Eyebrows — those highly mobile facial features that always get raised when people are astonished — got a good workout Tuesday at Apple’s quarterly earnings call.
Apple COO Tim Cook surprised analysts by stating that some customers are spending their money on iPads instead of new Macs.
There’s long been suspicion that the iPad has been eating into sales of laptop and desktop PCs. But this may be the first time Apple’s acknowledged that its tablet may also be eating into its own computer line.
Breaking Down the iFigures
Apple sold 9.25 million iPads this last quarter ending June, according to the company’s statements during the earnings call.
Mac sales totaled 3.95 million, 14 percent up year over year. The street was expecting 15 percent, according to Barclays Capital, which had pegged its estimate at 22 percent higher.
However, Barclays attributed the dip to a combination of factors.
One was that consumers were holding off buying Macs before Apple introduced Mac OS X Lion, the latest version of the Mac operating system, which was unveiled Wednesday.
Another was that Apple’s back-to-school promotions this year were less attractive than before.
This year, Apple’s back-to-school promo consisted of a US$100 gift card for Mac App Store purchases, whereas last year it offered an 8 GB iPod on which students could get a rebate of $200.
The Possible Displacement of the Desktop
“To a degree, the iPad is cannibalizing Macs and PCs among certain groups, including kids and retirees who are mainly interested in fun applications, photo albums, and being able to retrieve their email and connect to social networking sites and the Internet via Safari,” Laura DiDio, principal at ITIC, told TechNewsWorld.
Seven percent of the more than 500 respondents to the latest ITIC survey opted to buy an iPad instead of a Mac or a PC, DiDio said.
However, 30 percent said they purchased an iPad in addition to a Mac or PC.
“In a sense, that could be construed as a form of cannibalization since, if the iPads didn’t exist, consumers and corporations may have opted to purchase another Mac or a PC,” DiDio remarked.
About half the respondents to a Yankee Group survey of tablet owners who also owned desktop computers said they use their desktop PCs less now that they have tablets, stated Dmitriy Molchanov, an analyst at the research firm.
When he unveiled the iPad 2 in March, CEO Steve Jobs talked about what he called “the post-PC era,” in which mobile devices such as the iPad will predominate. The company’s planning to make Mac apps downloadable from the Internet, and it launched its Mac App Store in January for this purpose.
The Mac OS X Lion operating system, which was released Wednesday, is only available as a download from the Mac App Store.
It’s possible that move toward the post-PC era is backfiring on Apple to some extent, leading to flagging sales of the Mac.
However, Cook downplayed the significance of the iPad’s inroads into Mac sales, pointing out that the Windows PC market had been hit harder by the iPad.
Barclays Capital believes Mac sales will pick up again now that Mac OS X Lion has been released, and some other analysts echo that view.
The Lack of Money Is the Root of Hard Choices
The issue is not so much cannibalization as it is the economy, suggested Will Stofega, a program director at IDC. Tighter times leave people with less funds for discretionary spending, and so they have to make wiser spending decisions.
“There’s only so many dollars to go around, and so there’s some delay in people purchasing new desktops and Macs,” Stofega told TechNewsWorld.
“The iPad’s cheaper than a Mac or PC,” he added.
“Going into this cycle, it was clear that spendable income hadn’t increased and that iPads were likely to cannibalize traffic,” said Rob Enderle, principal analyst at the Enderle Group. “Yes, iPads are driving higher traffic in Apple stores, but people are choosing an iPad and not picking up a Mac as well.”
Laptops and Netbooks Also Struggle
Laptops and netbooks, which were first seen as the main targets of tablets, are also being impacted.
A Yankee Group survey of tablet device owners showed that nearly half of those who also owned netbooks used the netbook less frequently now that they have a tablet, the research firm’s Molchanov told TechNewsWorld.
“This shouldn’t be surprising,” Molchanov said. “Tablets and netbooks have similar use cases.”
The iPad is the tablet mainly responsible for the difficulties of the desktop computer, laptop and netbook markets, as the other tablets haven’t had anywhere near as strong an impact on buyers.
“Nobody’s making the tablets right,” Michael Morgan, a senior analyst at ABI Research, told TechNewsWorld.
Although there are “some 100-odd tablets” from other device manufacturers running Android and other operating systems, the iPad still has 80 percent of the tablet market, Morgan pointed out. “That’s against 100-to-1 odds,” he added.
Hope Springs Eternal
Despite the inroad, there will continue to be some demand for desktop computers, laptops and netbooks.
“There are plenty of people who need a full QWERTY keyboard and the capability to do multitasking that computers, laptops and netbooks offer,” IDC’s Stofega said.
“A lot of our business applications are geared towards QWERTY keyboards and big screens,” Stofega explained.
Tablets are consumption devices, which makes it difficult for purchasers to use them at work, Stofega pointed out.
Further, the falling prices of netbooks, laptops, and desktop computers will ensure they remain in the market, ITIC’s DiDio suggested.
“They’re not going to be relegated to the high-tech graveyard any time soon, but they do have to make way for the new kid on the block,” DiDio said.
When a pc maker loses a sale, it’s a lost sale while a non Mac buyer might buy an iPad. While it’s less revenue, the margins are the same AND higher post sales with iOS in apps so at the end of the day, what’s really the difference selling an iPad and a 999 MacBook? Plus with apples iPad and hardware satisfaction rate at 80-90%, they are either going to buy a second one or buy a Mac. Apple can’t lose. It seems clear once users start using iOS, they are bought into the ecosystem on a lot of levels. Apple has got it all figured out. You other buy a Mac or an iPad with the same margins while a pc maker either loses a sale entirely or sells a netbook t a low or super low 2% margins. Apple wins.
"It’s possible that move toward the post-PC era is backfiring on Apple to some extent, leading to flagging sales of the Mac."
This is like saying "The Acme Buggy Whip Company would be foolish to go into manufacturing this newfangled product called the ‘horseless carriage’ because that would certainly eat into their sales of buggy whips."
It’s not clear to me if it’s the analyst who said this or the MacNewsWorld writer, but it’s incredibly uninsightful thinking. The one thing that Apple clearly understands (and that Microsoft never has) is "you better cannibalize your own products or your competitors will do it for you."