Drilling down into Apple's (AAPL) recent string of boffo quarterly reports, analyst Toni Sacconaghi Jr. of Bernstein Research finds both strength and vulnerability in Steve Jobs' relentless pursuit of high-margin computer sales.
In his second report since Bernstein initiated coverage of Apple (see here for the first one), Sacconaghi notes that:
- Apple's global PC market share has increased in 10 of the last 11 quarters,
- unit sales have grown 28% or better in each of the last four quarters
- U.S. notebook sales have been particularly strong, accounting for 47% of Apple's Mac unit growth and 52% of its revenue in Apple's most recent quarterly report.
But amid all that good news, he sees risks ahead for Apple investors. It's tempting, he says, to look at Apple's slim 3% slice of the global market for PCs and assume that Jobs can easily grow his Mac business at least two fold in the next five years or so -- an assumption that helps explain the high multiples in Apple's current share price.
But if you look at the high-priced markets Apple chooses to play in, says Sacconaghi, you see that it already has a surprisingly dominant market share -- without much room for growth.
Take, for example, the market for the most expensive notebook computers. Dividing notebook price ranges into fifths, or quintiles as the statisticians call them, Apple already has a 29% share of the U.S. market for notebook computers in the highest quintile -- up "stunningly," notes Sacconaghi, from 8% three years ago. In the consumer and education market (i.e. excluding business computers), Apple share of the top quintile notebook market is nearly 46%.
While other PC makers have been lowering their average selling price, Apple has been steadily increasing its price premiums relative to the rest of the market -- great for keeping profit margins high, but not so good for growing market share.
"Accordingly," Sacconaghi concludes, "we believe Apple faces a trade-off in its Mac business over the next 2 - 3 years: either lower price (and margin percentage) to sustain share gains, or retain its current price premiums and face slowing unit growth."
Below the fold, a graph from the Bernstein report showing the rapid growth in Apple's share of the premium notebook market from 2000 to today.
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