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OPINION: Not such a bad month for Apple

iPad's netbook cannibal sector

According to most reports Apple’s had a terrible month stuck in the eye of a storm of negative publicity.

The company has been damned, derided and ridiculed in the consumer media for problems with the latest iPhone. After a series of hysterical reports about the iPhone 4’s antennae problems that led to fury from US senators and a crazed onscreen attack by Whoopie Goldberg – she released her death grip long enough to “murder” her iPhone in a car door – Apple CEO Steve Jobs was forced to fly home from his holiday in Hawaii to issue a brusque response that was as weak as the signal of a phone held by a gorilla in a submarine.

Steve announced a $175 million solution in the form of free cases for any iPhone customers who asked for one. But it wasn’t as bad a month for Apple as the media made it out to be.

In fact Steve probably went straight back to his beach house and threw a large veggie steak on the barbie, knowing that a few days later Apple would report revenue of $15.7 billion for the third quarter of its financial year (ended June 27; its year begins in October), up 61 percent from the $9.7 billion in revenue for the third quarter last year – which itself was the company’s best ever period of business.

Its net profit for the period was a cool $3.25 billion. Now that’s a bumper.

And this business isn’t all on the back of the iPhone, as you might expect. For the third time in the past four quarters, Apple has sold a record number of Macs.

Mac sales were at a new record of 3.47 million, up a third over the same quarter last year and beating even the 3.36 million sold in the last quarter of 2009. Desktop Mac sales were up 18 percent year-over-year to 1 million. That’s not as high growth as has been seen over the past year but still impressive seeing as the iMac hasn’t been updated since October 2009. Laptop sales were up a whopping 41 percent.

It’s an even more outstanding result given that these laptop sales came at the same time many believed that Apple would be cannibalising its own portable sales with the launch of the iPad. While there were just under two and a half million (2.46m) MacBooks and Mac Book Pros sold, Apple flogged nearly three and a third million (3.27m) iPads. From a financial point of view the iPad represented nearly 15 percent ($2.17 billion) of Apple’s entire income for the period.

If iPad sales continue at the current rate of 1.1 million a month Apple could sell as many as 10 million iPads by the end of this year. Indeed analysts forecast between 11 million (ABI Research) and 13 million (iSuppli).

iPad sales 13 million 2010

Ezra Gottheil, an analyst with Technology Business Research, downplayed MacBook cannibalisation fears by pointing out that at this time the iPad was likely an extra purchase rather than a laptop replacement: “Cannibalisation isn’t a big issue for Apple. As prices for devices come down, it’s more a matter of people having more devices, not having to decide on just one.”

Apple’s chief operating officer Tim Cook agrees, and even sees an upside to the iPad stealing laptop sales: “This is where it’s great to have a lower share, because if it turns out the iPad cannibalises PCs, I think it’s fantastic for us. There’s a lot of PCs to cannibalise.”

And the iPad certainly appears to be taking a fleshy bite out of traditional laptops sales, in much the same way that the iPhone has hungrily chewed into the tasty mobile phone market since 2007.

Tech industry analysts at Canalys released their worldwide PC market data, highlighting Apple’s jump into the top five PC vendors. In April, May and June the iPad captured an astounding 6 percent of the entire portable PC segment, pushing Apple’s market share up to 8 percent.

That’s not just a tribe of cannibals gnawing on a few old bones, that’s an army of blood-soaked zombies ripping off arms and legs. And the lacerated limbs appear to belong not to Apple but its fat and juicy Windows competitors.

With a multitude of manufacturers announcing the launch of their own pads for later this year, Canalys expects tablets to overtake netbooks by 2012 – with the pad PC market expected to reach 12.5 million units in 2010, growing to 66 million by the end of 2014.

As the pad market becomes mainstream laptop makers are going to target this sector, leading to depressed netbook sales. Gartner principal analyst Mikako Kitagawa also pointed to the iPad as a reason for slowing netbook sales.

Apple CEO Steve Jobs has long been scornful of netbooks, deriding them as “just cheap laptops”: “Is there room for something in the middle? In order to create that category, they have to be far better at doing some key tasks better than the laptop and better than the smartphone.

“What kind of tasks? Browsing the web. Doing email. Enjoying and sharing pics. Watching videos. Enjoying music. Playing games. Reading ebooks. If there’s going to be a third category it has to be better at these tasks – otherwise it has no reason for being.

"Now some people thought that was a netbook – the problem is that netbooks aren’t better than anything.”

The bods at Canalys agree: “Apart from the ‘Apple effect’ the iPad owes its success to a lack of advancement in other portable computing segments, such as netbooks. To capture share moving forward, PC makers will have to take the netbook to the next level or go after new customer segments with their own pads,” said principal analyst Chris Jones.

Apple’s iPhone sales were down but that’s hardly surprising given that the iPhone 4 wasn’t released until the end of that period. And even this figure was up 60 percent on the same quarter a year beforehand. I bet even Whoopi ends up buying an new one.

A stormy of controversy is quickly calmed when that troubled product is still the most successful launch in your company’s history, Mac sales growth rate is over twice the PC market’s trend, and you have an army of netbook-eating iPads breaking new ground. You won’t read about it in the newspapers, and there’ll be no YouTube parodies pointing this out but it really hasn’t been such a bad month, after all...

Apple iPad Review


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