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  • More Apple Sales Confusion

    April 19th, 2007

    The actual number of Macs sold this past quarter will be revealed next week, when Apple releases its most recent quarterly sales figures. Will the figures show an increase, a dip in the face of the introduction of Windows Vista, or just the status quo?

    To be sure, both analysts and regular people alike — and we assume an analyst ought to be armed with information that the rest of us can’t get — have been speculating for quite a while as to how well Apple has done.

    Understand that the first quarter of the year is usually expected to reveal a sales dip, particularly in the wake of the holiday season. Those who wanted new PCs no doubt acquired them already, except, perhaps, for businesses that may have different purchase cycles.

    The arrival of Windows Vista, after a seemingly endless delay, surely complicated matters. Is it realistic to believe that there was pent-up demand for Microsoft’s newest operating system? If so, you’d see some uptake in the sales of Windows upgrade kits, and surely PCs preloaded with the new operating system would be flying off the shelves?

    At least that’s the theory.

    In practice, it appears that Vista’s impact, though in evidence, may only be temporary. Most of the copies Microsoft has sold so far went to the PC makers who installed them on new systems. Eager PC users lusting after Vista weren’t in evidence in particularly large numbers on Vista’s release date.

    According to preliminary figures released by Gartner, first quarter Mac sales in the U.S. are up 30% over last year. Apple has five percent of the market, standing at number five behind Toshiba. Dell remained number one, although it lost that title to HP worldwide. However, Dell’s sales continue to drop, and it’s only narrowly ahead of HP in this country. Indeed, Dell has its share of problems, but that’s another matter entirely.

    In any case, the latest set of figures, if accurate, clearly show that Apple has probably weathered the worst of the Vista onslaught, if it could be called that.

    What makes matters all the more complicated is that most of these sales surveys apparently don’t include Apple’s own retail or online sales outlets. And a heavy and growing amount of Macs are sold direct, so that can clearly skew figures in the wrong direction or right direction, depending on your point of view. That would clearly indicate that Apple is actually doing better than the figures from Gartner and others indicate. This may indeed be why Apple almost always delivers better numbers than financial people expect.

    Indeed, you can’t trust any of these preliminary reports. Apple is going to keep its actual sales results close to the vest, and only reveal them as required by the SEC and to satisfy its investors.

    When those numbers are revealed, Apple will provide the appropriate level of corporate spin and deliver as little information as it needs to tell its story. That’s why, for example, Apple no longer breaks out Mac unit sales beyond desktop and note-book, and also lumps iPod sales into a single category.

    Alas, this increased level of secrecy, although it’ll likely confound Apple’s competitors and confuse the financial community, may not necessarily serve the company’s best interests. While I can understand the marketing logic behind making new product announcements into special events that attract worldwide attention, it makes it awful hard for a business to plan its purchases.

    If Apple hopes to persuade more companies to adopt Macs, they may have to deliver a little more illumination on product plans. No, not the form factor and features of the next iPod, but simply when it expects to upgrade Macs to newer processors and similar design decisions.

    You see, the switch to Intel has made the Mac far less unique than it used to be when it comes to hardware. Intel’s processor roadmaps are announced months and years in advance. You know when the chips are expected to appear, and the finer details of speeds, power consumption and expected performance.

    As far as the other components that are included in new Macs, Apple is using many of the same hard drives, graphics hardware and other parts that you find in any PC these days. Apple may provide neater assemblies, and prettier cases (well, mostly), but they buy their stuff from the same parts bins

    As far as the essentials are concerned, the Mac and the PC aren’t all that different, even though the operating system, and the general user experience, differs extensively.

    But that’s also a good thing. It helps Apple keep Mac prices competitive, although there are still far too many people who believe the PC is cheaper, when equipped similarly. But that’s not an attitude that’ll probably change any time soon — or ever.



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    12 Responses to “More Apple Sales Confusion”

    1. Dana Sutton says:

      “But that’s also a good thing. It helps Apple keep Mac prices competitive, although there are still far too many people who believe the PC is cheaper, when equipped similarly. But that’s not an attitude that’ll probably change any time soon — or ever.”

      I’m afraid I do believe this, Gene. Reason: any other computer manufacturer can simply put their product together, as you say, from the parts bin, and simply slap their name on the case. Paying Miscrosoft a license to use Windows is the closest they will ever come to paying research and development costs. Apple, on the other hand, needs to fund a very substantial r. & d. enterprise, which means, in effect, putting a surcharge on every computer they sell. We Mac users, recognizing that Apple needs this to create all the good things that make a Mac a Mac, grin an bear it (although I admit that if I were a purchaser for a corporation, government agency, or school district, I might not be so philosophical about paying this surtax).

    2. Scott Schuckert says:

      Making it all the more impressive that most analyses show Apple is at least price-competitive across most of their line; the exceptions being that they do not attempt to compete at the loss-leader low end.

    3. “But that’s also a good thing. It helps Apple keep Mac prices competitive, although there are still far too many people who believe the PC is cheaper, when equipped similarly. But that’s not an attitude that’ll probably change any time soon — or ever.”

      I’m afraid I do believe this, Gene. Reason: any other computer manufacturer can simply put their product together, as you say, from the parts bin, and simply slap their name on the case. Paying Miscrosoft a license to use Windows is the closest they will ever come to paying research and development costs. Apple, on the other hand, needs to fund a very substantial r. & d. enterprise, which means, in effect, putting a surcharge on every computer they sell. We Mac users, recognizing that Apple needs this to create all the good things that make a Mac a Mac, grin an bear it (although I admit that if I were a purchaser for a corporation, government agency, or school district, I might not be so philosophical about paying this surtax).

      You may not believe it, but it’s true. But you have to do the proper comparison, which is to match feature versus feature. This has been true for quite a while, and is, surprisingly, more so at the high end of the spectrum.

      Take a look at the Mac Pro, for example. When it first came out, Apple boasted that it was far cheaper than the equivalent workstation in the Dell line. After lots of people tried to dispute Apple, it turned out they were indeed correct 🙂

      Peace,
      Gene

    4. Eduardo says:

      Hi, Gene.

      It just amazes my how patient you are, once and again clarifying what is actually a fact since already some time: Mac’s aren’t more expensive than PC’s. Take one PC, take one Mac of similar specs, and the Mac is not only competitive but actually cheaper.

      Dana: please make the difference between theory and fact. There may be many reasons for Mac to be more expensive than PCs but, well, they aren’t.

    5. SteveP says:

      These correct “feature for feature” arguments notwithstanding, IF a large company wants a bunch of PC’s that meet a certain minimal spec for their specific needs (like the government agency I USED TO 🙂 work for) and if company D does or will make a computer that meets that spec at X price but Apple does not offer computers at exactly that spec but has a ‘similar’ one – even with more ‘bells and whistles’, better build quality, better OS 🙂 more inputs, firewire, Bluetooth/Airport etc. etc. etc. for 200 more (and company D also has an “equal spec” computer available at that 200 increased price point) – the Mac is still a “more expensive” choice for THAT company.

      We need to be careful what we are really looking at. “Feature for feature” is not some great equalizer if all feature options are not covered by both companies.

    6. These correct “feature for feature” arguments notwithstanding, IF a large company wants a bunch of PC’s that meet a certain minimal spec for their specific needs (like the government agency I USED TO 🙂 work for) and if company D does or will make a computer that meets that spec at X price but Apple does not offer computers at exactly that spec but has a ’similar’ one – even with more ‘bells and whistles’, better build quality, better OS 🙂 more inputs, firewire, Bluetooth/Airport etc. etc. etc. for 200 more (and company D also has an “equal spec” computer available at that 200 increased price point) – the Mac is still a “more expensive” choice for THAT company.

      We need to be careful what we are really looking at. “Feature for feature” is not some great equalizer if all feature options are not covered by both companies.

      Well, actually the Mac is NOT a choice for that company, unless it chooses to provide equipment that is restricted to those specs. That’s not an arena Apple has chosen to play in. But as far as a pure pricing comparison goes, the only fair way is the feature-for-feature comparison.

      Peace,
      Gene

    7. [

      “But that’s also a good thing. It helps Apple keep Mac prices competitive, although there are still far too many people who believe the PC is cheaper, when equipped similarly. But that’s not an attitude that’ll probably change any time soon — or ever.”

      I’m afraid I do believe this, Gene. Reason: any other computer manufacturer can simply put their product together, as you say, from the parts bin, and simply slap their name on the case. Paying Miscrosoft a license to use Windows is the closest they will ever come to paying research and development costs. Apple, on the other hand, needs to fund a very substantial r. & d. enterprise, which means, in effect, putting a surcharge on every computer they sell. We Mac users, recognizing that Apple needs this to create all the good things that make a Mac a Mac, grin an bear it (although I admit that if I were a purchaser for a corporation, government agency, or school district, I might not be so philosophical about paying this surtax).

      To test your ‘surtax’ theory, I just priced out a Dell Inspiron XPS M1710 on Dell’s website (http://configure.us.dell.com/dellstore/config.aspx?c=us&cs=555&l=en&oc=MLB1713&s=biz). After upgrading the RAM, hard drive, and a couple of other odds and ends to match the specs of Apple’s 17″ MacBook, the Dell cost $3449 vs. $2799 for the MacBook. Note that I even downgraded the OS from Windows Business to Home Premium, knocking an extra $100 off the price of the Dell.

      From this little experiment, it would seem Apple’s surtax is a negative amount in the range of $650-750. 🙂

      SteveP raises a good point about enterprise customers, who generally like to spec out PC systems to control costs. They also like to have commitments from OS vendors like Microsoft on long-term technology roadmaps, another area in which Apple will not currently accomodate them. From my perspective though, the perceived cost reductions are mostly, if not entirely, illusory, since the management costs of large networks of PCs are significantly higher than those of equivalent networks of Macs.

    8. Dana Sutton says:

      Okay, Jonathan, let’s say you’re right. Then what’s going on here? Is it that Apple is selling its computers with a lower profit margin than the competition? Somehow that doesn’t sound very Apple-like. (it sure isn’t true of other Apple hardware products such as wireless routers or monitors). Or is it that the kind of feature-for-feature matching you’re talking about requires you to compare a mass-produced Mac with such an out-of-the-ordinary PC that you are paying a lot extra to have it virtually custom built? And in trying to understand how Apple operates, Edoardo, if you don’t like my theory, then you’re going to have to come up with a different explanation about where Apple gets the money it needs to fund its r. and d. and how it can compete head-to-head with competitors which have no such expense, and even, as you guys are saying, undersell them.

    9. Dana, it’s even more shocking when you consider that Apple’s gross margins are in the vicinity of 31%, while Dell’s are nearly half that. I suspect part of Dell’s problem is it’s overly complex product line. Apple suffered from the same malady at the time Steve Jobs came back to the company. One of his first acts as CEO was to radically simplify the product line, killing entire categories in the process to eliminate products that weren’t sufficiently profitable, such as printers and the Newton.

      A simpler product line allows Apple to negotiate better deals when sourcing parts and manufacturing, and keeps administrative, marketing, and support costs down. It also means Apple’s engineers can concentrate on just a few products, allowing them to create much more cost-efficient designs.

      By the way, R&D expenses aren’t that different between the two companies: Apple’s R&D budget is 3% of net sales (according to their most recent 10-Q), while Dell’s is 1% — only a 2% difference. I don’t know precisely how much Dell pays Microsoft for licensing, but I’m guessing it’s in the 2% range. Given Dell’s current ASP of $1,770, that would translate to $35 per machine on average, and I’m assuming Dell has to pay a premium for server licenses. So actually, I think Apple’s R&D budget is roughly equivalent to Dell’s if you consider licensing as an indirect R&D cost.

    10. Dana, it’s even more shocking when you consider that Apple’s gross margins are in the vicinity of 31%, while Dell’s are nearly half that. I suspect part of Dell’s problem is it’s overly complex product line. Apple suffered from the same malady at the time Steve Jobs came back to the company. One of his first acts as CEO was to radically simplify the product line, killing entire categories in the process to eliminate products that weren’t sufficiently profitable, such as printers and the Newton.

      A simpler product line allows Apple to negotiate better deals when sourcing parts and manufacturing, and keeps administrative, marketing, and support costs down. It also means Apple’s engineers can concentrate on just a few products, allowing them to create much more cost-efficient designs.

      By the way, R&D expenses aren’t that different between the two companies: Apple’s R&D budget is 3% of net sales (according to their most recent 10-Q), while Dell’s is 1% — only a 2% difference. I don’t know precisely how much Dell pays Microsoft for licensing, but I’m guessing it’s in the 2% range. Given Dell’s current ASP of $1,770, that would translate to $35 per machine on average, and I’m assuming Dell has to pay a premium for server licenses. So actually, I think Apple’s R&D budget is roughly equivalent to Dell’s if you consider licensing as an indirect R&D cost.

      Maybe Dell’s stockholders should demand a refund 🙂

      Peace,
      Gene

    11. > Maybe Dell’s stockholders should demand a refund 🙂

      (chortle) 🙂

    12. Joe says:

      It is possible that Dell is subsidizing their low end machines with profits from their top end to maintain market share. I do agree that the one off manufacturing of custom units has to cosr Dell a bunch. Macs, except the pro, come with relativly few options.

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