Mac Musings

Sorry, Henry, Apple's Mac Business Is Not Shrinking

Daniel Knight - 2009.07.23 -

Follow Low End Mac's blogs: LEMblog and Low End Mac Services.

Henry Blodget of Silicon Alley Insider seems to think that every silver lining has to have a dark cloud.

On Tuesday, Apple announced record sales and profits for a non-holiday quarter. In this economy, iPhone sales have skyrocketed, iPod sales have declined 7% year-over-year (for the first time since the iPod was introduced in 2001 - but iPod touch sales are up 134%), and Macintosh sales actually grew by 4%.

According to analysis by Bryan Chaffin of The Mac Observer published prior to Apple latest financials, Dell's year-over-year figures for the second quarter were down 18.9%, while HP unit sales in the US market increased by 2.3%. Apple grew faster than the #1 (Dell) and #2 (HP) computer makers in the US.

So why does Blodget title his short column "Sorry Apple Fans - The Mac Business Is Still Shrinking"? Because despite growth in unit sales, total revenue (not profits) from the Mac division fell by 8%. That explains the headline and the "sad Mac" graphic that accompanies the article.

No, Apple didn't start losing money in the Mac division, it just made a bit less.

Almost All Good News

Apple sold 2.603 million Macs during the quarter and generated profits of $1.23 billion. Apple retail store traffic is up 22%, year-over-year retail revenue is up 4%, and Apple has more retail stores than ever (258).

While desktop sales are down 10% year-over-year, they are up 4% quarter-over-quarter. Not bad, as the desktop line was improved across the board in the previous quarter. Notebook sales are up 13% year-over-year and 25% quarter-over-quarter - no doubt helped greatly by new models introduced in May and June plus close-out pricing on the models they replaced.

Look at this graph to see the trend over nearly five years: 150% overall growth in unit sales, about 50% in desktops, and 300% in notebooks. Notebook and total unit sales are at the second highest level ever.

Macintosh Unit Sales, late 2004 to mid 2009.

Granted, Apple didn't make as much from Macs as it has in the past. After all, it's been clearing out old desktop inventory since March, MacBook white inventory since May, and pre-June unibody notebooks since June. That means a lot of discontinued computers being sold at a lower profit margin than usual. It also helps increase unit sales.

Every year there are more Macs sold and more Mac users. The user base continues to grow, and every quarter has been profitable for years and years now. Apple is no longer beleaguered, so why does Blodget imply that the Mac division is?

Frankly, you can't make projections based on a single quarter without looking at the big picture. Were new models introduced? How long have models been on the market? Did Apple slash prices? Is the economy in shambles? Is the rest of the computing world hurting?

Link Bait

None of those are factors in Blodget's analysis. He takes one number, creates a sensationalist headline, and receives a boatload of traffic to Silicon Alley Insider - many of them Mac fans who will take him to task. Here's a sampling:

• "I wonder if Mr. Blodgett [sic] has been on another planet or something." - Joe
• "You are charting revenue growth, not profit growth. If revenue is $10 billion and you still lost money that quarter, what good was that $10 billion in revenue? Apple's Mac profits are very healthy." - Al
• "I'm sorry but you my dear sir are an idiot!" - Doug Petrosky
• "Punditry, when Mac sales are low, says that share is more important than profit and now that unit sales are high, they say things like this.
    Anything for a click." - God of BIscuits
• "Henry, would it be better to sell a boatload of netbooks at tiny margins or fewer units at much higher margins? Clearly Mac share is increasing and so are profits." - Gerry Kent
• "Revenue is down slightly because of modest price cuts and a recession. But how's the profit margin doing? And market share?" - diablo
• "As long as Apple retains a loyal user base for their products, users be willing to pay more for newer computers and most likely when the economy turns around there will be even more people buying Macs and Apple products." - Constable Odo
• "Clearly this is just another hack trying to push an opinion by selective publishing of data that confirms his point of view. There is no context here." - Jim Stead
• "Margins increase. Profit increases. Units increase. Everyone else's numbers in these categories are down. How is Apple 'shrinking' again?
    Oh! I get it: link bait!!" - Instig8r
• "Blodget, you're trolling. Market share and sales figures are two very different things. I'll concede you're right, but having said that it means nothing to Apple's bottom line." - Duncan Riley

There's no way Blodget can be considered an "insider" when it comes to understanding Apple and the Mac market. He writes on all sorts of topics: taxation, Windows 7*, eBay* profits, art sales, Hamptons real estate, the future of print media, Palin's abuse of power, and Yahoo*. 

Sorry, Henry, but if you want to be considered an expert or insider in some area, you need to focus on it, not take a shotgun approach and writing about whatever topic might draw a little more traffic to your website.

Conflict of Interest

Yes, Blodget is an investor in Silicon Alley Insider, and thus benefits directly when he trolls for traffic. It's an old trick mastered long ago by the likes of John Dvorak and Paul Thurrott. Blodget is in good company, making a mountain of a molehill to draw attention to himself, build site traffic, and knock a company that competes with one he has investments in - Microsoft.

Of all the possible headlines regarding Apple's financials, none miss the mark nearly as much as this one. Link bait. Nonsense. BS.

The artwork accompanying the article should have been smiling because of profits and growing the Mac market during a recession, not frowning because Mac revenues are down a bit due to new, more affordable models and discounts on old inventory.

* Blodget "owns options and/or shares in" Microsoft, eBay, and Yahoo, among other investments.