Mac, iPad sales push Apple to record revenue

iPhone 4 case giveaway expected to cost Apple $175M

For the third time in the last four quarters, Apple today reported it sold a record number of Macs, although sales of the iPhone slipped slightly.

The iPad , meanwhile, debuted on Apple's balance sheet with 3.27 million units sold, generating US$2.17 billion in revenues that represented nearly 14% of the Cupertino, Calif. company's total income for the period.

"That was out of nowhere," said Brian Marshall, an analyst with Gleacher & Company, about the iPad's numbers. "Phenomenal."

Overall, the company posted record revenues of $15.7 billion for the quarter, with a net profit of $3.25 billion. Revenues were up 61% year-over-year.

"Revenues were driven primarily by the iPad, with strong sales of iPhone and Mac," said Peter Oppenheimer, Apple's chief financial officer, during the earnings call with Wall Street analysts Tuesday afternoon.

Marshall agreed, saying that strong Mac and iPhone sales, when combined with a stellar debut by the iPad, produced the record quarter.

The iPad's number should put to rest thoughts that the tablet would cannibalize sales of Apple's other products. "The Mac upside and the iPhone upside, along with the iPad numbers, makes the idea that the iPad would take away from Apple's internal dollars null and void," said Marshall.

The iPad sales weren't a surprise: In late June, Apple announced that it had sold 3 million tablets in the first 80 days of availability. Apple is selling approximately 1.1 million iPads per month, according to Apple's figures, putting it on a pace to sell almost 10 million tablets by year's end.

In the quarter that closed June 26, Apple sold 8.4 million iPhones, down 4% from the 8.75 million it sold the first quarter, but up 61% from the same period last year. Mac sales, however, set a record of 3.47 million, up 33% over the same quarter in 2009 and trumping the 3.36-million mark of the previous bestselling quarter, the final three months of last year.

Apple set Mac sales records in the third and fourth quarters of 2009, as well as in this quarter, turning a hat trick out of the last four periods.

"The Mac is very healthy," said Ezra Gottheil, an analyst with Technology Business Research. "That was the one business they might have been concerned about, but it's looking very good. It's still far and away from where they once were on an APS [average selling price], but they don't have to generate a lot of their profit on the Macs anymore."

Desktop Mac sales were up 18% year-over-year to 1 million, a growth rate significantly less than the 40% increase the prior quarter and the 70% climb of 2009's final quarter. Apple explained the slippage as part and parcel of its refresh cycle; the company's primary desktop, the iMac, hasn't been revamped since October 2009.

Notebook sales were up 41% for the quarter to 2.46 million, a growth spurt dramatically higher than the 28% increase of the prior quarter. "There's clearly a move to mobility," said Tim Cook, Apple's chief operating officer, during the question-and-answer portion of the call.

Apple's executives seemed genuinely surprised by the success of the iPad, which some analysts had once said would do fewer units for the entire year than Apple claimed it sold in just one quarter. "We've been pleasantly surprised how fast this product has gotten out of the chute," said Cook, who added that Apple was "selling every [iPad] unit that we can make," after an analyst asked when the company would balance supply and demand.

iPad orders are currently backlogged seven-to-10 business days on Apple's online store, and the supply will likely get even tighter; Apple plans to launch the tablet in nine additional countries this Friday.

The success of the iPad has forced several research firms to revise their sales estimates for either Apple's tablet or tablet-like devices in general. Before Apple's earnings call, iSuppli upped its iPad projection from an April estimate of 7.1 million units to 12.9 million iPads for the year. Also on Tuesday, ABI Research almost tripled a sales forecast from six months ago to 11 million for 2010.

"Apple is now a four-product company, that's pretty darn clear," said Gottheil, referring to Apple's iPhone, Mac, iPad and iPod lines.

Gottheil also saw confirmation in today's numbers that the iPad hasn't, at least yet, taken dollars from Apple's own pocket. "Cannibalization isn't a big issue for Apple, certainly, or for anyone else for that matter," he said. "As prices for devices come down, it's more a matter of people having more devices, not having to decide on just one."

Cook dismissed talk of cannibalization as well, at one point saying it was "too early to tell" if the iPad was taking away sales of iPod Touches or Mac notebooks. Later, he said that if it does happens, it's actually good news for Apple.

"This is where it's great to have a lower share, because if it turns out the iPad cannibalizes PCs, I think it's fantastic for us," said Cook. "There's a lot of PCs to cannibalize."

The one question Gottheil and Marshall had about the iPad was how soon Apple could drive down its cost, and increase the margin it makes on the tablet, which Marshall estimated is currently in the low 30% range. The iPhone, on the other hand, now enjoys a margin of about 60%.

"Will those [margins] scale up over time?" Marshall asked.

Gottheil seemed confident they would. "I think they're well prepared to ride down the price curve on these devices," he said. "Ultimately, say in a couple of years from now, tablets should be south of $300. They should be less expensive to make than a netbook , with fewer moving parts and fewer licenses to pay."

Apple also estimated that it will cost the company about $175 million to fulfill CEO Steve Jobs' promise to give away a case to all customers who purchase an iPhone 4 through the end of September.

"Seems high to me," said Marshall of the $175 million. "But that's an inconsequential number for Apple."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer or subscribe to Gregg's RSS feed . His e-mail address is gkeizer@ix.netcom.com .

Read more about macintosh in Computerworld's Macintosh Topic Center.

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