Apple's 1Q06 By the Numbers: iPod Explosion Offsets Any Mac Weakness

Despite Apple selling a record 14 million iPods last quarter, computers tended to dominate the companyis Wednesday conference call with analysts. While computer sales were lower than Wall Streetis expectations, they were still mostly up when compared to the previous and year-ago quarters. Any weakness was likely attributable to customers holding off on purchases in anticipation of the Intel Macs, something CFO Peter Oppenheimer acknowledged seeing during the quarter. However, the iPod explosion clearly more than made up for any shortfall.

iPods and Macs

Appleis 14.043 million iPods sold during the December quarter translated to $2.906 billion in revenue, numbers up 118% and 140% sequentially (compared to 4Q05) and 207% and 140% year-over-year (compared to 1Q05). The company blew away analyst estimates, which were in the 11-12 million unit range.

While Apple doesnit break its laptop and desktop sales into specific models, as it used to, the company still provides a top-level split between the two form factors. In the laptop category, units were 587,000, with $812 million in revenue, during the current quarter. That was down 7% and 1% sequentially and up 39% and 34% year-over-year, indicating that while Apple continues to increase its computer sales, some buyers were clearly starting to hold off on purchases in anticipation of new models being introduced at Macworld.

On the desktop side, 667,000 Macs (including Xserves) were sold for $912 million, up 11% and 16% sequentially and up 7% and down 9% year-over-year. The introduction of revamped Power Mac and iMac computers likely helped those numbers, although the curious revenue decline on a year-over-year basis could perhaps signal that the Mac mini, with its lower ASP (average selling price), was a large piece of the pie. The computer was introduced at Macworld San Francisco 2005, which was held during the second quarter of Appleis 2005 fiscal year, so it wouldnit have been included in those year-ago numbers that the company is using for comparison.

Overall, Appleis 1.254 million laptops and desktops sold earned $1.724 billion in revenue, which were up 1% and 7% sequentially and 20% and 7% year-over-year. Those numbers seem to validate the much-discussed "halo effect" caused by the iPod, although Apple did sell fewer computers than Wall Street analysts expected. The company declined to say how many machines it will sell during the current quarter, a time when increased iMac and MacBook Pro sales may not be enough to offset the decline in Power Mac, iBook, Mac mini, eMac and Xserve sales, as customers wait for Intel versions of those computers.

Apple continues to sell the PowerPC versions of the iMac and PowerBook. Mr. Oppenheimer noted during the Q&A session with analysts that those will be available "while supplies last." He added: "Weive factored our thinking into our guidance." The older computers are selling for the same prices as the new ones, but when an analyst asked about "the perceived difference in value" between the two, Mr. Oppenheimer simply reiterated his comments.

Other Sales Categories

Appleis Other Music Products category, which includes sales at the iTunes Music Store as well as revenue derived from iPod-related services and accessories, saw $491 million in revenue, up 85% sequentially and 177% year-over-year, showing how the iPodis explosive fourth quarter sales have made a major impact in that area. In the catch-all Peripherals and Other Hardware category, $303 million in revenue was up 2% sequentially and 7% year-over-year.

Under Software, Service and Other Sales, Apple earned $325 million, an 11% jump sequentially and 53% higher year-over-year. The company did not disclose why that category saw such an increase, other than the possibility that software sales could have been up because of holiday shopping.

The Operating Segment Breakdown

Revenue and units in almost all operating categories were up when measured both sequentially and year-over-year. The Americas, however, proved to be a little weak in the CPU area, with 515,000 computers sold and revenue of $2.7 billion (including iPods and other products). Computers were off 19% sequentially but up 8% year-over-year, while revenue was up 52% and 65%, respectively. Weakness due to the anticipation of new computers at Macworld probably held down the sequential unit sales while iPods clearly more than offset that.

Europe continued to be strong, contributing 387,000 Macs sold and $1.242 billion in revenue. Those numbers were up 49% and 59% sequentially and 21% and 47% year-over-year. Japanese units and revenue of 81,000 and $355 million were also strong, up 14% and 58% sequentially and up 27% and 92% compared to 1Q05. While retail units were down 4% sequentially, that categoryis revenue was up 62% compared to the previous quarter while units and revenue leaped 62% and 91% year-over-year.

Appleis retail revenue was $1.072 billion during the fourth quarter, the first time it has topped that number. While the sequential drop in the number of computers sold through the companyis stores is curious, those outlets likely also saw the same weakness seen in other areas as customers held off on purchases in anticipation of Macworld announcements. Of course, iPod sales were so strong that Apple set up special registers just to take care of that business, which obviously more than offset CPU weakness when overall revenue was tallied.

Apple revealed during its Q&A with analysts that direct sales, which include not only online and retail sales but also sales to education and enterprise customers, comprised 49% of its total revenue last quarter, up from 44% during the year-ago quarter. The company expects to add 40 new retail stores this year, with "most of them domestic," but some located in Canada, the U.K. and Japan too.

Appleis final operating segment is its "Other" category, which includes sales in Asia Pacific as well as revenue derived from its FileMaker subsidiary. 78,000 units and $380 million in revenue were logged during 1Q06 in that area. That was up 15% and 58% sequentially and up 16% and 46% year-over-year. Clearly, the iPod boom was a large part of the strong revenue increases.