What the MacBook means to Apple

Steve Jobs likes to talk about Apple’s business model as a stool that rests on three legs: the Mac, the iPod and the iPhone. But the iPhone leg is still pretty short, thanks in part to deferred revenues. And while the iPod’s sales are still growing, its share of the company’s business has been shrinking lately.

Which is why the announcement of new MacBooks scheduled for Tuesday at 1 p.m. ET (10 a.m. PT) is so important. Apple’s notebook computers have been its main source of revenue for some time now, and if Apple plays its cards right, they are likely to remain so for the foreseeable future.

[For a preview of Tuesday’s announcement, see Apple’s new MacBooks: What to expect today.]

To get a feel for how important the MacBook is to Apple, consider the charts at right. They show the various contributions to Apple’s total revenue in 2006 ($19.3 billion) and 2008 (estimated $32.7 billion based on the Street consensus).

As you can see, the iPod represented the single largest share of Apple’s revenue stream as recently as 2006. But over the past two years, its slice of the pie has shrunk from 42% to 29%, while the Mac’s slice (both desktops and notebooks) has grown from 40% to 47%.

The iPhone was not a factor in 2006 and its contribution to Apple’s bottom line is likely to remain relatively small in 2008.

Now consider how the MacBooks stack up against the Apple’s desktop machines — the iMac and the Mac Pro.

The charts at right show the relatively contributions of desktop and notebook machines to total Macintosh sales. As you can see, the notebook slice has grown from 55% to 61% over the past two years.

All told, the MacBook share of Apple’s total revenue has grown from 22% (55% of 40%) in 2006 to nearly 29% in 2008.

In terms of future growth, the MacBooks are particularly well positioned.

The iPod, with a market share somewhere north of 80%, has all but saturated its market; Apple’s best bet is to convince iPod owners that they should trade up to the iPhone.

The Macintosh’s domestic market share, by contrast, is still only 8.4%, according to Gartner, despite recent gains. Its worldwide market share is even smaller: about 3.4%. The upside potential is huge.

And the best thing about Apple’s market share is that it’s mostly in the high end, where the profit margins are sweetest. Consider the following chart, issued Monday in a report to clients by Sanford Bernstein’s Toni Sacconaghi:

Apple may have only 8.4% of the domestic computer market, but it sells nearly one of three high-end notebook machines. What would happen if, as widely rumored, Apple comes out Tuesday with a MacBook that sells for less than $900? Or, as some reports have it, less than $800?

Only good things, according to Sacconaghi:

“Our analysis suggests that offering a notebook priced at $900 would expand Apple’s addressable notebook market by nearly 50% in revenue terms (and 67% in unit terms), while an $800 offering would increase Apple’s addressable revenue market by 69%.” [see chart]

Price cuts as steep as these, of course, would trim Apple’s operating margins. But Apple warned three months ago that there would be reductions in those margins, and Sacconaghi, for one, believes they have already been factored into Apple current share price.

Apple (AAPL) shares, which hit a 20-month low in interday trading last Thursday, rose 9% on Friday and added another 13.9% on Monday. Fourth-quarter earnings are scheduled to be released Tuesday, Oct. 21.

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