What the MacBook means to Apple
Steve Jobs likes to talk about Apple’s business model as a stool that rests on three legs: the Mac, the iPod and the iPhone. But the iPhone leg is still pretty short, thanks in part to deferred revenues. And while the iPod’s sales are still growing, its share of the company’s business has been shrinking lately.
Which is why the announcement of new MacBooks scheduled for Tuesday at 1 p.m. ET (10 a.m. PT) is so important. Apple’s notebook computers have been its main source of revenue for some time now, and if Apple plays its cards right, they are likely to remain so for the foreseeable future.
[For a preview of Tuesday's announcement, see Apple's new MacBooks: What to expect today.]
To get a feel for how important the MacBook is to Apple, consider the charts at right. They show the various contributions to Apple’s total revenue in 2006 ($19.3 billion) and 2008 (estimated $32.7 billion based on the Street consensus).
As you can see, the iPod represented the single largest share of Apple’s revenue stream as recently as 2006. But over the past two years, its slice of the pie has shrunk from 42% to 29%, while the Mac’s slice (both desktops and notebooks) has grown from 40% to 47%.
The iPhone was not a factor in 2006 and its contribution to Apple’s bottom line is likely to remain relatively small in 2008.
Now consider how the MacBooks stack up against the Apple’s desktop machines — the iMac and the Mac Pro.
The charts at right show the relatively contributions of desktop and notebook machines to total Macintosh sales. As you can see, the notebook slice has grown from 55% to 61% over the past two years.
All told, the MacBook share of Apple’s total revenue has grown from 22% (55% of 40%) in 2006 to nearly 29% in 2008.
In terms of future growth, the MacBooks are particularly well positioned.
The iPod, with a market share somewhere north of 80%, has all but saturated its market; Apple’s best bet is to convince iPod owners that they should trade up to the iPhone.
The Macintosh’s domestic market share, by contrast, is still only 8.4%, according to Gartner, despite recent gains. Its worldwide market share is even smaller: about 3.4%. The upside potential is huge.
And the best thing about Apple’s market share is that it’s mostly in the high end, where the profit margins are sweetest. Consider the following chart, issued Monday in a report to clients by Sanford Bernstein’s Toni Sacconaghi:
Apple may have only 8.4% of the domestic computer market, but it sells nearly one of three high-end notebook machines. What would happen if, as widely rumored, Apple comes out Tuesday with a MacBook that sells for less than $900? Or, as some reports have it, less than $800?
Only good things, according to Sacconaghi:
“Our analysis suggests that offering a notebook priced at $900 would expand Apple’s addressable notebook market by nearly 50% in revenue terms (and 67% in unit terms), while an $800 offering would increase Apple’s addressable revenue market by 69%.” [see chart]
Price cuts as steep as these, of course, would trim Apple’s operating margins. But Apple warned three months ago that there would be reductions in those margins, and Sacconaghi, for one, believes they have already been factored into Apple current share price.
Apple (AAPL) shares, which hit a 20-month low in interday trading last Thursday, rose 9% on Friday and added another 13.9% on Monday. Fourth-quarter earnings are scheduled to be released Tuesday, Oct. 21.
I am absolutely pro-Apple person. I love my Mac, I like my iPod and I adore my iPhone. I think that soon Steve Jobs will invent something even more brilliant.
I absolutely love my MacBook Pro, it’s pricey but love it. Considering getting a mac-mini for home so the kids can video conference with me while at work!
Vince of http://www.CreditGuideFor.me
Look at the sub £300 notebooks hitting the shelves in the UK pre-christmas, Apple will be missing a market if there is no £400 Macbook rival soon. Not only that but mobile broadband 3G is being ‘built in’ to many of the future Notebook releases for Europe.
Apple wants people to upgrade from an iPod to an iPhone?? How about offer it on more networks than just AT&T and some people might consider it. Until they do that, the iPhone will never be a big player because a lot of people don’t want to drop their network just to get an iPhone.
No question Apple has its followers and has slowly gained a small piece of the laptop market. However I think the biggest boost to Apple has been Microsoft Vista and Microsoft Office 2007. PC users are so upset with Vista they are taking a look at Apple computers. Microsoft made so many unnecessary changes to the operating system, many changes make it look more like a Mac too, that customers might as well take a broader look when picking their next computer.
A second change is from the familiar menus in Office 2003 to the Ribbon design of Office 2007. Many don’t see the value of that change, and many have reinstalled Office 2003 to have their old familiar interface back. Some have discovered that the Mac version of Office didn’t change to a ribbon interface so that is a second attraction.
In other words Microsoft is doing all it can to expand Apple’s market share. Apple doesn’t have to do anything at all.
Apple only need to widen the existing international market share in all different categories.
Recent opening of worldwide Apple Flagship stores do allow potential customers to get first hand experience in full lines of Apple products.
“The iPod, with a market share somewhere in the 80th percentile, ”
Keep it simple the iPod has a market share in excess of 80%”
Using percentile is not appropriate here.
Nice article.
Could you run those 2008 projections with the iPhone deferred revenue shown as ‘booked revenue’?
You’ll see the true value of the iPhone super nova.
And could you extend the booked revenue iPhone segment into a 2009 est chart? Just estimated between 25m and 35m iPhones sold in 2009.
The ‘decrease’ in the iPod’s piece of the pie might be exaggerated somewhat if you stop to think that the iPhone is an iPod as well. Adding the two segments together would represents only a 4% smaller piece of a 65% bigger pie (19B v 32B per your numbers)!
Some may argue that the ‘iPhone’ moniker alludes to a whole different widget until you stop to consider the iPod touch, which only lacks the ability to make phone calls.
I had thought Steve Jobs had mentioned the legs as the Mac, the iPod and the Apple TV? Can anyone confirm.
Apple TV is the next wave. Just buy one and see why.
ex ped: In Jobs’ 2007 Apple-as-furniture metaphor, Apple TV was still a “hobby” that might someday turn the company into a four-legged chair. See, for example, here.
The top charts says “halo effect” quite loudly, particularly if you were to also show the revenue dollars for ‘06 and ‘08.
Your pie charts are a bit misleading: it’s not like iPods are becoming passe; Macintosh computers are gaining in market share. You should have shown pie charts where the SIZE of the circle is proportional to 2006 vs 2008 sales. This would have told the whole story, visually.
Good points about how important the Macbook is, but your point that the iPhone is from an accountant’s perspective, not a business perspective.
Just because the iPhone’s revenues are deferred, doesn’t mean they aren’t there. That’s looking at Apple’s numbers as reported by their accountants, without actually looking at the business. The iPhone leg of the business is NOT short. There’s going to be about $9B in sales this year on iPhones. That’s not a SHORT leg.
- What’s going on with Steve Jobs’ hormones?
- Macbook Air pre-keynote clearance sale
- Top 10 Macworld rumors for 2009
- Macworld: Hoping for a Steve Jobs surprise
- Apple’s Internet share registered strong gains in Dec.
- Picturing a 9-inch iPod tablet
- What’s Macworld without its “living legend”?
- Yes Virginia, there is a $99 iPhone
- Wal-Mart to sell iPhone starting Sunday
- Amazon’s Christmas bestsellers: Acer, Apple and Asus
- I'm going to bypass all of the contro... More
- There will be NO Mac Pro announcement... More
- If you like to send emails or IMs or... More
- Let me guess ya want Jobs to say more... More
- This really is no one's business. Na... More
- People make me laugh. Obviously, Job... More
- Real intelligent, insightful, comment... More
- Oh, for crying out loud! You know... More
- Steve Jobs will be heading up Apple f... More
- Welcome back FudWit For a little w... More
Silicon Valley veterans like to joke that Steve Jobs must be surrounded by a reality distortion field; if you get too close to him, you start to believe what he's saying. Thanks to the success of the iPod, the launch of the iPhone and the renewed interest in the Mac, Apple has made believers out of millions of customers - and made a lot of investors rich. But Philip Elmer-DeWitt believes that an ounce of skepticism never hurts when writing about the company. He should know. He's been covering Apple - and watching Steve Jobs operate - since 1982, first for Time Magazine, then for Business 2.0, and now for Fortune.
If Apple actually wrote any good software anymore they could make HUGE profits and view the business as hardware vs. software instead of niche hardware vs. niche hardware vs. our bread ‘n butter. If they’d stuck to standards instead of implementing their own proprietary ways early in the game they’d be enjoying much higher profit margins. And if they’d switched to Intel much earlier in the game (God I can’t believe I’m suggesting this…) they’d probably have a much stronger foothold in the gaming market.
I don’t think their business model of supporting the business on Macs, iPods, and iPhone is safe at all. The iPod and iPhone markets are slowly merging into a PDA market. (Hey, remember how success and well-marketed the Newton was?) What will Apple do then once their stool inevitably only has two legs? And it’s an even worse business model when instead of added dedicated “legs” like the iPhone, they’re shifting resources from other legs a la the Leopard delays due to the iPhone. Diminishing the quality of one successful product for the sake of another is just asking for trouble.