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Apple Gains Share Across Markets

Posted on Thursday, Jul 22nd 2010

Apple reported yet another strong quarter this week driven by the success of its new products, the iPad and the iPhone 4. Despite the criticism of the newest iPhone’s antenna design, Apple reports that there has not been any decline in the demand for the phone and issued a strong forecast. Apple has cannibalized the gadget industry with its products: Macs, iPods, iPhones, and now iPads. Let’s take a closer look.

Apple reported third quarter revenue of $15.7 billion, up 61%. Net profit was up 78% to $3.25 billion or $3.51 per share versus $1.83 billion, or $2.01 per share last year. Gross margin was 39.1%, down from 40.9% last year. Apple generated $4 billion cash and ended the quarter with $45.8 billion cash balance. Q2 analysis is available here.

Apple sold 3.47 million Macs during the quarter, up 33%. So there are no signs of cannibalization by the iPad as yet. In the U.S. PC market, Apple holds an 8.8% share versus 8.6% last year and is at no.4 after HP, Dell, and Acer. The iPad is reported by Gartner to have temporarily cannibalized mini-notebooks, as well as consumer notebooks to some degree. MG Seigler of TechCrunch reports that Apple also expects iPads to cannibalize Mac sales with the vision that tablets and mobile devices will replace traditional computing, but right now it seems to be spurring Mac sales.

Apple reported sales of 3.27 million iPads since the device went on sale in April. iSuppli this week raised its forecast of iPad sales from 7.1 million to 12.9 million units in 2010. It now expects iPad shipments to rise to 36.5 million in 2011 and 50.4 million in 2012. IDC had earlier forecast sales of 7.6 million units in 2010 and 46 million units in 2014.

Apple sold 8.4 million iPhones in the quarter, up 61%, including 1.7 million iPhone 4s. Recognized revenue from iPhone handset sales, accessory sales, and carrier payments was $5.33 billion, up 74%. The sales value of iPhones alone was about $5 billion, which yields an ASP of about $595. At the end of the June quarter, the iPhone was being distributed with 154 carriers in 88 countries.

Apple is no.3 in the worldwide smartphone market with a market share of 16.1%, up from 10.9% last year. The company has been increasing its market share in leaps and bounds, while the top two vendors, Nokia and RIM, are just about maintaining their market share. A major factor of its success is its operating system. Apple is in the second place with 28% of the OS market while RIM leads with 35% market share. However, Android is giving it a good fight with most vendors, including Samsung, RIM, and Motorola. There are slew of Android phones launching, and Kyle VanHemert on Gizmodo reports that while Apple still has a comfortable lead over Android’s 9%, that could change.

Apple sold 9.41 million iPods during the quarter, down 8%. Apple has over 70% of the U.S. MP3 player market, followed by SanDisk at about 7% and Microsoft at 1%. The iTunes store had revenue exceeding $1 billion, up 25%. The App Store now has more than 225,000 apps including more than 11,000 apps specifically for the iPad. In total, iPhone, iPod Touch, and iPad users have downloaded over 5 billion apps from the App Store.

For the fourth fiscal quarter of 2010, Apple expects revenue of about $18 billion, gross margin of 35% and EPS of about $3.44. Apple expects the sequential decline in the margin to a higher mix of iPhone 4 and iPad sales, which have higher cost structures. The stock is trading around $254.24 with market cap of about $231 billion. It hit a 52-week high of $279.01 on June 21.

Chart forApple Inc. (AAPL)

Apple will blow everybody out of the water and take market share away from all players in each category where it hasproducts. Nokia is nervous and changing its CEO. RIM looks shaky. Dell looks iffy. Can HP leverage Palm? There are many unanswered questions. But one thing is certain: Apple has tremendous growth ahead.

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