- the amount it makes from the retail sales and mobile carriers' subsidies -- to Apple.

"Right now, the iPhone is driving Apple's growth, absolutely," Gottheil said.

During the question-and-answer segment of the call, the Apple executives talked about netbooks, the small, low-priced notebooks that grabbed as much as 10% of the laptop market in late 2008, and declined to comment about the health of CEO Steve Jobs .

On netbooks, Cook, who is in charge of day-to-day operations at Apple while Jobs is on a six-month medical leave, essentially reiterated the wait-and-see attitude that Jobs himself expressed three months ago.

"Right now the products in there are much less powerful than customers want, they have cramped keyboards and small displays," said Cook. "We think that the products there are inferior. But we'll see. We have some ideas here and we're watching the space."

"I think that at this point, they don't feel a need to enter the [netbook] marketplace," said Gottheil, who last month had speculated that Apple would, in fact, unveil one or more netbooks at Macworld, which Apple did not do.

"They don't seem so much concerned about leaving that money on the table as more concerned about the erosion in the Mac market," Gottheil said.

The company may be waiting for the economy to reach bottom and begin to climb back out of its hole before launching a netbook, Gottheil added, given that Apple would probably not compete on price but instead push the concept of a luxury-class netbook.

Oppenheimer and Cook also dodged a question early in the call about CEO Steve Jobs, who earlier this month announced he was taking a six-month leave from Apple because his medical condition was "more complex" than originally thought.

Oppenheimer repeated bits from the statement Jobs issued last week. "Steve plans to remain involved in major strategic decisions," Oppenheimer said when asked if there was an update on Jobs' situation.

Cook took a different tack, and ignored a question about whether he thought he was a front-runner for the CEO spot if Jobs was unable to come back in June. "There is an extraordinary breadth and depth among Apple's executive team," Cook said, adding that all employees at the company were "wicked smart."

"The values of our company are extremely well-entrenched," Cook said. "Frankly we don't settle for anything less than excellence [so] I think regardless of who is in what job, [those values] are embedded in this company." Gottheil agreed. "I think that's fundamentally true," he said. "That really is in their DNA." Apple's Oppenheimer said that the company was predicting a better quarter for January through March 2009 compared with the same period of 2008. Gottheil found the prediction fascinating. "They're saying, 'Well, it's rough but we've stabilized, we sort of see the bottom on this'," he said. "They're kind of thinking 'this is tough, but it's not horrible'. That's the most amazing thing I've heard about the economy in the last several months."

This story, "Apple Sets Revenue Record During Recession" was originally published by Computerworld.

Copyright © 2009 IDG Communications, Inc.

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