A Close Look at Apple's Mac Shipments

Based on an analysis of Gartner Group's recently published estimates on domestic Macintosh sales, Apple (AAPL) may have shipped 2.54 million Macs this quarter (Q3 2008). According to Gartner, Apple shipped about 1,397,000 Macs in the United States during its recent quarter ended on June 30, 2008 (fiscal Q3). In fiscal Q3 2007, domestic sales made up 57.31% of total Mac sales. Based both on the recent trend of U.S. shipments making up a smaller portion of total Mac sales, and on the anticipated slowdown in consumer spending (due to the rising price of oil and other inflationary pressures), domestic sales could reasonably fall to about 55% of total sales.

As the table below indicates, U.S. Mac sales as a percentage of total sales fell moderately in Q1 and Q2 from the same periods last year. U.S. Mac sales made up a total of 44.63% and 44.12% in Q1 and Q2 of 2008, falling from 50.31% and 48.85% in Q1 and Q2 of 2007. This could be explained in any number of plausible ways.

U.S. Macintosh Sales Compared to Total Macintosh Sales

	Gartner U.S. Sales	Total Actual Mac Sales	U.S. % of Total Macs
Q3 2008	1,397,000	2,540,000*	55.00%*
Q2 2008	1,010,000	2,289,000	44.12%
Q1 2008	1,035,000	2,319,000	44.63%
Q4 2007	1,338,000	2,164,000	61.83%
Q3 2007	1,011,000	1,764,000	57.31%
Q2 2007	741,000	1,517,000	48.85%
Q1 2007	808,000	1,606,000	50.31%
Q4 2006	975,000	1,610,000	60.56%
Q3 2006	N/A	1,327,000	N/A

*Estimates based on this article's analysis. Not actual results.

First, one could argue that as world-wide Mac sales are growing at a much higher pace than in the U.S., one should expect U.S. sales to make up an increasingly smaller portion of total shipments. The historical chart below on Mac shipments lends some support to this theory. Sales in Europe were blistering hot in Q1 and Q2 when compared to other periods in Apple's history and when compared to the U.S. in general. Mac sales in Europe were up 43.60% in Q1 and 44.80% in Q2; while in the United States, Mac sales were up only 28.1% in Q1 and 36.3% in Q2.

Macintosh Sales by Operating Segment

	Q2 06	Q3 06	Q4 06	Q1 07	Q2 07	Q3 07	Q4 07	Q1 08	Q2 08
Americas	494	642	781	625	605	824	965	841	884
Europe	316	301	342	491	433	393	499	705	627
Japan	82	79	62	70	79	81	72	91	118
Retail	154	216	323	308	275	330	473	504	458
Other	66	89	102	112	125	136	155	178	202
Total	1112	1327	1610	1606	1517	1764	2164	2319	2289

Furthermore, European sales continue to have a prominent impact on overall Mac shipments. For Q1 and Q2, European sales made up about a third of total Mac sales (30.5% in Q1 & 27.4% in Q2). The U.S. by contrast, made up about 44.63% in Q1 and 44.12% in Q2. Thus, European Mac sales are not only growing at a faster pace than in the U.S., but have a solid overall impact on total shipments. This tends to suggest that the U.S. will make up a smaller total portion of Mac sales in Q3 as it did in Q2 and Q1 when compared to last year.

Secondly, one could argue that the recent slowdown in consumer spending (a foregone conclusion on Wall Street that has yet to be proven) has had at least a marginal impact on domestic sales. While it is yet to be seen whether a slowdown in U.S. consumer spending will ever actually occur, and if it does whether it will affect Apple, it's nevertheless something that shouldn't be so easily dismissed. If U.S. consumers have in fact recessed, then the Gartner estimate, as impressive as it is, is even more impressive when considering the state of the consumer.

It should be mentioned that the Gartner Group estimates cannot be tested for accuracy and that the arguments put forth in this article are based on Gartner's findings. Apple does not release data on U.S. Macintosh sales so there is no way to compare Gartner's findings with Apple's actual reports. Apple reports U.S. sales under the heading of two separate operating segments.

One operating segment, the "Americas," presumably includes North and South America while the other operating segment, "Retail," includes the U.S. and any other countries where Apple retail stores are located. Thus, it makes it nearly impossible to determine exactly the number of Macs Apple has shipped in the United States. Yet, the table below gives a rough approximation of U.S. shipments by combining both "retail" and the "Americas" since U.S. shipments probably make up the vast majority of each of these two segments:

A Rough Approximation of Historical U.S. Sales using Apple's Summary Data

	Americas + Retail	Outside U.S.	Total Macs	U.S. % Total Macs
Q3 2008	N/A	N/A	N/A	N/A
Q2 2008	1,342,000	947,000	2,289,000	58.62%
Q1 2008	1,345,000	974,000	2,319,000	58.00%
Q4 2007	1,438,000	726,000	2,164,000	66.45%
Q3 2007	1,154,000	610,000	1,764,000	65.42%
Q2 2007	880,000	637,000	1,517,000	58.01%
Q1 2007	933,000	673,000	1,606,000	58.09%
Q4 2006	1,104,000	506,000	1,610,000	68.57%
Q3 2006	858,000	469,000	1,327,000	64.60%
Q2 2006	648,000	464,000	1,112,000	58.27%
Q1 2006	708,000	546,000	1,254,000	56.46%

Supporting Argument Based on Current Growth Rate
While the growth rate in Mac sales, taken alone, doesn't present with particularly strong predictive evidence for where Mac sales will fall in Q3, it can be supportive of hard evidence such as that presented by the Gartner Group. The current trend in Mac sales suggests that Apple will report between 2.547 million (based on the 44.39% growth seen in Q1) and 2.662 million Macs (based on the 50.89% growth rate seen in Q2).

Alternatively, one could also compare the sequential growth rates between Q2 and Q3 of previous periods and apply the differences to this period. For example, last year (2007) Apple reported a 16.28% sequential growth rate between Q2 and Q3. In 2006, that sequential growth rate was 19.33%. Based on the most recent sequential growth rate of 16.28%, Apple would report about 2.662 million Macs. Yet, sequential growth rates and current YoY growth rates have only modest predictive power due novel conditions and to the law of large numbers. At some point, Mac sales are going to be so large that Apple will not be able to sustain its 50% growth rate that it enjoyed in Q2.

Supporting Arguments Based on NPD Data
NPD data for the months of April and May indicate that Mac sales are up some 50% from the same months last year. If NPD data for the month of June also suggests 50% growth, then it's possible that Apple could record nearly 2.646 million Macs in Q3. Yet, NPD data has tended to suggest conclusions that have been proven overly aggressive in the past when it comes to Mac sales. Yet NPD data is supportive of a 2.54 million Mac estimate if viewed conservatively.

Disclosure: I own long term 2009 and 2010 call options in Apple.

Comments

[User 143629:]

Sales are Sales and sales make apple money,who cares where they sell them. Apple is kicking ass and will make its investors a ton of money for years to come.

2008 Jul 17 07:47 AM

[Toni:]

But for now it seem to me the stock is going down.

2008 Jul 17 08:47 AM

[JW, PhD:]

Things often seem simple to simple people, Toni.

2008 Jul 17 09:32 AM

[Toni:]

JW, PhD, forgot to sign ?

2008 Jul 17 10:21 AM

[Toni:]

Below 170 soon.

2008 Jul 17 10:23 AM

[JW, PhD:]

No, Toni...I didn't. Everyone's posts have their name right next to them, so there is no need to add a signature. But everyone with an IQ above 75 already realizes this. If you have any other moronic questions, feel free to ask.

2008 Jul 17 10:24 AM

[SKR, MBA:]

First you say "...It should be mentioned that the Gartner Group estimates cannot be tested for accuracy and that the arguments put forth in this article are based on Gartner's findings.". Then you say, "it can be supportive of hard evidence such as that presented by the Gartner Group."

Then you go on for paragraphs on end making predictions based on completely noisy data. Garbage in Garbage out.

You sure you're not shorting?

I agree with User 143629. I also agree with Steve Jobs when he says: "We don't predict, we report."

Money is money; and supreme innovation, setting the tone for the entire consumer-based computing industry for the past decade, consistent growth and profits cannot be disputed no matter how they are tweaked.

Buy AAPL, put it in your portfolio, and fagettaboudit.

2008 Jul 17 10:27 AM

[FPPC:]

But when the foreign money is converted into US dollars.....Wowie!

2008 Jul 17 10:53 AM

[bobthenoob:]

The timing could be right on AAPL side for earnings... coinciding with oil prices coming down could mean AAPL going way up.

2008 Jul 17 11:03 AM

[best.deception:]

Toni Toni Toni.....when will you stop?? You're petty $175 price target should have you fired from Bernstein. Doesn't you posting negative comments on here violate your T&C of employment as an analyst??

2008 Jul 17 11:14 AM