Of course, the vast mindshare of the tech market is focused almost single-mindedly on Wednesday and its supposed announcement of an Apple tablet. Still, some part of the unconscious, animal brain must have found something to like in Apple's Monday quarterly report: Once again, its most profitable quarter, gross margins way up, and sales of products within expectations.
But for this longtime Mac-head, I was impressed by the continuing strength of Mac sales. And this in the face of the competition's most desperate marketing campaigns.
Was it unreasonable to think that in this quarter, we would see some signs of resistance by Windows customers to the siren call of the Mac? After all, Microsoft spent many millions telling PC customers that they were cool with Windows 7 updates to the "I'm a PC" campaign. And customers surely must have recalled the rounds of previous attack ads on the cost of Macs — the "I don't want to pay for the brand; I want to pay for the computer" series of ads.
Shouldn't we have seen some effect following the reportedly successful release of Windows 7, the fixed Vista?
But, no. It seems not. CFO Peter Oppenheimer ran down the bullet points:
• Mac sales of $3.36 million beat Apple's previous record set in the September quarter by over 300,000. • Quarterly Mac sales grew 33 percent over the year-over-year quarter (with IDC saying the there was overall growth in the PC market of 17 percent inthe December quarter). • 70 percent year-over-year growth in desktop sales. • Apple's retail stores sold a record 689,000 Macs compared to 515,000 Macs in the year-ago quarter. Again, about half the Macs sold in the stores during the quarter were to customers who had never owned a Mac before.
So, what was the secret? Perhaps the mysterious "halo effect?"
Chief Operating Officer Timothy Cook was asked about whether Apple considered that there was a halo for the Mac from the increasing use of the iPhone in the enterprise. He said it was too early to comment on the halo effect.
As you know we did feel strongly that did exist with the iPod. On a corporate basis the iPhone really saw a significant acceleration of acceptance and exploration after we announced the iPhone 3GS and associated operating system in the mid part of the year. As I think Peter mentioned in some of his opening comments, 70 percent of the Fortune 100 are actively piloting it or deploying it. If you look internationally about 50 percent of the FT 100 is doing the same.
So there are some…those are some pretty staggering numbers when you think about the time period we have been in the business. It is only 2.5 years. Several of the requests from enterprises really implemented in the June/July timeframe so we feel great about what is happening there.
Whatever the reason, the Mac is on a roll.
Apple execs said the company is seeing gains in the education market again, which is a very price-sensitive segment. Cook said that the entire education segment (K-12 and higher ed. combined) was up 16 percent year-over-year. He said that was the best growth rate for the segment that the company has have seen since before the recession began.
The Mac's international picture also appeared rosy. Cook presented the wide view of the different geographic segments:
I would point out some of the markets that are in the Mac group was absolutely spectacular. As an example, Italy, France, Switzerland and Spain all grew at 40 percent or higher. Australia was up over 70 percent. China was up almost 100 percent. So there are some markets out there we are doing extremely well in and we will just have to see where it takes us. We believe we are shipping the best products we have ever shipped before and we are very confident about the pipeline.
Cook was asked several questions about the Chinese market.
We have just really got going in China. I really like what I see so far. Although the average income is not nearly as high as perhaps the United States and some other western European markets, there is a significant size middle class and up there. I think to do a real deep analysis you really have to look not just at the averages but at the distribution of income within these countries. We have been selling in Brazil for awhile and are learning about Brazil as well. The Brazilian economy is different than the Chinese economy because the duties are very significant and the taxes are very significant there which tends to compound the price.
But we are very focused on these markets. In fact, if you look at greater China last quarter which is China, Hong Kong and Taiwan, our revenues tripled year-over-year in that geography which is I think phenomenal by any measure. We have a tremendous focus on it. As was alluded to earlier in the call 58 percent of our revenue last quarter was from outside the United States and it is clear as you look at our numbers our growth rates are much higher outside the US. We realize we must do well in these markets to continue to grow.
Later, he detailed some of the Asian markets.
In Japan what is going on there is the iPhone has been a runaway hit. The iPhone was up over 400 percent year-over-year during the quarter. So that is what is driving the huge revenue growth you see in Japan. The Mac growth is above market but we believe we can do better in the Mac area in Japan. In Asia Pacific, Asia Pacific is doing an incredible job with the Mac growing 54 percent. It is our highest performing region in terms of growth. In the iPhone the iPhone was up over 500 percent in Asia Pacific. As you probably remember we talked about China on this call, but we also added Korea during the quarter and we added several other countries throughout the year after Q1 of last year. iPhone really drove an incredible amount of the total revenue growth you see on the [range] of 140 percent.