Apple Expects a 71% Increase in Unit Sales for Christmas November 1st, 1999  With three new product families on retail shelves — and online around the world— Apple is ready to enjoy its most profitable Christmas season ever. It's safe to bet that we're past the fears stirred by the fourth quarter earnings and the Taiwan earthquake. Investors believe the future is too bright to worry about yesterday's calamities. Pass me my shades. AAPL's chart clearly shows a beautiful re-establishment of the same upwardly trending channel that it began in late March of 1999. The hope crushing decline we saw in September did not break down the formerly established uptrend. We are back on track towards triple digits with momentum, value and growth at our side as if nothing had ever happened. Meanwhile, a technical turn around in the broader markets late last week indicates that we have seen the worse that the Y2K and interest rate bears can throw at us. It looks like nothing but blue skies ahead. Uh-huh. Much of the reason behind AAPL's strength was revealed in a not widely publicized October 22nd meeting with analysts, wherein Apple elaborated on its new business strategies and trends covered in the Oct 13th conference call. Apple said 2 to 3 weeks were lost on iBook production while PowerBooks lost 2 weeks due to electrical outages from the Taiwan earthquake. Manufacturing is back to high gear now. Taiwan is churning out iBooks at more than 150,000 units per month. As for the Power Mac G4 brouhaha, it turned out to be a non-event, financially at least, for the company. Order flows are as strong as before the unpleasantness. According to Apple, component supply constraints are not an issue for G4 production since the company reconfigured the motherboards. In the same Oct. 22nd meeting, Apple guided analysts to expect an unprecedented 71% growth in quarter over quarter units shipped for this Christmas season. Apple delivered 772,000 units last quarter. From that, one can calculate their target is to ship 1,320,000 units this quarter. A few weeks ago I ran my own somewhat euphoric numbers (while hanging out at the local brew pub) and came up with a possible 1.6 million units moved this quarter, so I don't doubt that Apple can deliver on their more sober scenario. Of course, there are naysayers that think Apple is setting itself up for another round of missed financial numbers in FQ1. No one doubts the overwhelming demand for Apple's three new product lines. However, they do have questions about Apple's ability to navigate supply and production constraints to meet the Christmas surge. Last year we heard many of the same fears expressed, except then the naysayers also doubted that the demand for the iMac would be as strong as it was. Apple reported that it has expanded manufacturing dramatically in recent months from 3 plants to 8 to fulfill the backlog of orders and continue the ramp up of production. The biggest unknowns seem to be the supply of graphic chips and main logic board components. Apple said it doesn't expect its supply lines to be fully restored till December. That's certainly cutting it a bit close for Christmas. Some other interesting hints from the analyst meeting included a reiteration of Fred Anderson's statement in the Oct 13th conference call that Apple does have an Internet strategy, and to expect further announcements some time in FQ2. Probably an ISP/portal is under construction even now. Apple did say that they want to grow their online sales from the current 5% of total revenues to 50%. That's very aggressive for a company who until recently didn't seem to grasp the Dell model of direct sales. It's also positive news for both investors and consumers alike. Direct sales eliminates a whole mezzanine layer of expenses, thereby lowering costs to consumers while maintaining a high profit margin for the company. The only unhappy souls in such an arrangement are the Mac resellers, but that's another article. It's enough here to note that Apple has for a long while been putting the squeeze on resellers, trying to push them out of competing directly with Apple and more into post-sales service and support. See Eric Yang's, and other's, insightful thoughts on the reseller dilemma. In conclusion, expectations are so high for this quarter; no one is even talking about FQ2 or 3 yet. Both quarters are historically the slowest parts of the year. However, this FQ2 promises to provide a very profitable capstone on the massive ramping up experience. Unit sales might never again dip below a million units per quarter. And the excitement just continues with the introduction of the Mac OSX client in the spring. Earth to Macheads: Market Share Alert! OK, let's get this straight. So many jolly Macheads out there are convinced that Apple has a market share well beyond what's even possible for any one PC company that it is well worth repeating the numbers out last week from various sources. According to Dataquest: Dell is numero uno, with 17.1% of U.S. PC market share, recently beating out Compaq for first place. That's 1.996 million Dell units shipped — and every one was beige, rectangular and had Intel inside. I know it's unfair. However, we live on a cursed little planet rotating around an insignificant star far from the galactic center. I don't believe Dell's rise to prominence means there is no hope for intelligent life in the universe. But I digress. Compaq shipped 1.780 million units in the 3rd quarter for 15.3% of the U.S. market share. Gateway was in third place with 1.090 million units sold to capture 9.3% market share. Hewlett Packard was in fourth place with 955,000 units, or 8.2% market share. IBM took fifth with 890,000 units shipped and 7.6% of the market. For the whole planet: In terms of global market share the rankings are a bit different. Compaq is top dog on a global scale, with 13% of the world's PC market share, although most analysts expect Dell's direct online paradigm, at 11% and rising, to change that shortly. Does anyone else find it odd that two companies from Texas dominate the computer hardware industry? IBM ranks number three in terms of global market share with 8.1% of all the earth's computers sold in the third quarter coming from Big Blue. Hewlett Packard is in fourth place with 6.7%. Gateway is number five with 4.3%. However, Gateway is gaining on HP at a breakneck pace. Where is little Apple? Not far down and coming up from behind. All the numbers aren't in yet, but IDC expects Apple to move up in the U.S. market to the number six slot taking out NEC, which owns the Packard Bell brand. Packard's market share declined from 6.5% a year ago to 4.9% today. I haven't found any recent market share numbers for Apple, but it would seem safe to extrapolate Apple's U.S. market share is about 5%, up from about 4% a year ago. That's good news. However, Apple's growth so far in 1998-99 is still less than the expansion that either Gateway or Dell are experiencing. Perhaps Apple's FQ1 will turn that around. The global PC market place is growing at a healthy pace and isn't expected to slow anytime soon. Apple still isn't capturing the lion's share of this growing market. However, much of the problem is the supply and production constraints the company faces since demand for Mac products is advancing strongly. How fast Apple can grow in the second fiscal quarter of 2000 will be very revealing because by then the constraint issues will be all but eliminated. So remember, Mac evangelistas, fact is stranger than fiction, especially when tossing around statistics. Akamai and Arm Holding Finally, after a month of some tough luck, Apple won the lotto with its $12.5 million investment in Akamai Technologies Inc. The IPO of Akamai (AKAM) on Friday added a one time gain to Apple's books of about $500 million as AKAM soared 458%, fourth best first day for an IPO in Nasdaq history. Apple invested in Akamai because we need an intelligent solution for the delivery of the graphic and audio intense QuickTime format. Owning a piece of a company like Akamai means Apple understands how important access to such high powered networks will become in the future. In the big picture the one day $500 million windfall is merely the icing on the cake. Let's not forget ARM Holdings (ARMHY) another clever Apple investment, which has made Apple a paper profit of $180 million in the last couple of weeks. The bottom line is that the book value of AAPL's own 170 million outstanding shares shot up overnight by a couple of bucks from $17.61 to probably closer to $21. Perhaps Apple should announce a dividend. It will be interesting to see how investors respond to Apple's bulkier fundamentals this week. Your comments are welcomed.