Intel Chips Driving Macintosh PC Shipments Up - Despite Negative Chip Transition Variables

Apple yesterday said they were "thrilled with growth" of their Mac business, as the company reported impressive third quarter figures. Apple announced their second highest quarterly revenues in the firm's history with both a substantial improvement in gross margins in addition to superb Macintosh unit shipment growth. Apple had growth of 12 percent, year-over-year, quarterly results for their Macintosh business, with 19 percent sequential growth.

Chips Transition

It was about a year ago that the company stunned the computer world with their announcement to abandon PowerPC chips and embrace longtime AIM rival, Intel. At the time, skeptics said the chip transition would likely depress their Macintosh business if not downright slow it down -- and the company braced for it as some customers put off new Mac purchases and waited for Intel-based Macs. To make matters worse, longtime software powerhouse and ally, Adobe, said it would take until 2007 for them to ship native Mac Intel software of such popular applications like Adobe Photoshop.

But surprise! Here we are a year later and the company just broke another Mac unit record with 1.327 million new Macs, of which 75 percent were Intel-based.

The "Intel Effect"

While the iPod "Halo Effect" worked its charm in most of 2004 (see chart) this last 3rd quarter saw a slight sequential slow-down in iPod sales. Despite that, Mac units sequentially went up.

This new Intel effect seems to be driven by the realization by customers that Apple's new Intel Macs are capable of running Windows and Linux while allowing them to try the Mac for the first time.

A Halo Effect - iPod

If Mac sales are proportional to the iPod -- as can be assessed from all four quarters in 2005 (see graph below) -- then what is to explain the rise in Mac sales this year in 2006?

As can be seen in the provided PDF file chart (produced using Apple's Keynote application) each quarter in 2005, starting with the first quarter, (holiday quarter) iPod sales went up and so did Mac sales. Each new quarter brought somewhat proportional rises in iPod and Mac sales. Then the holiday quarter came for 2006 (Christmas 2005). iPod sales went through the roof, of course, and Mac sales actually went down a bit. They then went down again in the fiscal 2006 2nd quarter. But Apple was not yet half way through the Intel transition, so much could be explained here.

In thousands of units shipped per quarter (click for larger view) - includes projected numbers for next three quarters.

In the fiscal 2006 2nd quarter, Apple shipped 1.11 million new Macs, actually less than the 3rd and 4th quarters of 2005. Now they have shipped a record 1.32 million new Macs. But why the new growth and why so suddenly?

The Halo Effect - Intel

I believe several factors are at play here. Firstly, Apple just shipped the new MacBooks (iBook replacements) in May -- and they have been very well received. In fact the company has a backlog! Apple CFO Peter Oppenheimer reported that Apple's share of the growing mobile market is now at 12 percent, up from 6 percent in January. In the span of just six months Apple has doubled its market share in laptop (mobile) computers.

Secondly, Apple has a new TV ad campaign (Get a Mac) that seems to be engaging customers with its wit and humor. Most of all, the new ads tell stories about using a computer that real PC users can related to -- such as catching computer viruses, frustrations with attaching peripherals and not being nearly as media friendly as Apple's machines. Microsoft ships nothing remotely close to Apple's iLife '06.

Lastly, and this may be the most important factor, Apple's new Intel Macs can now run Windows XP alongside Mac OS X. This is enabling people to, essentially, have their cake and eat it too. Users can now have the benefits of both platforms on one machine. The ability to run Windows business applications and Mac digital life-style and video applications is undeniably appealing to many computer users.

A Confluence, Future Growth and CAD

Apple is growing PC market share based on all three factors noted above; however, a second river of growth is going to join the one described above later this year and into next as its core creative professional customers upgrade to new Intel-based pro hardware and the software that is finally ready to run on it.

Without Adobe's new Intel Mac ready pro apps, new pro Mac Intel based hardware will only take off so much for the remainder of this year. However, 2007 will be a different story altogether. For the next (4th) quarter I expect Apple to experience a modest sequential growth to 1.4 million Mac units. For the following holiday quarter I expect again a modest sequential growth boosted by the holiday shopping season to about 1.6 million Mac units.

However, for the first quarter of 2007 and beyond, I expect dynamic growth trends due to a massive, pent-up demand by Apple's substantial professional creative base. It would not be too unrealistic to see Apple ship nearly 2 million new Macintosh computers in the first quarter of 2007. However, a more likely number will be 1.8 million.

Just 2 1/2 years ago Apple was shipping about 700,000 new Macs per quarter. Now the company is essentially doubling that number. We are talking about a Mac installed base that is really growing. If Apple ships just 1.7 million news Macs per quarter in 2007, that will mean nearly 6.8 million new Macs for the year -- far greater than the 3 million they shipped in 2004.

These numbers mean the market for CAD and 3D software developers is getting too large to ignore in certain industries.

Closing Comments

All of these projections assume what we already know about upcoming positives affecting Apple. These include: (1) new pro workstations, (2) a new OS X release (10.5), and (3) new much enhanced iPods.

Other likely possibilities include a new Apple Media Hub device which would focus Apple in the living room and complement new movie download services from the iTunes Music Store. Also possible is an Apple iPhone and strategic partnerships in the mobile phone business with companies like RIM (the Blackberry folks).

Working in Apple's favor is the continued onslaught of Windows viruses and malware. Additionally, Microsoft's Vista delays only heighten the sense that something is terribly amiss in the Windows OS world and needs addressing. In the span it took Apple to deliver four major OS X upgrades (10.2, 10.3, 10.4 and now 10.5) Microsoft will just struggle to get one major update which will only contain one of the three planned major pillars of change in the new Windows OS as Microsoft had to continuously scale back its ambitions due to difficulties in implementing these new technologies.

With such trends it is hard to deny the obvious fact that Apple has real momentum over its chief rival.

Feedback: email: anthony{at}architosh{dot}com

Architosh Analysis: It seems that both Wall Street and the press are delighted in Apple's good Mac numbers today. A BusinessWeek story titled, How Do You Like Them Apples? quickly notes that Apple has silenced the skeptics with an avalanche of notebook sales. Notebook sales were up 61 percent year-over-year. And Apple stated that 50 percent of those polled in their Apple Stores are new to the platform.