Last week, technology research firms IDC and Gartner released their preliminary reports on 4th quarter United States PC shipments. The news might not have been surprising to many, as Apple (AAPL) was the only name to record a year over year increase. However, despite the strong growth for Apple over 2010, this division of the technology giant is becoming less important to the overall company. Let's look at some critical numbers.
The 4th Quarter PC Numbers:
According to Gartner, overall PC shipments in the US during the 4th quarter were down between 1 and 2 percent in 2011. However, Apple saw the best gain, with an 18% increase in its Mac Sales over the prior period. Hewlett Packard (HPQ) saw the worst performance, with a 25.3% drop in the period. Dell (DELL) also saw a decline, but only of 4.7%. Apple had more 2 million shipments in the quarter, and accounted for nearly 11% market share.
Why are overall sales declining? That's easy. People just don't need PCs as much anymore. Smartphones like the iPhone and Research in Motion's (RIMM) Blackberry can do a lot. Also, tablet sales have done well. Apple's iPad, Amazon's (AMZN) Kindle Fire, and even Research in Motion's Playbook will have an impact on PC sales, even if they only sell a few hundred thousand units a quarter.
What This Means for Earnings:
Neither research firm published any global estimates, but most expect Apple to post a 25% to 30% growth in global Mac sales. Apple sold 4.13 million Macs in the prior year's period, so that would put us in an estimated range of 5.16 to 5.37 million for this year's first quarter, which will be reported on January 24th. Apple is expected to post a new record quarter for Mac Sales, and I don't see any case where they will be under 5 million. My prediction for Apple's Mac sales was in the 5.05 to 5.1 million range before the report last week came out, so I probably will upwardly revise my estimate when I publish my official Apple earnings preview next week.
Apple's revenues by division:
While PC sales for Apple are at an all-time high, their impact on Apple's growth story is small, and getting smaller. The following table breaks down Apple's revenues by segment over the past three fiscal years.
**Includes hardware, peripherals, software, service and other sales.
In 2009, Mac sales represented almost a third of Apple's revenues, but that was before the iPad came to market. Mac sales in 2011 still represented a fifth of Apple's revenues, but that number is likely to decline again in 2012 due to new product launches of the iPhone 4S and iPad 3 (expected in early to mid 2012). In 2011, Mac revenues were almost $22 billion, so it's not exactly a throwaway segment.
We know that the Apple landscape is changing. The iPod was a nice product for Apple for a long time, but it's importance to the company will be ending soon. Apple's new iPhone 4S could account for 50% of Apple's revenues in the quarter, and expect iPad sales to take off when the new version comes out. They might have seen even greater growth, but sales of Amazon's Kindle Fire did have an impact, regardless of if you think it's a true competitor. Rumors were out last week that Apple has already started production of its iPad 3, which many think could have a version that will directly compete with Amazon's Kindle. I'm not sure yet that Apple will address the lower price point market, as they like their premium products.
Apple has done a nice job growing its PC business, and Mac sales being at an all-time high is a great accomplishment. However, the future of this company is not in this division, as we've seen in the last few years with the iPod. While I expect Mac sales to continue their growth and hit new records, I would not be surprised if they account for less than 15% of Apple's revenues in fiscal year 2012. I also think that they could be below 10% in the next three years. Apple might be doing well in this segment and much better than its competitors, but it's clear that their focus for the future is elsewhere. Apple is a great company and a good investment to own, but if you are buying it for its PC business, you're missing the whole picture.