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It Was A Great First Quarter, But Are Mac "Switchers" Becoming Harder To Find?

Posted by: Peter Burrows on January 22

Apple delivered results that most companies would pat themselves on the back for—even in good economic times. In these dark days, showing 6% revenue growth and a few pennies increase in earnings is a huge achievement.

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But as many analysts are pointing out this morning, there were a few troubling signs. The most concerning: For the first time that I can remmeber, the percentage of Mac buyers at Apple stores who said they were new to the platform fell below 50%. While Windows PC owners might be less apt to fork over the extra bucks for a Mac during a recession than during good times, this still raises questions as to whether Apple is finally running low on potential “Switchers”. And it casts doubt on the “flight to quality” thesis many, including Steve Jobs, have proferred. Of course, it’s possible that many folks have decided to just hold on to their Windows PC until the economy brightens.

But either way, the good news is that Apple is not boxed in strategically, like many of its rivals seem to be. Maybe the best news financially from the quarter was that gross margins remained at 34.7% from the year before (remember: Jobs likes both market share and profits, but he’ll take the latter in a pinch). That compares to 18% for Dell and 24% for HP. So if Apple wanted to come out with an aggressively priced lower-end Mac (or iPhone, for that matter) that still met the company’s basic quality bar, it’s got the financial wiggle room to do it. Personally, I wouldn’t count on Apple diving into the margin-sapping NetBook market with a me-too product, which would be the obvious move for most companies. I think Apple will either ride out the recession with its higher-end products, or deliver a cheaper but equally profitable product, based on some engineering approach or ingenius new product configuration that we don’t know about. Still, I’d rather be the ones with the thicker margins, and the strategic flexibility that offers.

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Reader Comments

Josh

January 22, 2009 11:37 AM

Apple won't be running low on potential "Switchers" until Mac users grow to 100% of the computer-using market, which of course will never happen.

When it comes time to buy a new computer, Mac users will continue buying Macs, even in this economy. PC users, however, will see switching to the Mac as more of a splurge and not a necessity, which is why the number is lower right now.

If my stock went UP a nickel instead of DOWN every time a dang "analyst" furrowed their brow, I'd be a rich man.

Paul

January 22, 2009 04:06 PM

Well of course! As more users opt for Macs, they remove themselves from the list of potential "switchers". At the same time, they increase the list of potential repeat buyers. For "switchers" to account for more than 50%, the number of "switchers" would have to grow faster than that of repeat buyers. And in today's market, that shouldn't be surprising. A "switcher" is someone who says "I've had it with Windows. I want something better." You can't say PC's have a sizeable target audience of people looking to switch to a PC.

Tom

January 22, 2009 04:38 PM

It seems semi-obvious that the number of switchers would decline somewhat in an economic downturn - those who are feeling squeezed financially are far more likely to give in to the low-price-point system rather than a premium system, no matter how "cool" or easy to use the premium system is.

What I find fascinating is the fact that Apple's laptop sales numbers still continue to climb overall. Either more first-timers are coming to the market, or in an economic downturn, even existing Mac users are willing to upgrade or "life cycle" hardware to get a new system.

jamesinflorida

January 23, 2009 08:29 PM

This is a circular argument... interesting but not material to the FACT that Apple, somehow, is growing its base of users and provides a better experience. Considering the economy, it's amazing.

gamble20

January 24, 2009 02:45 AM

I agree jamesinflorida, its amazing. Microsoft is cutting jobs for the first time ever, when their product is always cheaper... by far...

yet Apple is doing just as great and when compared to competitors maybe having its best business year ever! (not revenue wise, just in the sense that they have managed to keep people switching)

Apple has a cash pot of over 20 billion dollars just saving up, confirmed by Jobs, and their margins and profits are off the charts astounding! They have a number of options. They can cut margins and reclaim market share, if they ever would lose any, or they could even buy a large company and forge into a new market altogether with their 20 billion cash on hand. Its simply amazing. Say what yo want about Steve Jobs, he is the greatest marketing executive we've probably ever had and will have for a long time.

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A blog on the daily doings of Apple and the many companies in its orbit, with insight and analysis by two longtime Apple-watchers BusinessWeek Senior Writer Peter Burrows and BusinessWeek.com Senior Technology Writer Arik Hesseldahl.

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