pats - 20 March 2010 02:11 PM

  When you look to areas where future growth can come from such a large base, it means finding entirely new business areas on a regular basis.  Apple has been successful in doing this for the last 10 years not only growing their core Mac business but adding Ipods, Iphones and Itunes.  As far as segments the Mac business is in a maturing industry and so most of the growth will come at the expense of competitors or from emerging market countries, that means that Apple will have to move down the price continuum at some point to capture the next increment of customers.  With 90% share of over $1000 computers there is limited growth at higher price points.  The Ipod as a music player has reached a mature industry but they have now morphed the product with the iPod touch providing new growth as a portable gaming device and the nano as a video camera.  The iPhone is still an early grower in an expanding market and will continue to power earnings for the next several years. iTunes has captured digital music and is fighting it out for Movies/TV and created a whole new market for Apps and will battle for Ebooks, Newspaper, Textbooks with the new iBook store.  These new areas should provide excellent growth in the 3-5 year timeframe.  Apple has added a new hardware platform, the iPad and it is anyones guess whether it will be a major hit because we are in the startup phase of the product.  If the pre-orders are any indication the early adopters as a minimum want to give it a try in fairly large numbers but it hard to judge the shape of the growth curve.  So then what next, I try to keep an eye on Apple’s patents for a sense of what they are looking at, but what makes it past SJ to market is another unsolved question.  Apple has built a huge data center which should open in 2010 and it was built with something more in mind then what is available today so we’ll have to wait and see.  Projecting growth beyond 5 years is a waste of energy in high tech,  Too much change happens to project growth for an individual company so most folks accept that growth will drop off in the out years.  You can bet Apple is looking for the next big thing but so are all the rest.  I just hope that Apple surprises us all.

I’m starting this new topic based on a post by pats in this topic.

Let’s go around the block and provide views on growth prospects in each of Apple’s major product segments.

In evaluating Apple’s success over the past ten years it’s been marked by revenue and earnings leadership on a rotating basis between product segments.

Rejuvenated Mac sales following the success of the iMac financed development of the iPod. The iPod returned the favor during the awkward Intel transition. The popularity of the Mac portable line and continued success of the iPod provided revenue and earnings cover before the release of the iPhone.

Thanks to the elimination of deferred revenue accounting on the iPhone, its revenue and earnings leadership has been unmasked and currently the iPhone reigns as Apple’s revenue and earnings leader.

Will the Apple iPad eventually emerge for a time as Apple’s revenue flagship product?

What are the prospects for Apple’s major product segments over the next two to three years?

What a nice graph!

What I think is most telling is the diminishing revenue contribution of the Mac over that ten-year period.

The second noteworthy component is how quickly the iPod came and will go as a major contributor to Apple’s revenue mix.

Not so fast. A beautiful chart. But look at iPod plus iPhone plus ipad. That’s Apple’s new platform, and it’s what will remain when anything as quaint as a telephone or a computer is long forgotten (just as you have forgotten about the hundred or more electric motors round your house). So - I’m claiming that Ipod/iPhone/ipad are simply marketing phases in bootstrapping the globe into a new pervasive functionality and platform. Far from iPod fading away, it is subsumed into the succeeding presentations of the platform. (At some stage the paper wall between it and Mac will be removed, and they too will be used in “iPhone OS” mode by 95% of customers).

DawnTreader - 21 March 2010 01:28 AM

What a nice graph!

What I think is most telling is the diminishing revenue contribution of the Mac over that ten-year period.

The second noteworthy component is how quickly the iPod came and will go as a major contributor to Apple’s revenue mix.

Diminishing revenue proportion rather than diminishing revenue contribution- sorry to correct I’m sure you mean the same thing.
Given how quickly the revenue base is expanding, I think it would only be fair to see the graph represented in actual dollar values. That way a more complete picture can be made of the strengths of each segment. As we all know Mac sales are ever increasing.

Yes nice chart D!

I think someone made a point somewhere else that there wasn’t much room for the Mac to move as it represented 90% of the over $1000 market. There is no reason that that segment can’t grow in itself. There is a broader demographic that will increasingly understand to value of a Mac over a cheap sub par alternative.

The same thing has happened with the iPhone. The general market sees the value proposition in the iPhone and is therefore happy to outlay more money upfront than they previously expected to.

The iPad is unusual as it represents a value proposition at a relatively low price. I think Apple anticipates making a squillion of these things over the next few years - squillions means way more than the run of iPods.

As beautiful as deagol’s graph is to behold, I find it unusually conservative. Unlike the way iPods and the iPhone drove a huge wedge in their relative portions of revenue, the iPad shows no such wedge after its first year of introduction. Of course it’s speculation as to whether the iPad will be a huge revenue winner but when Steve Jobs says it’s the most important thing he’s ever done then why don’t we give him the benefit of the doubt and include that in the graph.

The chart is excellent for demonstrating the relative strength of several elements in Apple’s diversified revenue stream. I’d be interested to see the same graph showing actual dollars. Would be fairly easy to expand the vertical scale at annual points to display actual revenue.  So while iPod revenue may be declining as a percent of the total, it may actually be increasing in an absolute sense. Same thing for mac revenue.

I’ll be showing the graphic to my research social scientist though…

benoir - 21 March 2010 07:06 AM

Diminishing revenue proportion rather than diminishing revenue contribution- sorry to correct I’m sure you mean the same thing.

You are correct. I meant to say diminishing percentage of revenue contribution. 

iBob - 21 March 2010 08:15 AM

As beautiful as deagol’s graph is to behold, I find it unusually conservative. Unlike the way iPods and the iPhone drove a huge wedge in their relative portions of revenue, the iPad shows no such wedge after its first year of introduction.

Hmmm… I see a “wedge” for the iPad. I’d assume the size of the wedge would get larger if the graph moved out a couple more years.

benoir - 21 March 2010 07:06 AM

Diminishing revenue proportion rather than diminishing revenue contribution- sorry to correct I’m sure you mean the same thing.
Given how quickly the revenue base is expanding, I think it would only be fair to see the graph represented in actual dollar values. That way a more complete picture can be made of the strengths of each segment. As we all know Mac sales are ever increasing.

BTW both graphs plot a 1 year trailing window of revenue, on a quarterly basis. That’s why they look so smooth.

And here’s one I tried to make on growth contributors, but it’s trickier with the few times there were declining segments:

Oh and take the stuff beyond 2012 with a grain of salt.

I agree that a revenue based graph would provide greater insight into growth by segment.  The value of 100% is moving based on the growth of Apple revenue.  By looking at individual segments we can make a guess on where we are along a typical Diffusion of Innovation Theory S-Curve for product areas making it easier to model future growth for individual product areas.

I like it and you respond so quick Deagol.

deagol - 21 March 2010 10:48 AM

And here’s one I tried to make on growth contributors, but it’s trickier with the few times there were declining segments:

I think this version is much clearer, especially in combination with the first graph with the skinny blue line:

This is the whole problem:

Projecting growth beyond 5 years is a waste of energy in high tech,  Too much change happens to project growth for an individual company so most folks accept that growth will drop off in the out years

All interesting products take at least this much time to develop.  Having spent time in a mobile device/platform company I can offer a few rules of thumb:

- Any non-trivial product update takes 18 months to 2 years to develop.  Hardware specs are frozen a year prior to market launch.  Software specs at least 6 months.  Design concepting takes place years in advance.

- A new software platform takes 5 years to bring to market (regardless of capital use)

- All products are built in a pipeline fashion so there are multiple products at different stages of development.  Managing this is non-trivial.

As a result, the strategy and planning for product development is always done on 5 year horizons.  If investors don’t try to see beyond a year or so, they are completely out of sync with what is happening. 

Another way to see this is that if you are only looking 1 year out, all you are forecasting is the effect of marketing and manufacturing, not of product development.

relevant point asymco

When Apple said they were 5 years ahead of every other player with the iPhone, it just means they started developing the iPhone a least 5 years prior and managed to keep it entirely under wraps. I suspect Apple spent a great deal longer considering the possible future road map for that product before progressing it.

More than likely Apple has a very comprehensive roadmap that is continually workshopped. Apple’s roadmap looks ahead many years - this is why everyone calls SJ visionary.

With that I expect to see many more years of continued growth and it is not totally dependent on SJ being there. The culture and tools are well established in that company.

deagol - 21 March 2010 10:48 AM

thanks D…

I like sleepygeek’s comment about the iPod/iPhone/iPad being a platform. (I just realised that all those products start with iP…. coincidence? perhaps not). As that platform emerges it still remains part of a broader ecosystem and a rising tide will lift all boats. Will not that expanding wedge of “iP” products also cause iTunes revenue to correspondingly expand?

Apple in in its own rights now a significant content distributor and whilst it originally used iTunes to move iPods it now a behemoth. I’d have to say, OT, I think iTunes is starting to look awkward and needs a rethink.

Also I think iPad will be a more significant contributor to revenue in the years to come. There is so much hype from Apple that they expect this to be big. So I expect the iPad wedge to expand faster.

It will be interesting to see the chart updated into the future. Good to see Deagol moving into graphics