Apple’s Halo

It may be that the visual definition of Apple at the moment is the iPhone or perhaps the new iPod Touch, gadgets with touchscreens, but Apple is at its core a computer company. And while the company’s other products have taken the spotlight, Apple’s core business is doing more than well. According to reports, sales of the Apple Macintosh are growing at more than two-and-a-half times the rate of the PC industry as a whole.The price of Apple stock has more than doubled in the past year, and Apple soundly beat analyst expectations with their most recent earnings report. The New York Times sums up the financials, “Apple reported fourth-quarter profit of $904 million, or $1.01 a share, up from $542 million, or 62 cents, in the quarter a year ago, an increase of 67 percent. Analysts had predicted profit of 85 cents a share.” But with the image of the touch screen still so present, it may be assumed that these numbers reflect a move away from Apple’s original core competency.

It may have been the iPod that gave the company a leg up, and that followed by the iPhone, but the joy of the gadgets has now spread. The New York Times states, “Driven in part by what analysts call a halo effect from the iPod and the iPhone, the market share of the company’s personal computers is surging.” Steve Jobs told the New York Times in an interview, “The Macintosh has a lot of momentum now,” he said, “It is outpacing the industry.” The surge alluded to by Jobs is noticeable in the company’s market share: Apple now ranks third in U.S. PC sales, behind IBM and Dell. To support that channel Apple is releasing its new operating system, Leopard, this week.

Prior to the iPhone’s release Apple took a gamble, it moved developers away from Leopard and placed them on the iPhone project. While the delayed release does reveal that Apple is not perfect, it appears the gamble paid off. The halo effect is creating a whole new generation of Mac users. “One of the company’s strongest indications that it will see continued growth is its report that more than 50 percent of those who purchased Macintosh computers in its chain of 197 stores during the quarter were first-time Mac buyers,” states the New York Times.

At the very least the company looks a lot better than Microsoft which put off its OS delivery only to present a dud. (According to IDC analyst Richard Shim, Vista lags behind even Apple’s current-generation OS, Tiger, which debuted in April 2005.) Unlike Microsoft, whose Vista delay was overshadowed by the weak response to the final product, the delay in Leopard is overshadowed by the overwhelming reception to the product which threw it off schedule. The true failing of Vista might turn out not to be its flat sales, but that it pushed users over to the Mac platform. Vista flopped just as Apple was ramping up. Analyst Roger Kay says, “Apple has a real chance to play off Vista unsatisfaction.”

The gamble showed that Apple can set, or reset, its priorities and succeed. Indeed, it seems almost as if things should have been scheduled this way from the start. Just as the excitement of the iPhone is waning, Apple is in the headlines with its new OS. This might be just what is needed to woo potential converts.

Keeping the pressure on, Apple has suggested that it will continue the pace of releasing a new operating system on an average of once a year. Unlike Vista which was built from scratch, subsequent releases from Apple will use the existing platform. Though this may make them a bit less of a feat, it should allow them to keep to the schedule and further distinguish themselves from Microsoft which took almost seven years between its last two releases. Though Microsoft anticipates its next OS, Windows 7, in two years Apple will in that time already have released two new ones.

The numbers show that Apple is on a roll. However, they are rolling in a number of areas, and this, while working for them now, may present challenges. The question to ask at this point is: Can Apple sustain its growth in all the markets it used to create the wave it is now riding?

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in Northern Light’s Software, Computers, & Services Market Intelligence Center.

And in the following articles:

Record Mac Sales Help Apple Earnings Climb 67% in Quarter
New York Times, October 23, 2007
Apple reported earnings on Monday that leapt ahead of analysts’ already optimistic expectations on record sales of its Macintosh computers. The numbers showed that the company was slowly climbing back into the league of the dominant personal computer makers, Hewlett-Packard and Dell.

As Apple Gains PC Market Share, Jobs Talks of a Decade of Upgrades
New York Times, October 22, 2007
It may have dropped the word “computer” from its name, but Apple is certainly selling plenty of Macs. Driven in part by what analysts call a halo effect from the iPod and the iPhone, the market share of the company’s personal computers is surging.

Apple to Ship Leopard Server This Week
Network World, October 22, 2007
While the improvements to Mac OS X Leopard desktop are said to be evolutionary rather than revolutionary, the enhancements to Apple’s Mac OS X 10.5 Leopard Server are impressive and include features ordinarily reserved for large enterprises.

Apple Sets Leopard Launch, October 16, 2007
Mac computer users will soon be able to get their hands on the latest operating system from Apple, which analysts say could boost the company’s computer sales. Apple said on Tuesday that Mac OS X Leopard will go on sale Oct. 26. Apple had delayed Leopard’s release by several months so that engineers could support the iPhone’s development and keep its launch on track.


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