Apple’s Revenue Grew In Calendar Q109 – Can It Ride Out The Downturn?

The Sunday Times carried an article this week suggesting that technology stocks were currently a good investment. Well I’m nervous to criticise such an august journal, am no financial advisor, recognise the temporary positivism of the stock market,… but if current financial results are anything to go by please don’t go out and buy shares.

In any case I’m currently about half way through running my market assessments and the combined Q109 revenues of the 25 vendors* I’ve been able to check to date declined by 19% from $165b to $133b. The only one – yes, I mean the only one – which has so far managed to grow is Apple in terms of its worldwide $US results. It is true that Wipro and Bull managed to grow revenues in Rupees and Euros by 16% and 7% – but this was wiped out by the shrinking value of those currencies against the dollar, resulting in drops of 9% and 7% (both sets respectively).

Notes: *I’ve currently assessed the Q109 performance (in size order) of IBM, Hitachi, Microsoft, Fujitsu, Nokia, Apple, Canon, Intel, Toshiba, Siemens, Xerox, Acer, EMC, Sun, Seagate, Western Digital, Yahoo, Wipro, AMD, Unisys, NXP Semiconductors, Bull, Cisco, SDK and Northamber.

Therefore I thought it would be a good time to look at Apple, consider how it has managed its 9% reported growth its Q2 (calendar Q109) period and question whether it can continue as the downturn considers. For everyone it may have some secrets to learn from.

A New Wave Portfolio But Not All Of Apple’s Offerings Show Growth

BT started splits its businesses into Old and New Wave categories. Apple works hard to be just New Wave, bravely pioneering new areas in what has become a relatively conservative over all ICT market. It worked out how to become a modern record company by sorting out how to pay artists for downloads to its iTunes layer and has subsequently driven up sales of both its iPod and IT Services (which is the closest category I can use for what it calls its ‘Other music related products and services’). As in the overall PC market it has also driven the substitution of desktop with laptop PCs. Apple’s revenues from its various offerings from Q103 to Q109 are shown in Figure 1.

Apple Macintosh Gains Share In The PC Market

A few years ago a number of analysts dismissed Apple’s status in the PC because its market share was just 1%. It’s certainly still a minor player in comparison with Dell or HP, but it has gained significantly over the years – enjoying growth while many others stagnated. The comparative positions of the leading PC players are shown in Figure 2.

According to its detailed financial data Apple’s revenues from Macintosh fell by 16% against calendar Q108 – better than the 18% decline of all 6 vendors shown above, but beaten by Acer (-13%) and Toshiba (-12%). We’ve yet to see what happened to HP and Dell, because I’ve not been able to estimate their results for the full calendar quarter yet (hence the dotted line).

Having test driven a Macintosh all the way back in 1985 I was amazed (and admittedly a little upset) that 50% of my children – actually that’s Jenny, but not Lizzie – asked for an Apple for school-work a few years ago. Along with many I argued that you couldn’t swap disk drives in and out easily, the software was expensive, the hardware proprietary, etc.. While some of these prejudices perhaps hold true, Apple’s constant advertising and the successful promotion of its cool image has made it an aspirational purchase. I have been helped by test-driving a few more Macs admittedly, but am a convert nevertheless. By the way – if future archaeologists were ever to estimate PC market shares from Hollywood movies they’re certain to think Apple was the leader in 2009.

I believe that changing the engine from IBM’s PowerPC to Intel chips has helped Apple overcome the objection that it was too different to be considered for corporate use. It has managed a significant feat in attracting new customers while holding on to its dominant position in sub markets such as pre-press, education and among designers and artistic types.

Some Conclusions – Apple Will Do Better Than Most But Still Suffer Decline

Apple has announced that Steve Jobs is returning to Apple in June. Of course, like everyone, I wish him well. He is likely to be very pleased with the company’s performance in his absence. I once thought that Apple might struggle if it was not for his stewardship and excellent showmanship – painstakingly demonstrating new products to thousands live in America and on video throughout the world. He’s proof that product marketing didn’t die out in the 1980s. So many people harmonise with Apple’s unique identity – even if not, you have to grudgingly respect its popularity.

In any case I don’t believe that Apple is immune from the current downturn, which is just too strong to beat entirely. I also expect that its revenues will decline at some point in future quarters. It is however most likely that it will fare better than many, due to its successful pioneering of new wave offerings and hard-fought cool.

Please let me know if this article was interesting to read. I’m trying to put to rest the old adage that ‘when Hingley spots an opportunity it’s almost certainly gone’!