How Apple took over the only segment of the PC market that still matters

How Apple took over the only segment of the PC market that still matters

Summary: Everyone knows the PC market has been in decline for the past few years. But one segment of that market is doing spectacularly well, and one company has managed to carve out enviable sales and profits by dominating that niche. Guess who?

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Apple, unlike most of its competitors, is remarkably transparent about its sales. In its quarterly and annual earnings reports, it routinely discloses both unit sales and revenue for each of its operating segments.

In recent years, most attention has been focused on the eye-popping numbers associated with the iPhone and iPad lines, which sold 150 million and 71 million units, respectively, in Apple’s 2013 fiscal year.

Compared to those stratospheric sales volumes, the Mac division appears downright anemic, selling a total of only 16.3 million units in the company’s 2013 fiscal year, the last full year to be reported. Macs similarly represent only a tiny percentage of the global PC market, with less than 6 percent of the 300 million PCs sold last year having an Apple logo on them.

But those numbers are deceiving. Macs are still enormously profitable, and their high average selling price makes this division a formidable cash cow. In addition, Apple’s product planners have shrewdly targeted the most important segment of the market, the only segment that’s growing and the one that is by far the most profitable.

Thanks to that focus, Apple’s influence is much greater than those seemingly puny market share figures would suggest. A closer look at the numbers explains why.

Let’s start with a truism: Macs are PCs. They compete with high-end Windows PCs in both business and consumer segments of the market.

Over the past decade, Mac unit sales have followed the same basic track as the rest of the PC market. After rapid growth in the first decade of the new century (more than doubling between 2006 and 2010), sales appear to have stalled somewhat in recent years.

mac-unit-sales-2004-2013
Overall Mac unit sales, 2004-2013. Data from Apple SEC filings.

That chart only tells half the story, however. During the past decade, the mix of Macs sold has shifted. In 2005, Mac desktops (primarily the iMac) outsold all Mac portables combined. But that year marked the beginning of a long, steady decline for Apple-branded desktops, as the following chart makes clear.

mac-portables-increase-share
Mac portables (blue) versus desktops (gray) as a percentage of all Mac sales. Data from Apple SEC filings.

In 2012, the MacBook Air and MacBook Pro combined outsold all desktop Macs by a three-to-one ratio. That trend has no doubt continued, but you can’t tell from Apple’s SEC filings anymore: the company stopped reporting the desktop/portable breakout beginning in the first quarter of its 2013 fiscal year.

It’s a good bet that MacBooks now represent nearly 80 percent of all Mac sales, with desktop models (iMac, Mac Pro, and Mac Mini) shrinking quickly. By contrast, Gartner says 57 percent of all Windows PCs shipped in 2013 were portables, including traditional notebooks and ultra-lightweight MacBook Air competitors.

Apple is aiming quite deliberately at the one segment of the PC market that matters, what Gartner calls “premium ultramobiles.”  (For more details, see "High-end ultramobile devices carve a bigger share of the PC market as Chromebooks struggle.")

The MacBook Air is the quintessential example of this product category, weighing under 1.6 kg in each of its two configurations but with a display that’s large enough (at 11 or 13 inches) to be a credible alternative to a more traditional notebook PC.

I estimate that Apple sold roughly 6.4 million MacBook Airs in its 2013 fiscal year, compared to about 6 million MacBook Pros. (I based that calculation on two variables: First, I estimated that portables made up 76 percent of all Mac sales in 2013. Second, I estimated an average selling price of $1,050 for MacBook Airs and $1,500 for MacBook Pros.)

If 6.4 million MacBook Airs sounds unimpressive for a full year’s sales, put it in perspective: Gartner estimates that only 22 million premium ultramobiles were sold in all of 2013. That gives Apple nearly 30 percent of this fast-growing market, which Gartner forecasts to grow by roughly 50 percent this year and more than 70 percent in 2015.

It’s also a profitable segment, with average selling prices of $1000 or more.

That growth is why you see Windows PC makers falling over themselves to deliver products in this category, with Microsoft’s Surface Pro line and Lenovo’s Yoga series the best examples. All of the Windows-based products include touchscreens, and most can be converted to a tablet by either detaching and stowing the keyboard or flipping the screen over.

The MacBook Air is desperately overdue for a major makeover. Its biggest competitive weakness is its non-Retina display, which offers resolutions that can’t measure up to its Pro siblings or its Windows rivals. I would not be at all surprised to see new MacBook Airs with Retina displays this fall. I would expect those models to sell spectacularly well in the holiday season.

Meanwhile, it’s impossible to compare Apple’s sales with those of its rivals in this category, because none of them break out their results with the same level of detail as Apple.

The detailed sales comparison every PC market watcher would love to see—Microsoft’s Surface Pro 3 versus the MacBook Air—isn’t likely to happen unless Microsoft changes its longstanding policy and begins disclosing actual sales figures for the Surface line.

Topics: Mobility, Apple, Microsoft, PCs, Microsoft Surface

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260 comments
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  • Play nice!

    As always, I remind everyone to please stick to the topic and avoid personal attacks.

    If you feel the urge to call someone a name, just step away from your screen until it passes, OK?

    Thanks.
    Ed Bott
    • Ed

      Hey I just called you a name! :P

      If you look at Apple's hardware engineering efforts for the last few years, it seems to confirm what you're saying. The iMac of today is basically the iMac of five years ago, with component upgrades. It doesn't look or act different.

      Compare that with the efforts they seem to have expended on the Macbook Pro lineage in that time, and the OS X tweaks that have focused so much on power management and better use of screen size.

      It is a little odd that Apple's engineering concentration has been on the Pro, though. The Air is what everyone else seems to want to compete with!
      Mac_PC_FenceSitter
      • Highest profit margins on the Pro

        If Apple can upsell its customers to a Retina Pro that costs $2500, that's a lot of extra profit.

        The people buying the cheapest MBA are not contributing nearly as much.

        So you build a perfectly acceptable MBA and put your engineering into the high-end product with the higher margins.

        At least that's what it looks like from here.
        Ed Bott
        • Retina is the future

          The way I see it, it's not that Apple doesn't care about the MBA, but that the only way to improve the MBA is by investing in next-gen tech (high DPI screens, new fan tech, better batteries) in the form of the Retina Pro, and the profit from that can feed back into cheaper high res screens and such so the MBA line can eventually incorporate the Retina line.
          omi-kun
          • Born in the 1980s

            Retina? puff, what a waste.
            cym104
          • Retina Not a Waste

            Eye fatigue can be caused by a low Pixels per Inch (ppi). While you can still read things at this lower point, your eyes will get tired quicker the lower the ppi is. This is simple physiological measure. From these simple studies it is found that for anything over around 200 ppi at typical screen distances the improvement drops off. The closer to the screen the higher the required ppi to minimize fatigue. It is also age dependent with older subjects getting fatigued much faster at lower ppi younger eyes.
            MichaelInMA
          • My MBP

            has a 1680x1050 display. It's not a Retina but it doesn't cause any "eye fatigue." Basically, it is impossible, even, unless I use reading glasses with 3.5 diopters and my face against the screen, for me to resolve a single pixel on this screen

            If eye fatigue was as common as you suggest, my eyes would have died in the years spent looking at 800x600 and then 1027x768. I still have machines that do the latter resolution...
            Splork
          • Born in the 1980s

            Retina? puff, what a waste.
            cym104
      • Honestly

        The iMac has changed just as much or as little at a Macbook. Compare a 2008 Macbook and iMac to their 2014 equivalents. In both cases they have change about as much for either.
        ctopher5669
      • iMac is no different than four years ago?

        Sure, it's still the best personal desktop computer you can buy, hands down. The one all the others copy, just as ever. So, yeah, it's not changed much.
        comp_indiana
      • Pleasantly surprised

        Definitely one of Ed's better articles, BUT, this is the year of the Linux desktop. Everyone knows that. ;-)

        Back in 1982 I wondered which platform would rule, IBM or Apple. Here we are 30 years later, and surprise surprise, it's the resurrected Apple corporation. Doesn't it seem like the more innovation we have the faster innovation occurs. The past decade was incredible.

        I think it's great to see the competition and the better products and prices. Should be interesting to see how long Apple can hold out against the cheap dirty bird penguins.

        So Ed, ya ought to compare the rise of Chromebooks vs Macs. Another interesting article might be the comparison of server market share, but counting Linux servers would be between daunting to impossible.
        StevenAbaby
        • Apple is the ruling platform? At only 6.6% penetration??

          *perplexed*

          Here are the numbers according to NetMarketShare:
          Windows: 91.68%
          Mac: 6.64%
          Linux:

          Care to explain the math of how a 6.6% share of something is "ruling" over a 91.7% share? I'm perplexed.

          (Just because Apple pays promotional product placement fees to have a Macbook glowing in the background of every movie and TV show possible does not actually make that a reality in the real world...)
          MatthewGudenius
          • If you are selling half as much as a competitor...

            ...At 10 times the margin, then you are a happy camper. Most of the PC business is cutthroat, with margins very near zero (which is why PC vendors pimp themselves out by including crap-ware on their boxes). Apple stays away from low margin linesand does a great business where the margins are luxurious. That was the point of Mr. Bott's article.
            Flydog57
          • It may have been the point....

            ....but it wasn't the title.
            duffy537
          • At 10 times the margin

            but only 1/10 the quantity, not even counting servers (which apple basically have 0 share)
            cym104
          • @MatthewGudenius

            Hi Matt

            I am referring to all computing devices, including servers, desktops, laptops, tablets, smart phones, phablets and even thermostats, cars, and raspberry pi and whatever else that computes. Back in the stone age of 1982 most of these devices didn't exist. There's been so much innovation in the past decade it boggles the mind.

            Back in the early 1960s there was a show called "Star Trek", where they interfaced with the computer by just talking. There was no device. The computer was part of the ship. It wasn't a laptop, it wasn't a desktop. It was just a feature of the Star Ship Enterprise. We're not there yet, but I think that's where we're headed. You have a question you just look at your display device hanging on the wall, you say "Computer" which wakes it up, and then you ask your question. In your car, same thing. In a few years cars will be driving themselves, and passengers will entertain themselves by interfacing via voice with their cars built in computing capability.

            Your numbers may be accurate if you're just talking about a certain segment, but according to an article I read recently, and I think it was Ed who wrote it, Microsoft's market share of the total computing market was something less than 20%.
            StevenAbaby
          • Total computing market?

            With even the guidance systems in Tomahawk missiles counted in, I'd say 20% is already a satisfying number.
            cym104
          • The key thing is...

            It's no longer possible to use the ridiculous 'we are all there is' B.S. mantra that MSFT has relied on since forever.
            comp_indiana
          • "I wondered which platform would rule, IBM or Apple"

            You said you wondered which would rule, IBM / Apple.

            I see neither one of them ruling, based on your above all-encompassing "ubiquitous technology" list. Voice-enabled augmented reality glasses? Google. Smartwatch? Android (Google) Driving car? Google. Smart thermostat? Nest (oh wait, Google owns that now, too)

            As for the integrated tech you describe and say "we're not there yet"... we are, actually. Just because APPLE'S not there yet doesn't mean WE (the rest of the world) isn't.

            I'm going to sound like a Microsoft fanboy here (I'm not -- I am a tech brand agnostic, and I currently have a variety of devices but am about to ditch my Macbook Pro for a Surface Pro or the upcoming HP x2 612, because I simply need active digitizer capability, and Apple refuses to see a market for that despite the fact that multiple third-party sellers keep trying to come up with a reasonable solution for iPads using bluetooth, expensive pens, etc... and a large share of Apple's market is graphic designers and education, two areas that dramatically benefit from handwriting and drawing capabilities), but here goes:

            Bill Gates' house was already a "smart home" like the Star Ship Enterprise YEARS ago. RFIDs and similar tech would automatically change wall decor, or music playing, to meet the preferences of whoever walked into the room, if I recall (it's hard to remember, because they built those features in nearly a DECADE ago.)

            Then again, there is an interview from about 7 years ago in which Bill Gates was talking about the "tablet PC" and how he thinks it's the greatest thing ever, and he doesn't understand why it's not catching on... and Steve Jobs is just watching him, listening intently...

            Then iPad comes out 2-3 years later and is suddenly declared "revolutionary" (but I still can't write and draw well on it like I can with my 2004 Toshiba Portege)

            Microsoft's market share of the "total computing market" (which, if you want to be technical, includes everything from TI-81's to Speak-and-Spells to DVD players to typical cars, which have had computers as an integral part of their functioning for decades now) is probably less than 20%, that sounds believable... and yet that 20% is still probably higher than the slice any other single entity has in the "total computing market" space (which, by the way, how do you define that? Which company is the market-share "owner" of a smart device running on an Intel chip but using a Linux OS and built by Sony?)

            In any case, even in this "total computing devices" sphere... Apple certainly isn't "the ruler"
            MatthewGudenius
          • Apple or IBM

            @MatthewGudenius

            I understand what you're saying and you are correct. Perhaps "rule" doesn't precisely describe the current situation between Apple and IBM. Perhaps I should have said: Back in 1982 I wondered which platform would win the day, IBM or Apple. A lot had changed since then, but Apple is the largest corporation in the world that derives it's revenue from computing devices. It has surpassed IBM.

            Which company is the market-share "owner" of a smart device running on an Intel chip but using a Linux OS and built by Sony? This is a very insightful question. Your comments about Google are also insightful, and pointing out that Microsoft invented the tablet but couldn't make it work....yep, right again.
            StevenAbaby