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Apple has moved on

When Apple changed its name from Apple Computer to Apple Inc. they signaled that their business has moved on. We can say it’s to devices or to mobile computing or to the Post-PC era. To understand that this is not a shift driven only by wishful thinking we can plot the change in volumes for the platform-based devices Apple sells.

The stack of products is shown in an increasing level of mobility. At the bottom is the non-portable desktop Mac, above are Mac portables (laptops) followed by the iPad, iPhone and iPod touch. The mobile computers Apple sells are explosively more popular (and important).

To gauge importance consider the following chart which shows the unit values above multiplied by the average price they are able to obtain for a picture of the sales mix.

(I also added Peripherals, Music and Software sales as well as iPod (non-touch) for a complete split of revenues).

Mobile computers are now well above half the revenue base for Apple. Finally, if we consider the contribution to profitability of each product line, we can see how iOS-enabled products (as a proxy for mobile computing) have become the vast bulk of profit creation for Apple.

By this metric, we can see that mobile computing (as opposed to portable or immobile computing) is driving 80% of Apple’s profitability. This 80/20 mix of mobile/non-mobile should put aside any doubts that Apple has moved on to be a business oriented around mobility rather than traditional computing.

This cannot be said for many of Apple’s contemporaries. Microsoft derives negligible revenues from mobility. Neither does Intel, nor Dell or HP and even Google’s revenue lines don’t make mention of mobile income.

In fact, the only companies which do have mobile revenues as 80% of their income are those dedicated to telecom markets. Namely, Nokia, Motorola, Sony Ericsson, RIM et. al. But, as we shall see in the quarterly mobile market overview, few of Apple’s mobile-focused competitors are doing well.

So Apple is a unique company that has made the transition from one industry to another and, in so doing, captured the bulk of the profits. In passing, I should also mention that the traditional Mac business is still doing well and, by some measures, is capturing the bulk of the PC hardware profits.

So the key to much of assessing Apple’s value and opportunity should be based on this new market (mobile computing) rather than the traditional competitive landscape of PCs and operating systems. The company has moved on, now we wait to see how long before analysis of the company follows.

  • Senator Gronk

    Nothing but predictable and consistent trends in those charts. Can the same be said for the stock price? For the media opinion of Apple?

    I think the Street gets Apple better than anyone knows. There’s a lot of money being made by manufacturing volatility on top of the rock-solid foundation that is Apple.

    • Tom

      And who says America can't manufacture anymore?

      • anon

        Designed in America…..manufactured elsewhere….

  • http://twitter.com/robertcathey @robertcathey

    An eye opener. Thanks for compiling and charting.

    Extrapolate this trend out 12 more quarters and ask, "At what point does the mobile / desktop distinction become meaningless?"

    • John

      Apple products are mutually supporting and do not stand alone. Just because one product line does provides a diminishing share of revenue does not make it unimportant. Linchpins are inexpensive but you can't do without them.

  • FalKirk

    Horace, I am your number one fan and I am loathe to criticize, but I think that the format of the charts "Sales by Product Line" and "Gross Margin by Product Line" tend to obscure your message rather than highlight it. Because the bottom layers of your chart are rapidly decreasing, it is difficult to see how much the upper layers are increasing or if they are increasing at all. I think you would be much better served if you broke each factor out into an individual line so that our eyes could readily distinguish the winners from the losers.

    Just a suggestion, respectfully submitted.

    • Waveney

      @FalKirk
      Can't agree that the charts obscure the 'Apple is a mobile company' message. The last chart shouts it out to me. Also with the 'Apple Has Moved On' title, which implies a trend developing over time, precise data is unnecessary IMO.

    • asymco

      The last two charts are share charts so it makes sense to show them as areas. The individual product lines shown as a line chart would be very cluttered and hard to discern.

      • davel

        the balloons you have on the last chart are helpful for more clearly showing how much the categories are worth.

    • damonm

      Think of it this way: if the share were remaining the same, the line dividing the upper layers from the lower layers were perfectly horizontal all the way across, the share of the IOS products would not be gaining on the share of OSX products. It would be remaining at the same percentage. But to the extent that that line slants downward, share is going from OSX to IOS. In other words, as the height under that line decreases, the height above it increases.

  • http://twitter.com/jandrewyang @jandrewyang

    Even with conservative revenue assumptions for the remainder of FY2011 of $20B in Q3/Q4, and a conservative 15% contribution from the Mac, as a stand alone business it would still rank in the top 200 of the Fortune 500 at ~$14B. Would it more accurately be described as Apple has successfully branched out?

  • http://twitter.com/jandrewyang @jandrewyang

    Horace previously noted that the iPad business is now larger than Dell's consumer PC business at $12.3B in FY11. By the end of FY11, it looks like the same could also be true of the Mac business being larger than Dell's consumer business.

  • gctwnl

    Apple is rock solid, but it operates in a stock market that is victim of anxiety over EU and US government debt. And suppose the Washington politicians do not get a deal and the stock market tanks. That will eat into Apple's non-cash investments (marketable securities) as well. Unless you have a very long investment horizon and you can sit that out, even Apple is an uncertain investment, but not because of Apple's own policies.

    • asymco

      The last market crash did not affect Apple's capital so why would the next crash? Apple shifts holdings constantly and has a team dedicated to balancing and preserving capital.

    • Nangka

      Based on Horace's own analysis earlier this year (Apr 2011), Apple can survive on its cash reserves then until 2018 even without making an additional cent.

      If you are concerned with Apple's inability to sit out the EU & US gov problems, I think you have other much bigger problems to worry about.

  • pk de cville

    Horace,

    For a future column, can you answer this fun question:

    When (to the day!) will installed (and active) Apple iOS devices outnumber all Installed (and active) PCs?

    Have a go with your graphs, stats, and assumptions!

  • http://twitter.com/BrianSHall @BrianSHall

    I've been writing that "the smartphone is the computer" forever it seems. That Apple trumps all others — in mobile computing — clearly sets them apart. Apple has moved on, even if investors have not. I love how you arranged the top chart by level of mobility. Great stuff.

    • kevin

      I, too, like the arrangement. But a minor quibble, the iPhone is more mobile than the iPod touch.

    • Nangka

      Yeah. Horace's focus on mobility levels is spot on.

      If you look at Apple's successes in markets where it is virtually a newcomer (MP3, smartphone), the results are even more astounding.

      One begging question then is why couldn't Apple do the same with its Mac business when Steve came back to Apple? Or was it Steve's genius vision to see the future lies in mobility? Which would make all other big PC CEOs look rather dumb.

      • http://twitter.com/adriancjr @adriancjr

        I don't think that it's been a single "Eureka!" moment for Steve Jobs. After testing the waters successfully with the iPod, Apple went through the fiasco ROKR exercise with Motorola. With ROKR Apple probably realized that, compared to the slow and uninspired phone manufacturers, they are pretty well eqiupped for the mobile devices market.

        The Apple/Jobs genius was to be able to transfer all their iPod knowledge into the iPhone and then be bold enough to create a "bigger iPhone", i.e. the iPad, without being very sure about the users' response. In the case of iPad nobody could anticipate all its new applications, so I think it was as much gamble as vision in its launch, but the gamble paid off in the end. It was also easier to create new applications when you have a partnering framework (App Store) that practically allows everybody with an idea to join.

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  • Eric D.

    Small size equals large margins. And because the iOs devices have very few moving parts, they will likely incur far less repair costs.

    For Apple to get into the low-margin and bulky field of HD TV would be insane. Just keep shooting out that small caliber profit ammo.

    • kevin

      Is the commercial video content and distribution market, which is ripe for disruption, a possible way for a competitor to outflank Apple's iOS ecosystem? Or can Apple parlay its current success into another big revenue product, or at a minimum, even bring about this disruption with just its current set of devices (including AppleTV and iAd) but no Apple home TV product, given that video content owners are already wary of Apple taking control? Or is this whole area just a distraction due to Apple's fixation with video, as seen once before in Apple's mis-step of bypassing CD-RW drives for DVD-RAM drives in its Macs over a decade ago? (Apple recovered and then found gold with iPod.)

      I don't know which are the right answers, but I'd have to believe that if Apple takes this route, that it will have figured out a way to get iPad-like margins for its TV. (By the way, there aren't very many moving parts in my HDTV.)

      • kevin

        I would be more accurate if I had said "commercial video distribution and device market" instead. Apple is not directly in the video content business; however, that business will surely be disrupted when the video distribution and video-playing device markets are disrupted.

      • asymco

        Video content is a bag of hurt. Not even Apple can make it into a business. Some day I'll have to bite the bullet and write about it but for now I'll just say that the industry cannot be fixed if any current participant is allowed to be a part of the solution.

  • http://www.zdnet.com/blog/sybase Eric Lai

    Where do apps fit in – music or software? Either way, I'm surprised at how slim the profits/revenues are today. Esp. since we all know Apple just hit 15 bln app downloads, and (my projection) is that will hit 100 bln downloads by spring 2014.

    Google Android could be even faster, see the infographic:
    http://www.zdnet.com/blog/sybase/infographic-fore

    • asymco

      Apps are part of "Music" they don't create a major impact because the business is not run for profitability. That's what is so amazing: enormous growth and consumption but all in the service of the other businesses.

    • Nangka

      Apps (& music) is to iOS hardware = Android is to ads revenue? Difference is Apple is making money on apps.

  • kevin

    I've always assumed that iOS App Store revenue was included with iTunes and music. Has Apple ever stated that it is being accounted for in some other way?

    I've also assumed that Mac App Store revenue was included with Software, which would mean revenue for Apple's own software (like iMovie and Pages) are now split between two categories.

  • davel

    Google does not make mention of Android related revenue? Or Mobile vs desktop ads/search?

  • jscarlton

    I tried to do something similar with the revenue figures mainly as an excuse to try to make a slopegraph. You can check it out here: http://www.wingsofreason.com/2011/07/22/apples-re…. Apologies for the self-link, if that offends you.

    • Cory

      Beautiful, ET would be proud.

  • Gromit1704

    I don't mean to be obtuse, but can you not invest in some nicer, less drab colours (I'm British) for your graphs/charts? The ones you use look like a decomposing Viennese slice. (Hope this helps).

  • Suhit Anantula

    Horace

    I think if you can add a right axis with the same scale as the left axis then the area charts will be more readable. For example, since iPad share starts late, if there was a right axis with the same scale as the left axis we can easily compare the current shares of the various products.

    Just a thought.

    Amazing work though

  • gabe

    I would like to see another chart – net sales x gross margin – i.e. profit per product line as a % of total profit, to see exactly what each product line contributes to the bottom line. I can infer the iPhone is still the star, but, as a Mac user, I'm particularly interested to see hows Macs would fare. I would hope, not quite as bad as implied by the other charts.

    Otherwise, very interesting.

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