A look-see at Macintosh in Apple's Q4 financials

Yes, Mac sales were off some 7 percent in the fourth fiscal quarter. Does this mean the sky is falling on the Mac platform (again), as some suggest?
Written by David Morgenstern, Contributor

Analysts have been sounding doom-and-gloom predictions for the PC industry, with mass defections from PCs toward tablets, and scant profits for manufacturers from cheap, commodity boxes. Yet Apple had bucked this trend in the past, until recently. Cupertino announced Monday that the number of Macs shipped in its fiscal fourth quarter was down 7 percent, 4.57 million units vs. 4.9 million in the year-ago quarter.

According to Apple CFO Peter Oppenheimer, Apple Macs had gained share in 29 of the last 30 quarters. And compared with the general 10 percent contraction in the PC market, the shipment of 4.6 million (Oppenheimer rounded up in the call with analysts) was "above our expectations."

Apple's new MacBook Pro lineup.

In addition, I would point out that in the year-ago quarter there was a lot of excitement over the introduction of a MacBook Pro with a Retina Display was well as strong sales of MacBook Airs. These were great quarters with very strong sales.

Meanwhile, the MacBook Pro models that Apple introduced in the first part of the year were very similar to those introduced in 2012, and there's been pent-up demand over the past half-year in the content-creation and high-performance segments for something fresher in the performance department. This wish was answered with the rollout of new models last week. This "late 2013" model comes with Thunderbolt 2 and USB 3 ports, as well as HDMI and faster WiFi. Of course, we all know there aren't any Thunderbolt 2 devices on the market, but customers buying a machine that will be used over the next few year, want a machine that will take advantage of future, faster storage and external expansion.

Apple executives talked up gains in the education market for both iPads and Macs. For example, Oppenheimer pointed to several education sites deploying thousands of iPads, such as the 19K-unit purchase by the Coachella Valley School District in Calif., and 10K units for the Horry County School District in S.C.

Apple CEO Tim Cook said that this was Apple's best quarter ever in the education segment.

We had our best education quarter ever. We went over a $1 billion in revenues for the first time ever. We were up strongly year-over-year up 8 percent. iPad was up 22 percent year-over-year and the Mac was up 8 percent and as you know the PC market was down 10 percent in the aggregate and likely down even more in education. And so we feel like we’re doing great on both fronts, both in the iPad space and in the Mac space for people wanting to buy Mac.

Cook was asked by an analyst about competition from very-low-cost laptops based on the Google Chromebook platform.

What your thoughts are with regard to Chromebook Google apps? [Is there] any kind of foothold that we are seeing with Google taking share in education, because as we’ve seen, some of the price-points for the devices are pretty low. But clearly you guys are able to sell into education as well. So I’m kind of curious as to how you view the competition and how you position your products vis-à-vis some of the things that are fairly low priced?

He responded that the Apple platforms (Mac and iOS) more than holding their own in the segment.

We do see Chromebooks in some places, but the vast majority of people are buying PC/Mac or an iPad. Our share of tablet in education is 94 percent. I mean, it’s ... yeah, it’s sort of unheard of. I have never seen a market share that high before. So we feel like we are doing really well here and feel great to be making a contribution to education.

This analyst comment is all about experience with the PC market and the so-called "Apple Tax," which is the perceived extra costs of buying and owning a Mac over a PC. The only value in a computer was its entry costs and the costs of peripherals. In the PC world, computing is a commodity and PC manufacturers have spent years driving the market down a steep canyon filled with cheap, commodity computing devices, filled with crapware. The advantage was Wintel compatibility and essential apps.

However, many of those advantages have been eroded by Apple's support for virtualization, quality, and multiplatform hardware. Education sites appear to want computer hardware that can run Windows and Linux and Mac applications. They want the usage flexibility that only Mac hardware offers them.

In addition, Apple has targeted the "Mac Tax" in the past week. Even better for education sites, Apple is now giving away system upgrades and its productivity titles. The company previously gave away its content-creation application suite in the education market. Software and OS upgrade costs (lack of same) now should be counted in any calculation of a "Mac Tax" in purchasing.

According to Cook, the no-cost software and application move was about what expectations of a base-level of technology and capabilities that Mac and iOS customers could expect.

We wanted it to become a part of what it meant to own a Mac and what it meant to own an iOS device. We saw iWork had become the best-selling productivity app on a mobile device. We wanted all of our customers to have access to our very latest software, so they would have access to our best features. And so we decided to make the bold move of making it free.

I know some other folks charge a $199, or so, for each of these — actually for the OS and the productivity apps. But we really wanted to make [them] a part of the experience and so we are making [them] free and we are going back all the way to Snow Leopard on the OS side and iWork is free for all new Macs. And so I think it’s a very strong offer — I think it’s just another reason that everyone should buy Mac and we think it was great decision to do so, but most importantly we think it’s great for customers.

And particularly for education customers of Macs.

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