SolveYourProblem eLearning Series
iPods & MP3 Players

Apple's Growth: Mac & iPod
by my-tech-guide.com

Apple Computer was one of the pioneers of the PC industry and remains so today. It is one of the largest computer companies in the world, with sales of $13.9 billion in fiscal 2005. Apple designs, manufactures, and distributes a host of computer and related products, including desktop computers, notebooks, servers, and storage arrays, along with its own proprietary operating system and applications. In the past few years, Apple entered the music marketplace with its popular iPod music player and iTunes Music Store, which sells legally downloadable songs. Apple currently dominates the markets for both of these products.

Furthermore, Apple is scheduled to come to market over the next few months with several new products that should garner significant attention and drive incremental business. Apple also chose to control a greater percentage of its product distribution due to the differentiated nature of its products, a strategy that has been successful to date and may have played a key role in the company’s ability to hold PC market share in two of the past three quarters after consistently losing share in the marketplace for each of the past four years.

Our analysis indicates iTunes has the potential to be somewhat accretive to the overall business model if downloads continue to increase at their current pace and Apple can increase the number of songs downloaded per session, which would leverage the fixed credit check costs the company incurs per order. However, industry experts believe it will add only a few pennies to the bottom line as Apple continues to reinvest in the business. The main value iTunes brings to Apple’s business is increased awareness of Apple’s products and Web site traffic, which Apple can use to cross-sell its other products, especially iPod.

Understandably, Apple wants to avoid selling PCs at a loss, but unfortunately the growth prospects for $1,000-plus PCs are limited. This presents a conundrum for Apple longer term, but for now it maintains its current strategy. Incidentally, Apple’s revenue share has held much better, and while this is not an often-discussed topic, revenue share is probably more important than unit share. With regard to the compatibility of Windows and Mac OS X, even though Apple made a concerted effort to educate consumers about the ease with which these two products work together, it has fallen on deaf ears for the most part. Apple made some progress through its retail stores, where it estimates half of Mac purchases are from first-time buyers, but for Apple’s stock to work over the long term, the company needs to maintain share against Windows, at a minimum.

On a brighter note and possibly a sign of things to come, Apple reported strong Mac growth in its June quarter and held share. The June quarter is seasonally slow for most computer companies, but it is the education buying season, a market where Apple is regaining lost share. One quarter does not make a trend, but this may be a direct result of the increased awareness iTunes and iPod have brought to the Apple brand.

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SolveYourProblem.com : 2007

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