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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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AUGUST 3, 2004
Will Uncle Sam Like the Taste of Apple? iPod's success has made federal buyers warm up to Jobs & Co.'s other products, and this may spark more corporate sales In just 2 1/2 years since introducing its popular iPod music player, Apple (AAPL ) has begun to morph from a computer maker into a consumer-electronics outfit. While most users today associate Apple with groovy music and fashionable gadgets, the company has also made major inroads into another less sexy but potentially more profitable market: the government sector. Uncle Sam's coffers, which have long remained elusive for Apple, are finally opening up. iPod's success has "strengthened Apple's brand and made many people in the government reconsider Apple's other products," says Max Peterson, vice-president of federal sales for reseller CDW (CDWC ) in Herndon, Va. A year ago, Apple's Mac OS X operating system was added to the government's approved-purchases list, which previously included Windows and Java. As the federal technology budget ballooned -- it's expected to reach $46 billion this year -- Apple's market share in computers sold to the government rose from 1.6% in the first quarter of 2003 to 2% in the same period of this year, estimates analyst Roger Kay of market researcher IDC. Today, Apple is the government's No. 6 computer supplier -- and climbing. GOOD CORPORATE PUBLICITY. While Jobs & Co.'s government business is still miniscule -- just over $200 million of its $6.2 billion in yearly sales -- it's "going to develop into a meaningful business for Apple," says analyst Charles Wolf of Needham & Co., who owns Apple shares. The outfit's PC sales to public agencies could grow by 50% in the next few years, he figures. Revenue from server sales to the government could enjoy double-digit gains as well. And since Uncle Sam tends to buy high-end, higher-margin products, additional government sales will boost Apple's bottom line.
This increased credibility should give Apple "the best shot they've had [at the corporate market] in 10 years," says analyst Laura DiDio of market consultancy the Yankee Group. She figures that as Apple debuts new products, such as its new operating system, the outfit could gain 2% to 5% share in the corporate market in the next 18 months. That would add a few hundred million dollars to Jobs & Co.'s top line. GROWING SHARE. Moreover, market consultancy Dataquest expects the federal technology budget to rise by an average of 4% annually for the next five years. That's down from the 5% to 10% annual growth of the past decade, but increases in state and local government spending next year could make up the difference. Computer makers will benefit from that growth the most since many government organizations haven't replaced their gear for more than three years. If last year is anything to go by, Apple should get a growing percentage of that spending. In 2002, Apple's gear accounted for 5% of government reseller PC Mall Gov's sales. That climbed to 7% in 2003 as the vendor's government sales rose 30%, to $82 million, reports Alan Bechara, the outfit's president. One reason for Apple's better traction is the success of its Xserve servers and storage products, first introduced in 2002. They're priced on par or below rivals' equipment and are easy and quick to set up. Plus, they're based on G5 processors from IBM (IBM ). These powerful, 64-bit chips help graphics and data-intensive applications run faster -- a major selling point: After Apple released its Xserve models based on G5 in March, its server unit sales more than doubled, according to IDC. Vendors say the servers have been Apple's No. 1 seller with the government.
BW MALL
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