• The "Halo Effect:" iPhone Bolsters Mac Sales

    An industry analyst credits the iPhone's continued hot sales for buoying Apple's computer business at a time when other PC makers are barely holding their own in the tough economy. Calling it the "iPhone Halo Effect," Needham & Co. analyst Charlie Wolf says the popularity of the iPhone encourages consumers to switch to the Mac. They are doing so in droves: Mac sales worldwide grew 16.4% as compared to the same period last year, while the rest of the PC market grew by only 2.3%.

    Wolf writes the subscription-only "Wolf Bytes" investor note, which was excerpted by AppleInsider. He noted that Apple's growth came in spite of the fact that the computer manufacturer has refused to make low-cost netbooks, as many analysts have been calling on them to do. Instead, Apple has continued to focus on the "premium" market: distinctive computers that consumers have shown willing to pay extra for.

    We have consistently argued that Mac price cuts were a misguided strategy. Such cuts would not have stimulated much demand because the price elasticity of demand for the Mac -- the one differentiated product in a sea of commodities -- was simply too low. They would end up decimating Apple's gross margin with little to show for it.
    Apple has a worldwide "revenue share" of approximately 10%, meaning that 10% of all money spent on computers the world over paid for a Mac. Its market share, on the other hand - how many of the total computers have Apple logos on them - is near 4 percent. In the U.S., the revenue share for Macs is above 20 percent, and the market share is just above 10 percent.

    According to Wolf, a major factor in the ongoing rise in Apple sales is a spin-off to the popularity of the iPhone, which has a "halo effect" that makes users more likely to buy or switch to a Mac. Wolf noted this when the iPod took off, but says the iPhone exerts this effect in an even more powerful way.

    We believe that the halo effect emanating from the iPhone should be even stronger than that surrounding the iPod. After all, the iPod is a relatively simple device while the iPhone is arguably a mini-computer wrapped in a phone's form factor.
    Last quarter, Apple sold a record 3 million Macs along with 7.4 million iPhones, increasing the company's profit more than 46 percent to $1.67 billion. Most of the 16.4 percent growth in Mac sales is due to computers sold outside the US market. Mac sales went up 9.8 percent in the US this quarter, but the increase in the same time period was 38.7 percent in Europe and 27.1 percent in Asia.

    Apple continues to be strong for home and school use, while weaker in business. Sales to home users grew 28.8 percent worldwide in September, as compared to just 18.1 percent for all other manufacturers. Education sales grew 15.6 percent, while other PC makers 2.5 percent in schools. Mac sales fell 12.4 percent in the business market, however, and sales into government institutions plummeted 76.8 percent.

    Apple is expected to sell another 2.9 million computers this quarter.

    image via IDC
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