Apple's Q1 confirms obvious: iPad eats away at Mac sales

Apple's Q1 confirms obvious: iPad eats away at Mac sales

Summary: For all the talk about the post PC era and how Microsoft machines are losing out to tablets and Apple's iPad, there's some Mac collateral damage too.

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Apple's first quarter report delivered an upside earnings surprise, relatively light revenue compared to estimates and an outlook that fell short. Spinning all of those moving parts can be put aside for one certainty: The iPad is eating Mac sales too.

For all the talk about the post PC era and how Microsoft machines are losing out to tablets and Apple's iPad, there's some collateral damage close to home. That reality may be the biggest takeaway from another profit fiesta from Apple.

Links: Apple statement, Apple results tables, previous ZDNet story

You can quibble over estimates and expectations, but Apple reported first quarter earnings of $13.1 billion on revenue of $54.5 billion. That's a damn good year for most companies and basically half of HP's annual revenue in three months. But Apple only sees second quarter sales of $41 billion and $43 billion. Wouldn't be great if we all had such problems?

In the first quarter, Apple moved 4.06 million Mac units, down from 4.9 million in the fourth quarter and 5.2 million a year ago. Year over year, Mac revenue was down 16 percent.

On the other side of the equation, Apple delivered 22.86 million iPad units, up 48 percent from the first quarter a year ago.

Let's hear it for cannibalization. The good news for Apple is that at least iPad sales at the expense of Mac revenue keeps the financials in the family.

Apple CFO Peter Oppenheimer explained the company's Mac unit and sales drop:

IDC estimates the global personal computer market contracted by 6% during the December quarter. We introduced the new 13-inch MacBook Pro retina display as well as our stunning new iMacs in October. As we projected a quarter ago, we were significantly constrained with respect to the new iMacs and were only able to ship them for the final month of the December quarter. We believe our Mac sales would have been much higher absent those constraints.

Even with the supply constraints it's unlikely that the new iMac would have closed the Mac gap with the year ago results.

Later in the conference call, CEO Tim Cook tackled the Mac sales issue. Cook seemed to argue that Apple's Mac sales would have been flattish without supply issues. Here's his long comment on the subject:

If you look at the previous year, our Mac sales were about 5.2 million. This year they were 4.1. And so the difference is 1.1. So let me try to bridge that. IMacs were down by 700,000 units year-over-year. As you remember, we announced the new iMacs late in October. And when we announced those, we announced that they would ship at first when the 21.5 would ship in November and we did ship it at the end of November. We announced that the 27-inch would ship in December and we did ship that in mid-December. And so there were limited weeks of ramping on these products during the quarter. We left the quarter with significant constraints on the iMac. We know that our sales would have been materially higher if those constraints would not have existed. We tried to tell people this on the conference call in October. I think I said that we would have significant constraints on iMac. And so I recognize to some folks, this may be a surprise. If you look at last year, we had 14 weeks in the quarter. We had 13 weeks into the quarter this year, last year in the average week we sold 370,000 Macs. The third part of the bridge here would be that our channel inventory was down from the beginning of the quarter by over 100,000 units. And that's because obviously we didn't have the iMacs in channel inventory. It was in significant constraints. So if you just take these three factors, they bridge more than the difference of between this year's sales and last year's sales. So now in addition to these three-point I would point out two other things. And these are lesser things than these -- the total of these other three obviously. One, the market for PCs is weak. IDC's last estimate I believe was around negative 6%. Two, we sold 23 million iPads. And we obviously could have sold more than this because we could not build enough iPad minis to come into a demand balance. And so we've always said there's some cannibalization there. I'm sure there was some cannibalization in Macs there but the three large factors are the iMac, the difference in seven days of the previous year having seven extra days in the channel inventory, I think more than explains the difference between this year and the previous year.

At least Apple has pulled this cannibalization thing off before though. iPod revenue fell 15 percent in the first quarter from a year ago mostly at the expense of the iPhone, which saw sales jump 28 percent compared to a year ago.

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Topics: Hardware, Apple, iPad, Mobility

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109 comments
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  • I'm surprised that Apple didn't break out how many Minis's they sold,

    vs iPad 4.

    Maybe that'll come later as Cook elaborates more.
    William Farrel
    • No, they will not, as well as they never elaborate about how many of ...

      ... each of various model of Macintosh, iPod, iPhone they sold.

      As to cannibalization, this quarter confirmed NOTHING. Apple killed their desktop sales by announcing new iMacs like two months before start of sales, and even then there were almost no machines to sell.
      DDERSSS
      • You are dead on!

        They killed their own iMac (and MacBook sales) with the pre-announcement of the new iMacs.

        The explosion of the iPad Maxi - especially when equipped with a keyboard case that turns it into an "iPad Air" - and the proliferation of apps that enable much of laptop content creation on that iPad/keyboard for most business types like me - made me rethink my laptop use.

        As a test, I left my 15" MacBook Pro home for a 4 week trip to the Middle East, UK and EU. I barely missed it.

        I came home debating between a new Mac Mini or a new 27" iMac and dumping my 2010 MacBook Pro (now with a big pro Dell monitor from my Windows era). But no iMacs were really available.

        We are in a post-PC era as far as mobile communications for most business types. But the iMac has the desktop nailed - if it can deliver. I was at my local Apple (Burlington, MA) store and watched people checking out with their new iMacs. Not one of them was upgrading from an Apple desktop - All were upgrading from Windows PCs.

        Apple has a lot of running room left.
        MedAdMan
        • Let's hear it for your comprehensive analysis...

          When you interviewed each customer, switching from Windows and not upgrading their own Macs, did they provide insight as to why they were leaving Windows, per chance, and possibly even which version of Window?

          Did they indicate why they were not buying n iPad, iPad mini, or some other device?

          What influenced the to avoid the Android Chromebook?

          Were they all teachers?

          Students?

          Did they already have the little apple sticker on their cars? Foreheads?

          If you like the new Mac, say that, but seriously the pretense of analysis?
          QAonCall
    • Re: I'm surprised that Apple didn't break out how many Minis's they sold

      Curious to know if they've managed to come close to Asus Nexus 7 sales.
      ldo17
      • How would you know?

        What are the sales numbers reported by Asus?
        pk de cville
        • Actually, they HAVE released sales

          Approx. 1 million per month, by last estimates (November?). Sorry I cant provide a link, on my phone and it'd be too much work :p
          Walkop
      • There are not hard figures but from what has been released the Nexus 7 is

        way behind the Mini in total sales let alone for the quarter. Even if only 25% of iPad sales (many speculating 50%+) this quarter were Minis that would over 5.7 million sold. According to Asus in December I believe it was shipments had grown to 1 million a month. Even if it had been at that level from day one it still wouldn't have matched the Mini in the quarter. Not bashing the Nexus, from what I hear it is a great device.
        non-biased
    • iPad mini is eating the iPad sales too...

      they should provide the numbers of iPad mini sales, for sure, but it´s not necessary for us to understand what is happened. The numbers of yty change in units (48%) and revenue (22%) make easy to see that ipad mini is cannibalizing full size ipad. Based on the average price we can also estimate (with simple two equations) the ipad mini sales, about 9 to 10 millions, and so the full size ipad was about 2 to 3 millions down. With surface pro and Windows 8 tablets priced around $ 1,000 the ipad to be not in the premium side of the tablets this year. To the company, ipad mini is eating both macs and regular ipad, what means, the profitabilty goes down. Can Apple do an ipadMac, a Surface Windows 8 like tablet?
      Rubens Ramos
      • POST CENSORED BY ZDNET

        ZDNET censorship nixed my original post.

        The gist was this:
        Based on talking to folks who've bought iPads in the past quarter, most were upgrades from existing iPads. Zero bought Minis. I'd estimate they sold maybe 3 million Minis (~12%,) total. Those were sold to new users who couldn't afford the full-sized model.
        BillDem
  • Macs have become a minor sideline

    I am sure Jobs and company knew full well the risks of cannibalization and had little trouble accepting it.

    MS on the other hand cannot afford to risk it. That is their dilemma. They are trying to fit a square peg in a round hole, and that does not work too well most of the time.
    D.T.Long
    • this just proves

      you are one clueless. I thought you didn't have commonsense, and of course you proved it.
      Ram U
      • Proves clueless?

        You included no facts, links or a single reasoned argument in support of your statement, or "proof".

        Guess who the clueless one is.

        You are an utter idiot and you established that quite convincingly by posting the utter nonsense you did, and you are clearly too stupid to recognize it.

        Nice going, shooting yourself in both feet.
        D.T.Long
        • ZDNet spam filter must have affected your initial post

          "You included no facts, links or a single reasoned argument in support of your statement, or "proof"."

          Did ZDNet remove all the facts, links, and reasoned arguments from your initial post? You made a statement that MS had a dileman with no facts, links, or reasoned arguments as to why.

          "Guess who the clueless one is."

          Oh trust me, we have.

          And to finish, I'll quote someone who was talking about you:

          "You are an utter idiot and you established that quite convincingly by posting the utter nonsense you did, and you are clearly too stupid to recognize it.

          Nice going, shooting yourself in both feet."
          toddbottom3
          • OK. Since you are so SLOW I will spell it out for you

            MS is trying to shoehorn their desktop OS into mobile to avoid cannibalization, while Apple is/did not.

            There you go.

            As an added observation, it is quite interesting to note that I got a rather angry reply from YOU, very soon after posting my reply to a "new" handle, Ram U.

            Hmmm; quite a coincidence don't you think? Have I been getting under your sensitive MS skin?

            Too bad. If you were not such an incessant and stupid MS shill poster, perhaps it would not happen. You see, I am not a shill, so I do not need to make stupid posts all the time. Shills apparently have no such choice.

            Have a nice evening.
            D.T.Long
          • First you brought up MS into the discussion

            which was unnecessary.

            second you offered no facts to sustain your wishful thinking patterns.

            So you are making a fool of yourself constantly berating a company like MS that sells the best software out there. No amount of spin can really fix what you are trying to do: TROLL, PAID SHILL.... FANBOI
            Master Wayne
          • Bingo but I would add gives the appearance of a

            "Clueless" shill.
            ScanBack
          • MS Strategy and product is pretty exciting to me

            DT

            Microsoft has brought out a great product with Windows 8. I had been on a MacBook Pro for about a year when the new laptops came out. My son-in-law led the way with a new touch screen laptop and I dumped my MCP for one. Windows 8 is an elegant fast system and I'm excited about dumping my Ipad2 for a Surface Pro or equivalent. I've been frustrated with the weaknesses of the Ipad (no file system), no stylus where you can actually write without looking like a 1st grader, no legitimate handwriting recognition. I am looking forward to a tablet with some real soup. The world is changing. Cannibalization will occur because frankly most people don't need a computer with the power of an I 5 or I 7 processor. For most, an Ipad or Android tablet provides more than enough power for what they need. For those of us who need genuine computing power, Win 8 is providing a seamless solution for desktop, laptop, and tablet. I see enormous value in having all three.
            larsonjs
          • That's pretty funny toddbottom3

            Your the one that avoids facts at all cost yet you expect somebody else to use them.
            non-biased
        • LOL.

          Well I may or may not be an idiot, I might have responded to personal insults, but you are better than cloggedbottom7 in anyway. I think you wrote that just looking at mirror.
          Ram U