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

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?
Written by Ed Bott, Senior Contributing Editor

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.

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 (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.

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