A pair of analysts see an end-of-the-year uptick in Apple's computer sales

Photo: Apple Inc.

"Our conversations with industry contacts suggest that the Mac shipment levels have improved over the last two weeks," writes J.P. Morgan's Mark Moskowitz in a report to clients issued Monday morning.

In that report, he raised his both his estimate for Mac sales in the December quarter (to 3.29 million from 3.17 million) and his Apple (AAPL) price target for the new year (to $230 from $220).

Piper Jaffray's Gene Munster, meanwhile, waited for Monday's data from the NPD Group to come to a similar, but slightly less bullish conclusion. Based on retail data for October and November that show Mac sales in the U.S. up 21% year over year, Munster estimates that Apple will sell between 2.9 and 3 million Macs before the end of the quarter. (The Street is looking for 2.85 million Macs.)

Munster is sticking with his $277 price target. Apple closed at $196.98, up 2.31 points (1.19%) for the day.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Needham & Co.'s senior analyst explains how Apple outgrew the PC market seven fold

Click to enlarge.

Needham's Charlie Wolf was as surprised as anyone when Apple (AAPL) reported that it had sold a record 3.05 million Macintosh computers in its fiscal fourth quarter — a 16.4% increase compared with just 2.3% growth in the PC market.

The estimate Wolf had filed — 2.63 million units for the quarter — was one of Wall Street's lowest. (See here.)

So he took a close look at how Apple did it, and on Tuesday in a detailed report to clients he offered his answer: the home market.

"The twin drivers of the Mac’s rebound," he writes in his executive summary, "were the home market’s continued share gains in the PC market and the Mac’s share gains in the home market itself. Shipments in the worldwide home market increased 18.1% compared to an 11.5% decline in all other PC segments, while Mac shipments in the home market increased 28.8%. In the Western European home market, shipments rose an impressive 58.9%.

Wolf's findings are driven home by a series of charts and graphs. The first, reproduced above, shows that the home market, which represented 64% of all Mac shipments, was the only segment of the PC market to show any growth in the September quarter.

The second, below, shows that the Mac outgrew the home market itself (28.8% vs. 18.1%), while holding its own in the business market (-12.4% vs. – 13.7%).

Another spreadsheet shows that the Mac grew faster than the PC market in all regions of the world — most impressively in Western Europe, where the Mac outgrew the market by 38 percentage points.

In the remainder of his long report, Wolf makes the case that there's an iPhone "halo effect" that's even stronger than the original iPod halo, especially in Europe. And he applauds Apple's management for ignoring the advice of the many pundits who warned that it would lose share if it didn't abandon its premium pricing structure.

Apple stuck to its guns, and it paid off. Its dollar share of the home market is growing even faster than its unit share. Today, Apple gets one out every ten dollars spent on home computers worldwide. (See below.) In the U.S., its dollar share is more than one in five.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Apple's in-store sales fell sharply from 2008, but its online store traffic soared

Apple's busy Fifth Ave. store. Photo: ped

A pair of reports from Piper Jaffray's Gene Munster tell the story.

The first, issued early Monday morning, gave the results of a headcount performed at three Apple (AAPL) retail stores on Black Friday, the traditional start of the holiday selling season. Although the stores were busy, his team counted an average of 8.3 Mac sales per hour, down 36% from the 13 Macs per hour they observed on the same day last year.

Munster's second note, sent nearly seven hours later, reported on comScore data indicating that sales at traffic on Apple's online store Friday was up 39% year over year.

"Apple's online store had a big day on Black Friday," Munster concludes, "offsetting the y/y decline in our retail store checks."

Based on NPD data that showed U.S. Mac sales up 7% year over year in October, Munster had previously estimated that Apple would sell 2.856 million Macs in the quarter that ends Dec. 26. That's up from 2.524 million Macs in the same quarter last year, but down from the record 3.053 million Apple sold last quarter.

UPDATE: More field checks and estimates below the fold from Kaufman Bros.' Shaw Wu, Thomas Weisel's Doug Reid and Deutsche Bank's Chris Whitmore.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

These just in:

• Wu writes: "Our field checks indicate strong foot traffic at Apple stores and that Macs, iPhones and iPods saw strong uptake … We believe our forecast looking for 2.9 million Macs is likely conservative. Currently, consensus estimates look for 2.85 million Macs."
• Reid's team did store checks at 41 authorized retail locations in the U.S., Canada and the U.K. and came away with "increased confidence" in his estimate of 3.06 million Mac sales this quarter, up 21% year over year.
• Whitmore's team got the shoe-leather prize, conducting store checks over Black Friday weekend at more than 120 Apple retail stores and 25-plus AT&T outlets. He concludes that both Macs and iPhones are tracking "in-line to above" his unit estimates (8.5 million iPhones and 3 million Macs) while iPods are tracking "roughly in-line" with his estimate of 23 million.

CORRECTION: Several news sites — including this one — repeated Munster's assertion that Apple's online sales on Black Friday increased 39% year over year. But comScore's report clearly states that it was measuring Apple.com's unique visitors, not its online sales. See here.

But some people may not be getting the computers they hoped for this holiday season

Image: Amazon.com

On the eve of Cyber Monday, Apple (AAPL) Macs held the top three spots on Amazon's (AMZN) "Most Wished For" laptop list, as well as the top four spots on the desktop computer wish list.

But wishes are not horses — or premium-priced Macs — and judging from Amazon's "Most Gifted" lists, some of those Christmas wishes might be filled by more affordable Microsoft (MSFT) Windows machines.

On the laptop "Most Gifted" list, the top two spots Sunday morning went to a $549.99 Toshiba Satellite and $418.98 Acer Aspire, respectively. The $1,199 MacBook Pro had been pushed to No. 3.

On the desktop computer "Most Gifted" list, three of the top four were still Macs, but a Hewlett Packard (HPQ) Compaq had moved into the No. 2 spot.

On Amazon's "Bestseller" lists — a broader measure of what's being purchased on America's largest online retail store — no Macs topped either list Sunday morning. But four Macs were among the top 10 bestsellers for both laptops and desktops.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Its Cinderella contract with Apple for the iPhone runs out in seven months, says one analyst

Brian Marshall. Image: Bloomberg

Broadpoint AmTech's Brian Marshall, who has replaced Piper Jaffray's Gene Munster as the most bullish of the mainstream Apple analysts, made several assertions of fact in an Bloomberg TV interview Friday that — if true — struck me as newsworthy. Chief among them:

• The contract that gives AT&T (T) exclusive access in the U.S. to Apple's (AAPL) iPhone expires in June 2010.
• Apple is now getting a $450 subsidy from AT&T for each iPhone it sells; after June, that subsidy will be reduced to $300 for all carriers, domestic and international.
• The 4% of AT&T subscribers who use the iPhone consume roughly 40% of the network's bandwidth.

Here and in a research note issued last late month, Marshall has been lobbying heavily for Apple to start selling the iPhone through Verizon (VZ). It turns out he may have personal reasons for doing so. He told Bloomberg's Pimm Fox that whenever he travels to New York or San Francisco with his iPhone he gets dropped calls "all the time."

"A very frustrating experience," he said, "but I'm not going to move away because Apple has their hooks into me"

You can hear all this, plus what Marshall has to say about the Chinese iPhone market, Windows 7's effect on Mac sales and Apple's 2010 earnings, in the interview posted below the fold.

UPDATE: Financial Alchemist's Turley Muller takes issue virtually everything Marshall says in this interview. See here.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

See also:

• Rumors: A Verizon iPhone in 2010
• Apple earnings: How the analysts got it so wrong

Shareholders press Microsoft's CEO about Apple's marketing campaign

Image: Apple Inc.

Those Get-a-Mac ads make "you all look like a buffoon," one long-time shareholder (and father of four Mac-using children) told Microsoft (MSFT) CEO Steve Ballmer at the company's annual meeting Thursday. "I'm just wondering why your marketing group can't do something to try to rein in this next generation, because you've got a real bad image out there."

"We all watch television," Ballmer responded, before quickly changing the subject to Microsoft's market share.

"The truth of the matter is, we do quite well," he said, according to TechFlash's Todd Bishop, who seems to have taken the best notes. "Even among college students, we do quite well. Do we have an opportunity for improvement? We do. Some of that is marketing, some of that is phase of life. It is important to remember that 96 times out of 100 worldwide, people choose a PC with Windows; that's a good thing. Even in the toughest market, which would be the high end of the consumer market here in the U.S., 83 times out of 100 people choose a Windows PC over a Mac."

Ballmer acknowledged that Apple (AAPL) had "picked up a couple of tenths of a percent of market share," an achievement some in the audience seemed to find laughable.

But as the Wall Street Journal's Nick Wingfield points out, citing IDC numbers, Apple's share of new PC shipments in the U.S. was 9.2% in the third quarter, up from 4.8% in the same period four years ago. (Worldwide share: 3.9% compared with 2.4% four years ago.)

Wingfield also took a crack at estimating how many copies of Window 7 Microsoft has sold, a number the company has not provided.

Source: Morgan Stanley. Click to enlarge.

According to Ballmer, Microsoft sold twice as many copies of Windows 7 in its first few weeks than any previous version of the operating system. Since Vista sold 20 million copies in its first month on the market, that would put Windows 7 unit sales to date at roughly 40 million.

That number includes both boxed copies and copies sold to PC makers for pre-installation on their machines, according to a Microsoft spokesperson. Sales of PC hardware spiked sharply immediately after the Oct. 22 launch (see chart at right).

See also:

• PC sales spike with Windows 7 debut
• How Apple is gaining on Microsoft
• Windows 7, like it or not

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Microsoft moved a lot of install disks, but hardware makers got a bigger bump two years ago

Photo: Philip Elmer-DeWitt

When Microsoft (MSFT) launches a new operating system, as it did two weeks ago, PC manufacturers like Hewlett Packard (HPQ), Dell (DELL) and Acer are supposed to reap the benefits. And everything seemed to be in place on Thursday Oct. 22 for that to happen.

"Never before has the industry launched such a variety of new form factors, price points, technology upgrades, and design innovations at one time," wrote NPD's Stephen Baker just before Windows 7's release. "This past weekend I happened by a Best Buy store and there was not one single PC for sale with Vista on it. Lots of Windows 7 machines, however, all of which were marked 'not for sale until October 22.' Someone did a great job in the supply chain making this happen. This will give Win 7 a tremendous boost out of the gate." (link)

Two weeks later, Baker is singing a different tune. Microsoft got a big boost according to NPD's weekly tracking data, racking up sales of Windows 7 that were 234% higher than Vista's during its first few days of sales. (More on that below the fold.)

But PC makers didn't make out quite as well. Although they had a relatively strong week, with unit sales up 49% year over year and 95% from the week before, it was nothing like Vista's launch in Feb. 2007. Then, sales soared 68% year over year and 170% from the week before.

In a press release issued Thursday, Baker explained what happened:

“A combination of factors impacted Windows 7 PC sales at the outset,” Baker wrote.  “Vista had a slight advantage at launch, as January traditionally has a bigger sales footprint than October.  The other hurdle Windows 7 faced was sales of PCs with older operating systems (XP and Vista) were high, making up 20 percent of sales during the Windows 7 launch, compared to just 6 percent of older operating sales during Vista’s launch week.”

Another thing to remember about that Vista launch week is that it set a relatively low bar. Retail Vista sales were considerably below Microsoft's forecast — almost 60% lower than sales of Windows XP during its first week in 2001.

Ironically, it was the computer manufacturers who did best in Feb. 2007. Sales of new PCs with Vista pre-installed were up 67% the week that Vista launched compared with the same week in 2006.

Apple (AAPL), of course, sells both OS X and the Macs that run it, so when it launched Snow Leopard in August, it made money on both sides of the deal.

See also:

• PC sales spike with Windows 7 debut
• Apple pays Google for Windows 7 hits
• Mac share grew after Windows 7 launch

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Microsoft has not halted Apple's momentum, according to Net Applications' October report

Source: Net Applications

If Microsoft (MSFT) was hoping that the launch of Windows 7 would halt the erosion of its operating system market share — and curb further inroads by Apple (AAPL)  — there is no evidence that it's working yet.

In fact, preliminary data released overnight Sunday by Net Applications show Mac OS X's Internet share growing by 2.73% in October, from 5.12% to 5.26%.

Windows' Internet presence, meanwhile, fell from 92.77% to 92.54% — its ninth loss in 12 months. Windows 7's share, however, was more than 2% even before its Oct. 22 general release, thanks to widespread use of early release versions. By Oct. 30 the Windows 7 portion was 2.85%, largely at the expense of Windows XP, according to a separate Net Applications report.

Net Applications, it must be noted, is not measuring share of market in the sense of sales revenue or unit sales. Rather it tracks the presence of various operating systems on the Internet by sampling browser data from visits to its clients websites — some 160 million hits per month. It's a methodology that tends to favor devices that make it easy to navigate the Web, which explains the relatively high "market share" of the iPhone in the firm's monthly surveys.

You can see Net Applications' October report here. The results are summarized in the chart below.

[UPDATE: Net Applications issued an update Monday entitled "Windows 7 breaks 3% in daily tracking." Meanwhile, their quality control department has reviewed the OS market share trends shown below. In the revised table Windows' market share dropped a bit (to 92.54%) and Mac OS gained (to 5.27%). See here.]

Source: Net Applications

See also:

• Mac's Internet share grew 5% in Sept.
• Net Applications: Apple just lost half its 'market share'

[Follow Philip Elmer-DeWitt on Twitter @philiped]

The Mac and iPod slices shrank between '08 and '09. iTunes grew a bit. iPhone grew a lot.

Source: Company reports

Steve Jobs likes to describe Apple's (AAPL) business model as a stool built on three-legs: the Mac, the iPod and the iPhone.

But a quick glance at the 2009 Form 10-K, which Apple filed on Tuesday, shows that it is now more like a four-leg chair, with a couple of wedge-shaped pillows on the side.

The Mac and iPod still bring in the biggest part of Apple's total sales revenue — 37.7% and 22.1%, respectively — but their shares of the pie are shrinking.

The iPhone, meanwhile, is rapidly catching up, thanks to unit sales that grew 78% and GAAP revenue (swelled by deferred revenue dating back to 2007) that grew 266%. The iPhone now accounts for 18.5% of Apple's sales, just behind the iPod.

The fourth leg of the chair is the line item Apple calls "other music related products and services" but which is mostly iTunes Store sales — music, video and apps. It continues to grow at a steady pace and now represents about 11% of Apple's net sales.

Spreadsheets summarizing Apple's revenue streams are pasted below the fold. Apple's 2009 Form 10-K is available as a pdf file here.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Net sales by product in millions.

Source: Apple 10-K report

Share of total revenue by product.

Source: Apple 10-K report

Both companies beat expectations last week, but only one of them was growing

Click to enlarge. Source: Company reports, Oct. 2009.

A year ago we ran a bar graph similar to the one at right. It showed that Apple (AAPL), despite the Mac's tiny market share compared with Microsoft (MSFT) Windows, was gaining on the software giant. The main reason: revenue pouring in from the iPhone but hidden as deferred earnings in Apple's balance sheet. (That chart is posted below the fold.)

Last week Apple and Microsoft once again reported quarterly earnings — and enjoyed nice pops on the stock market. But their growth rates turn out to be very different.

This quarter, deferred iPhone revenue isn't as big a deal for Apple as it was last year (non-GAAP earnings actually grew more slowly than GAAP; see here for why). Ironically, it was Microsoft that had to use deferred revenue from Windows 7 to show any growth at all. Otherwise, Microsoft's revenue for the third quarter was down 14% year over year and its earnings down 17%.

Apple's revenue, meanwhile, grew 25% and its income 46.6%.

Apple's war chest, in terms of cash and cash equivalents, is larger than Microsoft's, $34 billion to $33 billion, taking long-term debt into account (Apple has none).

And as far as market share, that depends what market you're looking at.

The bar graph above shows the Mac's share of the U.S. personal computer market, which has inched up to 9.4%, according to IDC.

Meanwhile, the iPhone's share of the worldwide smartphone market has grown from 2.8% to 13.3%, according to Gartner, while Windows Mobile has been relegated to "Others." And the iPod continues to command roughly 70% of the MP3 player market; Zune's share hovers around 2%.

The consensus on Wall Street is that Microsoft has turned a corner, and both Apple and Microsoft rallied last week. But over the past year — since we last did this exercise — Apple's shares have grown four times faster.

Below, as promised, last year's version of the bar chart:

Date: Oct. 26, 2008

Click on the chart to see last year's post.

Thanks to reader Mark Taylor for the suggestion.

[Follow Philip Elmer-DeWitt on Twitter @philiped]