There were a number of key takeaways from Apple’s Q4’13 earnings call. iPhones continue to beat estimates and grow. We expect this trend to continue into the holiday quarter. Even though many are pessimistic about the iPhone 5c (some un-intelligibly calling it a dud) we anticipate the 5c to continue to do well as a mid-tier offering. Tim Cook was clear on the phone call that the 4S is the entry level iPhone, the 5C is the mid-tier offering, and the iPhone 5S is for those who want the latest and greatest. He even pointed out that we should expect demand to be high for the 5S due to the predictability of the early adopter market. We expect the 5C to gain steam once the early adopter phase passes.
The iPad sales were lower than most expected but easily explainable by the increased seasonality of the iPad for the mass market. One has to assume that the bulk of the sales last quarter came from markets like education, business, and other verticals. I also expect the iPad 2 to have made up a healthy mix of iPad sales. Mainstream consumers likely held off in anticipation of new devices for the holidays. Given no new iPads in all of Cy’13 14.1 million iPads is impressive. We anticipate significant pent up demand for iPads going into the holiday quarter and expect Apple to yet again set all time record sales for iPads.
The one growth story we are still anticipating is with regard to the Mac. It is significant that Apple spent as much time as they did at their fall unveiling on the Mac. It is also significant that the theme of last weeks event was personal computing and that Apple included the iPad in that event. Although Windows PC sales are down, the Mac has largely outgrown the segment for over two years. We believe that there is still a growth story for the Mac to continue to grow its share in the PC segment and take share from Windows. Annually we still sell upwards of 300m PCs every year and Apple has approx 6-8% of the WW PC market (higher in the US) but is poised to grow that share over the next few years.
Apple has strengthened the value proposition for Macs by making all future versions of OS X, iWork, and iLife free for customers. They have also been aggressively lowering the price of their Macs annually. I believe Apple smells and opportunity to gain share of the WW PC sales against Windows OEMs and will begin being very aggressive to capitalize on this opportunity.
Those are the three categories we expect holiday season upside with. Tim Cook said it is likely to be an iPad Christmas but is more likely to be an Apple Christmas like so many Christmases before.
The Mac is really intriguing. To the surprise of all, notebooks, desktops and Pro machines dominated the most recent Apple event. Apple is clearly saying that they are in the notebook and the desktop market for the long haul.
So what does this mean? The entire market is clearly shrinking. But Apple’s market share is shrinking more slowly which gives them ever increasing market share. Will people use tablets as their low-end devices and buy premium notebook and desktop devices in the future? If so, this plays into Apple’s strenghts.
Everyone talks about how Apple lost the PC wars. The irony is, they could end up being the winner after all.
And it wouldn’t surprise me if Apple even squeezes out a year-over-year increase in Mac sales for the holiday quarter, given the freshness and strength of their current lineup.
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