Can Apple Withstand the Recession?

November 18th, 2008

Unless you are one of those precious (and lucky) few who might be considered in the class of the filthy rich, you know it’s been a difficult Fall. Money is tight, sales are light, and it’s hard to know whether it’s even worth spending large amounts of money for the holiday season.

Maybe it’s better just to fill your Christmas stocking with — well — stockings!

Indeed, Apple hasn’t fared too well as far as Wall Street is concerned, as its stock remains at the lowest levels in over a year. Now perhaps a lot of this discontent reflects the general flavor of the stock market these days. And, no, I won’t speculate on whether the new president is a positive or negative influence. I don’t think the so-called political pundits that pollute 24-hour cable TV here in the states really know the score either.

But when you look at preliminary reports of Apple’s sales, you have reason to feel surprisingly optimistic. According to a story in AppleInsider, which carries a lot more than just plain rumors these days, Mac retail sales in this country were up 28% in October, compared to last year according to recent retail surveys.

Sure, some of those surprising statistics may be due to the pent-up demand for the new Apple note-books introduced last month. No doubt sales declined ahead of their release in anticipation of a major product refresh, and then grew rapidly because of pent-up demand. So it’s quite possible things will settle down to a less-favorable rate this month and the next.

It also appears that the iPhone is selling at a pace similar to that in the previous quarter, even without another new model rush. Now remember that smartphones aren’t necessarily purchased on a seasonal basis. Quite often, it’s a matter of when the contract with the present carrier expires, or, if you’re using the same carrier that supports the iPhone in your country, when you actually become eligible to get one at the standard discount price.

That and the news that even the previous best-selling phone in the U.S., the Motorola RAZR, couldn’t beat the iPhone is exceedingly encouraging, if not surprising. Remember that the RAZR nowadays is frequently given away in exchange for a two-year contract, or sold at a token price. I paid $25 for mine, by the way, at AT&T in the contract that also included my first iPhone.

As far as the iPod is concerned, well they’re talking about a slight drop in sales compared to over 22 million units sold last year. Now if that really happens, perhaps Apple will fudge things a bit and remind us that the iPhone is often bought instead of an iPod.

Whether true or not, the analysts have been saying that iPod sales are due to drop off any time now. It is inevitable, since the market for digital media players is cooling off. That may be true, but if you’re looking for a relatively cheap gift, certainly an iPod shuffle or nano would be just the ticket. So perhaps the negative expectations are due to be disproved by Apple just one more time.

Moreover, there were reports just last month from a couple of analysts talking of major cutbacks in iPhone production. The claims were never verified, although they were supposedly based on contacts with some of Apple’s suppliers.

Since I tend to think that Apple has contracts with these companies that bind them to secrecy, I don’t think they’d risk those deals in order to feed the wolves in the pundit community. So I rather doubt the reports have any basis in fact, though logic would seem to dictate that Apple must be hurt seriously by the state of the economy.

You see, Apple is still regarded as a company that builds premium-priced products. Some writers, no doubt influenced by some ill-informed executives from Microsoft, continue to claim that there is an “Apple Tax” that you pay for the privilege of owning a Mac, an iPhone, or an iPod.

The facts, of course, are often otherwise. iPods can be had for as little as $49. The $199 you pay for the 8GB iPhone is competitive with the BlackBerry, its major competitor. As far as Macs are concerned, well I suppose that’s debatable.

Indeed, if you want the very cheap PC that is ubiquitous at a Wal-Mart, or a discount club outlet, such as Sam’s Club, none of those boxes bear Apple labels. That makes perfect sense, since Apple wants decent profits from everything it does, and Steve Jobs has often said that they won’t build cheap junk and put a Mac label on it.

My position has long been that a Mac is priced real close to an identically-equipped PC. However, some of the detractors of that theory list personal preferences in their argument, that maybe they don’t need some of the features on the Mac, and would like to eliminate them. They can’t, but you can on the PC, and hence the latter must be cheaper.

Regardless of where this argument goes, it’s nevertheless obvious that, despite the obstacles, Apple is clearly doing surprisingly well this holiday season.

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5 Responses to “Can Apple Withstand the Recession?”

  1. Peter says:

    One other concept which I looked at quickly.

    New MacBooks were released in early November, 2007. Sales may have been down in October 2007 as people waited for the upgrade. So October 2007 may have been a down month.

  2. Peter wrote:

    One other concept which I looked at quickly.

    New MacBooks were released in early November, 2007. Sales may have been down in October 2007 as people waited for the upgrade. So October 2007 may have been a down month.

    Or maybe not. Because sales picked up tremendously after the new product release.


  3. John says:

    I think Apple will do OK. Maybe not super OK but better than others. Without going into a long discussion the reason is that Apple makes products of substance. Their products are not sold on the basis of clever gimmicks. There may be something flashy on the surface (the logo on the laptops, the colors of the iPod nano) but beneath the surface there is tremendous strength.

    I recently read a comment that people would turn to the cheap, $500 laptops if times get tight. That may be, on the other hand, if they can get the money they may be more inclined to go for the Apple product as it will actually work and it will last longer and you can get free support at the Apple store. We’ve lived in a throw-away society for many years now. Perhaps in a down economy people will return to valuing value.

  4. Andrew says:

    I agree with John. Most people still have the same money now that they had last year, but do not have the sense of security that they will still have it next year. The tendency may just be that people will look at purchases they make with an eye toward lasting value, or if their current equipment still works, just try to maximize the use they get from it before upgrading.

    Apple products have always played that way, with most Mac users holding onto their Macs longer than their PC using counterparts. I go through laptops rather quickly, getting a new one every other year. As such, I buy the cheapest one that will give me everything that I want. Last time it was a black MacBook (white ones get so nasty with heavy use), while this time it was a discontinued (and discounted) early 2008 MacBook Pro.

    For desktops, I tend to hold onto them for a lot longer, and so it is actually wise to spend more and get something that I can use longer. I just bought a Mac Pro and based on my previous desktop purchase, an AGP graphics Power Mac G4, I consider the Pro to be a raging bargain. I don’t even begin to use all of its power, but if my experience with the Power Mac repeats itself, I’ll next be upgrading in the year 2017. I went through the same thought process when I bought the G4, a rather high-end and extremely expensive machine in 1999, but because I was still getting excellent service from my Quadra 700, itself a super-premium machine in its day, it made perfect sense.

  5. Apple is in a good position to weather a recession.

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