iPod Sales Only 14.2% of Apple's Q4 Total Revenue 20 comments
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If someone were to tell investors two years ago that iPod sales would only contribute 14.2% of Apple’s (AAPL) total revenue and that Apple’s revenue would significantly accelerate to a shocking pace of 75% year-over-year, such an investor would probably guess that Apple’s stock price would be trading at levels significantly higher than it did in 2006. Yet, here we are. Two years later, iPod sales only contributed 14.2% of Apple’s total fiscal Q4 2008 revenue, which grew at a rate of 75% YoY. Yet, Apple’s stock is only $4.00 higher than it was in November 2006.
Investors, the media and the analysts have consistently overstated Apple’s dependence on the iPod for future revenue and earnings growth. In Q1 2008, the street, choosing to disregard iPhone and Mac revenue as being at the core of Apple’s primary driver of future revenue growth, only focused on how iPod unit sales grew at a meager pace of 5% YoY. Wall Street also seemed to disregard the fact that iPod revenue growth in Q1 was still 16.6% higher than it was in the same quarter last year.
Even today, analysts and the media continue to question whether Apple could succeed in a recessionary environment due largely to the perceived uncertainty as to whether iPod sales can continue to grow in 2009. Several members of the media, including analysts and fund managers who don’t cover technology stocks, continue to refer to Apple as the “iPod maker” or simply a “gadget maker” indicating that Apple’s core business is derived from iPod sales. Nothing could be further from the truth as illustrated in the tables and charts below.
It is absolutely crucial that investors notice that while iPod sales as a percentage of Apple’s total revenue continues to decline (indicating that Apple is less dependent on the iPod for growth), overall revenue is accelerating at a significant pace due largely to blistering growth rates in Mac and iPhone sales. Apple’s total revenue grew at a pace of 75% from 2007 to 2008 but only grew at a pace of 38% between 2006 and 2007. iPod revenue growth rate is accelerating, and yet, Apple still drew 86% of its sales from sources other than the iPod in Q4.
In fact, Mac and iPhone sales accounted for 70% or two-thirds of Apple’s total revenue in Q4 and that trend appears to be accelerating as we head into 2009. Even on a GAAP basis, the iPhone is slowly but surely overtaking the iPod as the second biggest contributor to GAAP-based revenue and earnings. In Q4, iPhone revenue on a GAAP-basis reached over $800 million while contributing $4.67 billion on a non-GAAP basis—more than the iPod has ever contributed in revenue even in its best quarter ever.
By Q4 2009, iPhone revenue on a GAAP basis will be a larger contributor to overall revenue than will iPod revenue. This means that even with the subscription method of accounting, iPhone revenue will still have a far bigger role than iPod sales in Apple’s earnings reports. What is even more striking about this analysis is that even though the iPod is starting to have a reduced role in Apple’s revenue growth, iPod revenue actually accelerated in 2008. The revenue growth rates of the iPod were better in 2008 YoY than they were in 2007 YoY. It’s time for investors, analysts and the media to change their views on Apple as being a mere iPod maker and recognize that Apple is a serious blue-chip stock with a larger cash hoard than Mr. Softy. The bottom line here is that Apple drew 86% of its revenue in Q4 from sources other than the iPod. If that can’t change investors' perception of Apple’s dependence on the iPod, then I don’t know what will.
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This article has 20 comments:
I hope the cave has broadband.
Apple's business & profits grew higher then any other company I know of. Profits were over 34% (using the other accounting method, it's much higher)
What the point of the article is; iPod growth continues to outpace competition (which is impressive by itself).... even so, the majority of Apple's revenue is from iPhone & Macs... for analysts to look only at iPods is putting the cart before the horse. Apple's business would have shown profit and growth if 0 iPods were sold- WOW!
So I guess you believe Apple is going to lose that 14.2% of sales? Even if iPod sales contracted, they wouldn't go to zero as you seem to imply by such a post.
Call Apple a fad all you like. How do you explain that Apple has a larger cash position than almost every other tech company including MSFT? How do you explain the fact that Apple's earnings on a non-GAAP basis put it in the 20 twenty most profitable companies in America? Hmmm. Do you think perhaps this bullshit "fad argument" that you bears seem to advocated is far run its course yet? Or are you a monkey whose hand is stuck between two bars because he doesn't release that if he just let go of the banana, his hand would become loose?
Coming Apple mini could be a big hit because teens/college students really love to use both Mac and Vista OS's, and Mac hardward makes this possible. In fact, I'll buy a Mac mini for my living room when it comes out.
Because Apple isn't in direct competition with other mfgrs., its price cuts wouldn't lead to retaliatory price cuts by competitors--so there wouldn't be any self-destructive race to the bottom that leads all parties impoverished. (It might even turn out that price cuts would actually increase Apple’s net profit—i.e., it may be that Apple’s marketers are underestimating the price-sensitivity of potential Mac buyers.)
Related to this matter is the fact that Apple's Macs are highly desired, so that Apple can still maintain higher margins after its price cuts than competitors and yet take market share away from them. By carefully adjusting its prices, it most be able to get into a sweet spot where its absolute profit level is maintained, its market share grows, and its competitors bear the brunt of the recession. (This is what I was getting at in my comments over the past few months that "Apple doesn't have to outrun the bear, it only has to outrun Ballmer." [Or "Windows" or "other PC makers," as I've sometimes put it].)
(A minor benefit is that market-share growth will induce more software companies to port their products to the Mac, and more peripherals companies to make their products Mac-compatible, which will lead to more market-share growth, etc.)
The degree to which Macs are desired by the public is underestimated by analysts, who apparently don't realize the Mac's "specialness" AND "worthiness." Here are a couple of quotes, one on each aspect:
From today's <i>Seattle Times</i>, "With its next big thing, Microsoft faces a future full of challenges," p. A19:
"'When I watch people leaving the Apple store, it's like a kid with a birthday present.,' said Michael Cherry, an analyst with Directions on Microsoft, an independent Kirkland research firm. Recent PC purchasers, on the other hand, often look nervous, as if they've overpaid or purchased the wrong machine, he said."
A comment by "cynik" appended to Philip Elmer-DeWitt's October 16 online article, "Macintosh share of US market tops 9%":
"It may also transpire that in tough economic times an operating system that costs people money because it is unstable will face mortal pressure. .... Gone are the days when people were so impressed with new software that they would tolerate a freeze and shutdown. ... As computers become tools rather than novelties, Apple will continue to grow."
This is the reverse of the conventional wisdom, but it is right "on target," because it explains why the Mac has done so well in recent years.
To get back to where I started, I hope that you can construct various price-cut scenarios to illustrate how the Mac line is comparatively recession-resistant.
Because Apple isn't in direct competition with other mfgrs., its price cuts wouldn't lead to retaliatory price cuts by competitors--so there wouldn't be any self-destructive race to the bottom that leads all parties impoverished. (It might even turn out that price cuts would actually increase Apple’s net profit—i.e., it may be that Apple’s marketers are underestimating the price-sensitivity of potential Mac buyers.)
Related to this matter is the fact that Apple's Macs are highly desired, so that Apple can still maintain higher margins after its price cuts than competitors and yet take market share away from them. By carefully adjusting its prices, it most be able to get into a sweet spot where its absolute profit level is maintained, its market share grows, and its competitors bear the brunt of the recession. (This is what I was getting at in my comments over the past few months that "Apple doesn't have to outrun the bear, it only has to outrun Ballmer." [Or "Windows" or "other PC makers," as I've sometimes put it].)
(A minor benefit is that market-share growth will induce more software companies to port their products to the Mac, and more peripherals companies to make their products Mac-compatible, which will lead to more market-share growth, etc.)
The degree to which Macs are desired by the public is underestimated by analysts, who apparently don't realize the Mac's "specialness" AND "worthiness." Here are a couple of quotes, one on each aspect:
From today's <i>Seattle Times</i>, "With its next big thing, Microsoft faces a future full of challenges," p. A19:
"'When I watch people leaving the Apple store, it's like a kid with a birthday present.,' said Michael Cherry, an analyst with Directions on Microsoft, an independent Kirkland research firm. Recent PC purchasers, on the other hand, often look nervous, as if they've overpaid or purchased the wrong machine, he said."
A comment by "cynik" appended to Philip Elmer-DeWitt's October 16 online article, "Macintosh share of US market tops 9%":
"It may also transpire that in tough economic times an operating system that costs people money because it is unstable will face mortal pressure. .... Gone are the days when people were so impressed with new software that they would tolerate a freeze and shutdown. ... As computers become tools rather than novelties, Apple will continue to grow."
This is the reverse of the conventional wisdom, but it is right "on target," because it explains why the Mac has done so well in recent years.
To get back to where I started, I hope that you can construct various price-cut scenarios to illustrate how the Mac line is comparatively recession-resistant.
Further, your moronic ramblings about 14% show a complete understanding of the basic premise of this article.
It's good to see that your numbers on Apple's non-GAAP revs are within $0.1B of my own, that I calculated on the back of an envelope back in April. I posted over at MDN's Opinion page that Xmas quarter last year the sales were really $10.5B, not the reported GAAP $9.6B; and that the quarter afterward was $8.0B not the reported GAAP $7.5B.
I got no traction back then, but you seem to have gotten the ear of Elmer-Dewit and others. Keep going, we're all behind you.