Apple earnings odds and ends

Earlier this week, Apple announced that it had enjoyed its most profitable March quarter ever. For the fiscal second quarter ended March 31, the company turned a $770 million profit on sales of $5.26 billion. Impressive numbers, certainly—now imagine how big those figures would be if Apple introduced new Macs and iPods.

I kid, I kid.

Besides, as the numbers would indicate, Apple’s selling plenty of the Macs and iPods it already makes—a lot of them. If you look at story I linked to up above—Editorial Director Jason Snell asks that you pay particular attention to the charts he produced in Keynote—you’ll see that Apple shipped 1.5 million Macs during the quarter. Looking at the numbers from the year-ago quarter (comparing sequential quarters is for suckers), that’s a 36 percent jump. Not bad for a three-month period that featured exactly zero Mac updates.

So how’d Apple pull it off? The answer comes if you break down the figures even further. The company sold 626,000 desktops last quarter, compared to 614,000 a year earlier—a modest 2 percent gain. Ah, but take a look at laptops, where Apple sold 891,000 this year, up 79 percent from the 498,000 it sold in the March 2006 quarter.

The desktop growth, modest though it may be, can be attributed to the Mac Pro, which was introduced in late summer last year and has been steadily adopted by pro users ever since. The surge in laptop sales comes from the MacBook—those March 2006 sales figures only include the MacBook Pro models introduced during the January 2006 Macworld Expo. The MacBook didn’t come along until May, and as our friends at MacJournals note in the April 27 issue of the indispensable MDJ note, it’s been a hot item ever since. Take a look at that quarterly Mac sales chart in our report on the second-quarter earnings again: since the MacBook was introduced, the only quarter where laptop shipments didn’t pass the 800,000 mark was that June 2006 quarter—the quarter in which the MacBook was introduced. Clearly, this is a machine that continues to attract customers, especially after last November’s upgrade to the Core 2 Duo processor.

I don’t think these results are going to dissuade Apple from introducing new hardware—clearly, you can’t expect this sort of sales growth to continue without freshening up your offerings. But it should put aside any concerns that the delay in OS X 10.5’s arrival is going to cause people to put off their Mac hardware purchases. The folks who bought 1.5 million Macs during the first three months of 2007 did so with the expectation that Leopard would be arriving sometime during the spring, and yet, they still broke out the charge card. Sure, some people will doubtlessly delay Mac purchases until after the OS update arrives in October—but probably not enough to make a dent in Apple’s hardware sales.

One other thing about this week’s earnings announcement that merits some attention—during his phone briefing with analysts, chief financial officer Peter Oppenheimer announced that the company would adopt subscription-oriented accounting policies for both Apple TV and the forthcoming iPhone. (Listen for yourself through the miracle of iTunes !) That raised some speculation among the assembled financial whizzes that Apple was about to reverse its long-standing disdain for subscription-based content and start making movies and music available for rent. No dice, Oppenheimer said—this is essentially an accounting move that keeps Apple in compliance with regulations on revenue reporting for hardware that gains new capabilities via software updates.

As if to further quash any speculation about subscription services, Apple CEO Steve Jobs spoke to reporters after the earnings briefing and more or less put the kibosh on adding a subscription-based offering to iTunes when talking to Reuters:

“Never say never, but customers don’t seem to be interested in it. The subscription model has failed so far.”

My colleague Chris Breen has already outlined the reasons why Apple should rethink its anti-subscription stance. The only thing I can add to that is another reason why songs and movies should be available for purchase and rent via iTunes—it gives users another way to enjoy their digital media.

What’s more, giving customers a choice is the rationale Apple gives for a lot of other changes it’s made to iTunes. Take the recent move to offer DRM-free songs from EMI for $1.29 per track alongside 99-cent versions of those same songs containing digital-rights management technology. (The $1.29 tracks are also encoded at a higher bit rate.) If you listen to Macworld Podcast #80, you’ll hear audio highlights of the EMI press conference announcing that decision. And when someone asks why offer DRM-free tracks alongside the 99-cent option instead of one or the other, a speaker has this to say:

“We don’t want to take away anything from people… What we’re adding is a choice, and people can choose whichever one they want.”

The speaker is Steve Jobs, and he’s right—having more choices is a good thing. Apple should offer that same choice on subscription services.

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