Apple's iPad Could Cannibalize Mac Line: Analysts
Apple's July 19 earnings call was filled with the sort of news that sets analysts' hearts aflutter. After all, the company reported significant growth in iPad and iPhone sales for the fiscal 2011 third quarter, on its way to quarterly revenues of $28.57 billion and net profit of $7.31 billion.
"We expect [Apple] will become the largest market cap company on the planet," Gleacher & Co. analyst Brian Marshall wrote in a July 20 research note. "Its business model is becoming stronger over time as well as the company benefits from an increasing richness of its revenue mix."
Apple sold 20.34 million iPhones during the quarter, a year-over-year increase of 142 percent. It also sold 9.25 million iPads, good for a year-over-year increase of 183 percent. The company also sold 3.95 million Macs, a 14 percent increase from the same quarter in 2010.
"We sold every iPad we could make," CFO Peter Oppenheimer told analysts and media listening to Apple's July 19 earnings call, while suggesting that significant majorities of the Fortune 500 were studying how to best integrate the bestselling tablet into their employees' workflow.
Apple CEO Steve Jobs and his executives like to talk about the tech world entering a "post-PC" era, one in which mobile devices such as the iPad take precedence in users' lives over the traditional PC. But could that phenomenon end up backfiring on Apple, driving a decline in Mac sales over the long term?
During the earnings call, Apple COO Tim Cook both acknowledged and downplayed the gravitational effect of the iPad on sales of the company's other products. "Some customers chose to purchase an iPad instead of a new Mac during the quarter," he told media and analysts. "But even more customers chose to buy an iPad over a Windows PC ... there's a lot more of the PC Windows business to cannibalize than the Mac."
Following the call, analysts chewed over the cannibalization issue a little more.
"The iPad has successfully integrated the functionality of a slimmed down notebook into a media-player form factor," Marshall continued in his note, "and has effectively rendered a significant portion of the Mac (and potentially the iPhone) product family obsolete. This presents a serious problem as iPhones and Macs generated 64 [percent] of Apple's total revenue in [calendar year] 2010."
Others seemed more tempered about the iPad's potential effect on Apple's other product lines.
"Mac unit growth continued despite increased demand for iPad, and we believe this demonstrates the halo effect from iPhone and iPad sales to increase Mac sales," Canaccord Genuity analyst Michael Walkley, along with his co-authors, wrote in a July 19 note to investors. "We believe this effect offsets any potential cannibalization of MacBooks due to iPad and we believe the new OS launch [June 20] could lead to stronger growth trends for Macs."
Apple continues to ramp up its iPad distribution, with an increased focus on the enterprise. According to the company, some 86 percent of the Fortune 500 is either testing or deploying the tablet. "To be this far into the enterprise with a product that's only been shipping for 15 months is incredible because the enterprise is traditionally much more conservative," Cook said during the earnings call.
Apple's enterprise strategy when it comes to mobile devices, he added, centers on providing guidance and training to carriers' sales forces, since the majority of those businesses apparently want their devices connected to a network.