Apple’s amazing transformation

Apple’s earnings report today was incredibly impressive. But as interesting to me as the record revenues and sales was just how much the company has changed in just a few short years.

As recently as seven years ago, Apple was at heart a computer that also had a sideline of digital music players. As recently as four years ago, you could make the case that Apple was a digital music company that also happened to sell computers.

Now, Apple is clearly a mobile phone maker who also happens to sell computing devices and, oh by the way, a few digital music players.

To see what I mean, take a look at the sources of Apple’s revenue last quarter and compare those figures with holiday quarters past.

In the holiday quarter last year (Apple’s first fiscal quarter), nearly 53 percent of its revenue came from selling iPhones. And that actually understates the importance of the product to Apple’s business these days. The company defers some of the revenue it gets from selling iPhones; because it sold a record number of devices last quarter, it likely deferred a record amount of iPhone revenue in the period. (Apple hasn’t disclosed that amount yet.)

Even setting this issue aside, No other piece of Apple’s business came close to iPhone sales in terms of import to Apple’s top line. iPad sales comprised about 20 percent of revenue in the quarter, computers 14 percent and iPods less than 6 percent.

Now lets look back to six years ago, which was before the iPhone and iPad launched. In the holiday quarter of 2005, Apple’s iPod sales comprised more than half of its sales for the first — and what turned out to be only — quarter. In that period, its computer sales comprised just 30 percent of its total business.

One of the things that’s amazing about this data is the degree to which the iPod has become a sideshow for Apple. This is the product that resurrected Apple. It drove Apple’s growth for the first half and more of the last decade, helped make it cool again and introduced the company to millions of people that never would have bought an Apple computer. And now, that product line is almost immaterial for Apple.

Apple sold 15 million iPods during the holidays. That’s a lot of units, but that’s the least number that the company has sold in a holiday quarter since 2005. And the number of iPods Apple has sold over the last 12 months — about 38.6 million — is the lowest its been in any 12 month period since mid-2006.

Over the last twelve months, Apple has garnered $6.6 billion from selling iPods. The last time the company had seen that few dollar sales of iPods was also in 2006.

Around 2007, yours truly noted that Apple’s iPod sales growth was starting to slow down markedly. Instead of growing faster than 50 or even 100 percent year-over-year, Apple’s revenue from iPod sales slowed to around 10 percent annually in 2008. Sales started to actually fall in 2009 and have ranged from slow growth to sharp drops since.

When Apple’s iPod sales growth first started to slow, I and several of the tech pundits I spoke with questioned whether Apple would be able to replace that growth engine. Boy, did it ever.

Another amazing thing about Apple’s transformation is the importance of its Mac computer lineup to its overall business. Apple’s Mac sales have consistently and significantly outpaced the overall PC market for years now. In terms of unit sales, they grew 26 percent in the holiday quarter from the same period a year earlier. In fiscal 2011, they grew 23 percent.

Now, 20-plus percent growth is nothing to sniff at. Lots of companies would love to have 20 percent growth.

And when I was wondering how Apple would replace its iPod sales growth, some investors I spoke with explicitly pointed to its Mac sales. Their investment thesis was that the Mac would be the company’s next engine of growth.

It turned out we were both wrong. Apple did replace the iPod with other growth engines. But those largely weren’t the Mac.

With products like the iPhone and iPad that are doubling their sales, the kind of growth that Apple has posted in computers has actually been sub-par. It’s been a drag on Apple’s overall sales growth. And so, despite that growth, computers are now a smaller portion of Apple’s overall sales than they ever have been.

All this is to say that Apple’s decision to strip off the “Computer” from its name turned out to be a wise and prescient move.

Of course, one does inevitably have to wonder how Apple will look in a few years. It’s extraordinarily rare for a company this big to continue to grow this fast year over year.

And yet, in some ways, Apple seems like it has a lot of room to keep on expanding. Its market share in PCs is still small. Overall smartphone sales are growing rapidly as people worldwide swap out their feature phones for computerized ones. The tablet revolution is still in its initial stages. And that’s not to mention other products in other categories that Apple may release in coming years, most notably an Apple-branded television.

Apple’s amazing run will end one day. But it doesn’t look from here like it will be anytime soon.


Tags: , , , , , ,


Share this Post

  • Apple will continue to grow, especially in Asia where it is
    revered. This has a lot to do with brand loyalty and its founder
    who may no longer be around but will remain as a icon for years
    to come.

  • mma007
  • Hanix
  • mma007