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Apple's Switch-Hit Homer

A very interesting statistic came out of Apple Computer's earnings call on Apr. 19. And it wasn't just that sales were up by more than $1 billion, that profit rose 41%, or that in the first half of fiscal 2006, Apple generated more than $10 billion in revenue.

No. To me, the most compelling figure nestled among comments by CFO Peter Oppenheimer was that 50% of people buying Macs in Apple (AAPL) retail stores are classified as "new to Mac," meaning they have not owned a Mac before, and to at least some sizable extent may be switching over from Windows.

"NEW TO MAC" STATS. This is going to become increasingly important for Apple in the next few quarters, particularly in the latter half of this year and into 2007. Apple had 138 stores in the three months ended Apr. 1, and together they had 18.1 million visitors in that period. The company says that works out to an average of about 10,000 people per store per week.

The retail division was responsible for 154,000 Mac sales in the quarter, which means that if the "new to Mac" stat is accurate (and for the sake of healthy skepticism, I would really like to know how Apple counts these people), some 77,000 people bought their first Macs in the most recent quarter.

Allow me to extrapolate a little further, based on the retail results of other recent quarters. Let's say Mac retail sales are flat to slightly higher each quarter this year from last year. And if the 50% "new-to-Mac" statistic holds steady, then we could see somewhere in the ballpark of 400,000 to a half-million new Mac owners this year in the Apple retail segment alone.

RETAIL MADNESS. And surely that can't account for all of the consumers who count as "new to the Mac." Analyst Charles Wolf of Needham and Co. in New York late last year forecasted that there could be something on the order of 1.3 million people "switching" from Windows to Mac this year. That number may be a little low.

Another 40 stores are expected to open this year, including one major store here in New York, on Fifth Avenue, right in the heart of some the best retail space this city can offer. Once open, it will be located close to other high-end luxury retailers, like the Tiffany's (TIF) flagship store, watchmaker Tourneau, Bergdorf Goodman, Louis Vuitton, Cartier, and Henri Bendel, to name only a few.

It's an area popular with tourists who have money to spend. I don't know numbers for foot traffic in these locations, but judging simply on anecdotal experience, it's a busy, busy area during the summer and the holidays.

BOOT CAMP BENEFITS. Tourists from all over the world who haven't already bought an iPod at home might find themselves also walking out with an easy-to-ship-home Mac Mini or a MacBook Pro. And given the relative weakness of the U.S. dollar to other currencies right now, they could probably get a better deal here than at home.

That store and others like it (the one near Union Square in San Francisco, for example) could turn out to be a big part of Apple's retail business through the second half of this year.

Meanwhile, Apple's recent addition of Boot Camp -- provided its Beta-testing period is successful and there are no significant problems -- will only help close the deal with other potential switchers. In case you missed it, Boot Camp is a feature that allows Apple computers with chips from Intel (INTC) to boot to a hard-disk partition running Microsoft's (MSFT) Windows operating system. If there are any lingering doubts in the minds of many using Windows now who are intrigued by the Mac, Boot Camp will go a long way toward erasing them.

INTEL'S INFLUENCE. This could cause an interesting groundswell of new Mac buyers as Apple continues to fill out its Intel-based product lineup. Still in the pipeline is an Intel-based consumer-grade notebook to succeed the current iBook model, and an Intel-based successor to the professional-grade PowerMac G5.

It's also pretty clear that aside from switchers, there's going to be some pent-up demand among established Mac owners who have held off on upgrade plans while Apple presses ahead with the Intel transition. This led to some softness in Mac sales for the quarter just ended, and the quarter before it. Sales of desktop units, which include the iMac, Mac Mini, and PowerMac, were only slightly ahead -- by about 6,000 units -- of a year earlier, and revenue in that segment was only $30 million better.

This all adds up to the potential for a pretty healthy year in Mac sales -- to switchers and Mac devotees alike.

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