It’s Going To Be A Very Apple-y Holiday Quarter

by John Kirk   |   November 22nd, 2012


Tightwads, Value Buyers and Spendthrifts

Oscar Wilde once said that cynics know the price of everything and the value of nothing. Similarly, tech pundits are often obsessed with price to the detriment of value. Despite all evidence to the contrary, pundits think that price is the number one consideration of consumers. In fact, some pundits seem to think that price is the ONLY consideration of consumers. But for most consumers, value is what matters most and price is only one component of that value.

There are three types of consumers: Tightwads, Value Buyers and Spendthrifts. There are two things you should know about these three types of consumers.

First, there are far more value buyers than there are of any other type.

Second, you not only want to ignore the tightwad customers, you want to actively avoid them. They’re a plague on your house.

Pundits seem to think that all consumers are tightwads and all of their analysis reflects that conviction. Smart companies know better.

Reality matters

Remember, reality matters. It doesn’t matter what the pundits think. It doesn’t matter what I think. It doesn’t matter what you think. What matters is what the market thinks. If our thoughts don’t reflect market realities, then we, not the market, are in the wrong.

Naysayers v. Reality

For the past month I’ve read and listened to every imaginable reason why Apple is going to fail. Well, Apple may fail eventually, but not this holiday quarter they won’t. Not by a long shot.

Here are a couple of miscellaneous reasons why I think Apple is just going to crush it this upcoming quarter

1) Mac Sales Continue to Grow

Sales of Mac hardware to U.S. businesses grew by 49.4 percent year over year in the September quarter, posting continued growth while PC sales shrank.

Charlie Wolf of Needham & Company highlighted Apple’s success in the enterprise as the “big story” regarding Mac sales in the September quarter. With PC sales to U.S. businesses declining 13.3 percent year over year, Apple had a 62.7 percentage point difference.

Yeah, yeah, yeah, I know. No one thinks that Macs are important because they’re still such a minority player. But they’re not so niche as you think.

Overall, the Mac’s unit share of the U.S. business market was 9.3 percent in the September quarter. That was up from 5.9 percent of total sales in June, and 5.4 percent in September of 2011.

Apple had an even bigger share of revenue of PC sales to U.S. businesses, accounting for 17.4 percent. That was also up from an 11.5 percent share in June, and 10.7 percent share a year prior. ~ AppleInsider

Overall Mac sales may even shrink this quarter, but their overall importance in the Enterprise will grow. Remember, phones are already outselling Windows machines and tablets are rapidly headed that way too. (EDIT: NPD: Tablets to Outsell Laptops in Q4, Beyond.) Windows is not nearly as monolithic as people think. And Macs are not so nearly as unimportant or niche as people think either.

2) China

Apple’s iPad shipments for China nearly doubled in the third quarter after Apple settled a lengthy dispute over the iPad trademark name.

People forget that over 60% of Apple’s sales come from overseas and that Apple’s overseas sales numbers are rapidly growing. Yes, it will be a big holiday quarter for Apple in the Western world. But it will be a big quarter for Apple in the rest of the world too.

3) Nielson’s Most Wanted Gift Survey

Have you seen the Nielson most-wanted gifts survey? I mean seriously, it is out of sight. What do American kids aged 6 to 12 want this holiday season? Four out of the top five items on the list are made by Apple.

Let’s take a quick look at the top six items on the list:

48% want iPads
39% want Nintendo Wii U’s
36% want iPod Touches
36% want iPad Minis
33% want iPhones
31% want computers

Now there’s a couple of observations that I take from that list.

First, Apple continues to maintain high consumer mindshare. People think Apple first.

Second, Apple’s popularity is growing. Despite a plethora of competing tablet, smartphone and gaming devices, kid’s attraction to the Apple brand in general and iOS in particular has grown steadily over the past three years.

Third, the iPad Mini is fourth on the list. Yet I strongly suspect that an awful lot of parents are going to walk into an Apple store looking for iPads and iPod Touches and they’re going to end up walking out of that store with an iPad Mini.

Fourth, as an aside, that list ain’t good for Microsoft. Microsoft has lost an entire generation of users – kids who will be growing up using Apple products, not Microsoft products.

It’s Going To Be A Long Harsh Winter For Some Of Apple’s Competitors

Why PC manufacturers Should Fear Apple

The tipping point for tablets has come and gone.

It seems like just yesterday that I was writing articles arguing that tablets were the next big thing. It seems like just yesterday because it WAS just yesterday.

But suddenly, it feels like that battle is over and and done with. If you look through the Nielson survey for whatever age, you see that tablets dominate. Not only are Apple tablets popular, non-Apple devices are on the rise too. Yesterday I was arguing with people who insisted that the tablet was a toy or a fad. As is usual with new ideas, we’ve suddenly moved from the “that will never happen” phase to the “of course that happened and I knew it would all along” phase. True, not everyone is convinced but for the most part the naysayers have learned to remain silent lest they be thought of as quaint, at best, or out-of-touch with reality, at worst.

The age of the tablets is upon us – (just as we all knew it would be, all along.)

Why Microsoft Should Fear Apple

Yesterday, Ben Bajarin wrote an excellent article entitled: “Why Competitors Should Fear the iPad Mini“. A couple of his key takeaways were that families expected to own more than one iPad Mini, that with an iPad Mini consumers feel they pay more but they get more and that “the tablet is taking the place in the hearts of many consumers as the new personal computer.” He couldn’t be more right.

The final word on Microsoft’s tablet efforts has not yet been written, but the preliminary reports do not look good. Not only has Microsoft missed a generation of phone users but now they are missing a generation of tablet users too.

PC sales continue to decline and there are reports that a staggering 42% of Windows users say that they plan to buy an Apple product – either a Mac or an iPad – rather than a Window’s 8 device. I take such claims with a huge grain of salt, but as I said in my article: “Windows 8′s Greatest Sin“, consumer’s now have choices that they didn’t have before. Microsoft is making their long-standing customers choose between Windows 8 and other options. And many are choosing to opt out.

Why Google and Amazon Should Fear Apple

Apple may dominate tablet sales, but there are going to be a ton of Google Nexus 7′s, Amazon Kindle Fire’s and even Barnes & Noble Nook tablets sold this holiday quarter. But the people buying those tablets are buying media tablets that run stretched phone apps. The people who are buying the iPad and the iPad Mini are buying a tablet that runs tablet apps and that can also act as a Media tablet. That’s my opinion. But I think that’s also the opinion of the market and I think we’re going to see that opinion expressed in hard sales numbers come this January.

Remember, there are three types of consumers: tightwads, value buyers and spendthrifts. Tightwads are going to be drawn to the Amazon Kindle and the Nexus 7 because of their subsidized prices. The Nook, at least, is trying to make money on the sale of its hardware. Kindle Fire’s and Nexus 7′s sales are empty sales. Neither Amazon nor Google makes a penny of profit until they sell additional goods, services or advertising. And their chances of doing that when selling to tightwads is not good. Not good at all.

You Can Hang Your Hat On It

I actually think Apple’s margins may be lower this quarter. They’ve introduced, re-newed or refreshed almost their entire line and some of their products – the iPad Mini in particular – will make them less than normal margins. But Apple’s margins are absurdly high to begin with. And since many of Apple’s products are supply constrained, the high margins truly reflect the high value that consumer’s place in Apple’s products.

The last time I paid attention to such things, Apple – a hardware seller – had higher margins than Microsoft – a software seller. That just shouldn’t happen. And in any case, I can guarantee you that Apple’s less than usual hardware margins are going to be far, far, greater than the virtually non-existant hardware margins of either Google or Amazon.

The future is uncertain and predictions are always perilous. But if Apple doesn’t have a banner quarter, I’ll eat my hat. Then I’ll go out, buy another hat, and eat that one too.

It’s going to be a very Apple-y holiday quarter. You can hang your hat on it.

John Kirk

John R. Kirk is a recovering attorney. He has also worked as a financial advisor and a business coach. His love affair with computing started with his purchase of the original Mac in 1985. His primary interest is the field of personal computing (which includes phones, tablets, notebooks and desktops) and his primary focus is on long-term business strategies: What makes a company unique; How do those unique qualities aid or inhibit the success of the company; and why don’t (or can’t) other companies adopt the successful attributes of their competitors?
  • Neil J. Squillante

    Thank you for giving us information addicts something to read on Thanksgiving. I’ll just add that the iPad mini is underrated as a productivity device. I haven’t seen any of the reviewers mention what I noticed immediately when my Verizon minis arrived a few days ago. In portrait mode the keyboard is perfect for thumb typing — accurate and fast. I edited an article in ByWord yesterday as an experiment. It took a little longer than it would have on a Mac but I didn’t have to sit at a desk. I was reclining! Maybe someday we won’t need desks anymore, at least not in homes. Happy Thanskging to the Tech.pinions team and community.

    • benbajarin

      I agree Neil. I’ve noticed that also as I noted the same ease of typing in portrait mode on all the 7″ tabs I have tried. The quality of the software of the mini gives it the advantage on over other 7″ devices as well. But the one thing I think is interesting about the Mini over its big brother is how much easier it is to operate with one hand. Things like holding and then scrolling with your thumb, etc. I notice that more often than not I can read, use an app, read Twitter, etc., all with one hand. I notice this because I do it every morning to soak up all the news to see whats going on. With the iPad I usually set it on my lap or the table so I can use it while holding and drinking my coffee. But with the mini I can sit on the couch or recline and hold it up and use it functionally with one hand while also holding my coffee in the other.

      I’m speaking at a tablet conference in NY next week and taking my family with me over the weekend. I’m bringing the iPad mini and not the iPad and will use it extensively while out and about in the city as a resource but also to take pictures and video. Going to be an interesting experiment.

    • FalKirk

      “the iPad mini is underrated as a productivity device…” – Neil J. Squillante

      I think you make a great point, Neil. People often define productivity as “what I can do with my desktop”. But if you allow productivity to mean getting things done, the range of things that an iPad Mini can do and do well eclipse those of many other tools.

      I think that one should use the best tool for the job at hand. Turns out that the tablet you can hold in your hand is often the best tool for the job at hand too.

      • Tom W

        When asked to name the best camera to own, professional photographers often reply ‘The camera you have with you’ when the subject appears. That means the perfect camera left at home is inferior to a less-than-perfect camera that is easy to carry along.

        I suggest the same is true in a computer: The best one is the one you have when you need it — not one stashed in the car or on the desk at home. Mobile computing is #1 an issue of mobility. The iPad Mini is far, far more mobile than larger tablets and laptops, while providing most of the functionality. So among those needing mobile computing and communications ability, the Mini is likely to be a big hit.

        For mainly-stay-at-home users, the iPad is probably superior. There is a place for both.

  • Defendor

    I agree except for the part about the Nook making money on HW sales.

    If anything the Nook tablets have more expensive bill of materials than Amazon tablets and sell for equal or lower prices. So Nook is no more likely to be making money one HW sales than Amazon.

  • mhikl

    Kirk, you say it like it is and that skill comes from confidence. I am so tired of sites where the pundits/journalists pirouette around their audience trying to be fair to the agenda crowd that they dance off the court of honest analyses. A smart young ‘punk’ told me I had wasted my money on an overpriced iPad. I wish I had thought of the three kinds of consumers but I stayed my mouth and went on with my work. No more. Tightwads, Value Buyers and Spendthrift; the three little pigs to take on a meanie-wolf.

  • http://search.websonar.com:8080/ Duane Bemister

    We were doing a photo shoot for a new app we are about to release and we had our model (12 year old Bella) holding up a full size iPad for the shots. When she handed it back to me she said “your iPad sure is heavy”, then she tried to get her mini back from her younger sister.

  • http://www.facebook.com/profile.php?id=1573495479 Rene Stein

    The best part of this analysis is the “Reality Matters” section. Hopefully this type of thought resonates with more readers.

  • FalKirk

    A big thank you to all those who have commented to date. Each comment was thoughtful, and added a unique perspective.

    Thanksgiving is a time to give thanks. We’re very lucky at Tech.Pinions to have readers and contributors like you all. Thank and thanks again.