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Lesser-known facts from Apple's earnings statement

The attention-grabbing numbers from Apple's most recent earnings statement have already made the rounds -- US$46 billion in revenue, net profit of $13 billion, 37 million iPhones sold -- and all of that within three months. Apple didn't just turn in record-breaking performance for a tech company; only Exxon has ever managed to have a more profitable quarter than the one Apple just reported.

Combing through the spreadsheets on Apple's earnings statement provides some additional insight into the company's overall performance, where its strengths and weaknesses lie, and where the company might be headed in the future. These numbers aren't as headline-grabbing as Apple's profits or unit sales, but they tell an important story all the same.

Research and Development

In three months, Apple's expenditures on R&D totalled a staggering $758 million. This compares to expenditures of "only" $575 million the year before. To get an idea of how much money Apple's pouring into R&D, compare its three-month expenditures to the production costs of Avatar, one of the most expensive films ever produced. Avatar cost $237 million; in just three months, Apple's R&D expenditures are enough to finance an entire Avatar trilogy.

The $575 million in R&D Apple spent in Q1 2011 likely went into the iPad 2, iCloud, the iPhone 4S, iOS 5, OS X Lion, the newest MacBook Air, and a whole host of things we haven't even seen yet. Apple's R&D expenditures for Q1 2012 have increased by an additional $183 million, so the company is still clearly focused on innovating like mad.

Mac sales

One of the few minus signs visible in Apple's sales data was its North American Mac sales. Though sales were up by 19 percent compared to a year earlier, compared to the previous quarter Mac sales actually declined by 6 percent. North America was the only market to see a decline in Mac sales during the quarter, but at the same time only Europe and Asia Pacific had double-digit growth in Mac sales.

Oddly enough, sales of Mac desktops actually seemed to perform better over the quarter compared to portable sales (by trend, not by number of units sold):

Desktops

  • Unit sales up 16 percent
  • Revenue up 15 percent

Portables

  • Unit sales up 3 percent
  • Revenue up 2 percent

Both types of Mac vastly outperformed the year-ago quarter, but the tapering off of portable Mac sales and the overall decline in Mac sales in North America during the Christmas sales period is intriguing. Several factors may explain this phenomenon.

First, there were no significant Mac notebook updates during the quarter; the MacBook Pro's late October refresh was quite modest, and the MacBook Air hasn't been updated since July. Second, the mid-2011 discontinuation of the plastic MacBook eliminated Apple's "entry level" offering; the smaller and less capacious 11-inch MacBook Air costs the same as the old MacBook, but it may not be as attractive an offering to budget-minded notebook shoppers. Larger economic factors may have been at play, too; North American shoppers in particular simply may not have had the discretionary funds for a Mac purchase over the holiday quarter.

While all of those things likely had an impact on sales of Mac portables, I think what we're really seeing here is the effect of the iPad's cannibalization of the lineup. Over the quarter, the iPad outsold all Mac portables by nearly 4 to 1, and outsold all Macs combined by 3 to 1. Apple has admitted in the past that the iPad has "slightly" cannibalized Mac sales, and classified it as a "nice problem to have." It looks like that so-called "problem" is showing signs of getting worse.

None of this is to say that the Mac is in any danger; in a sharp contrast from the rest of the PC industry, the Mac is still seeing unit sales and revenue growths well into the double digits. Whether that trend continues or not is going to depend greatly on the iPad's growth; Tim Cook has said he expects the iPad to eclipse the PC industry eventually, but in terms of both unit sales and revenues, the iPad has already supplanted the Mac after less than two years on the market.

iPod sales

During its earnings conference call, Tim Cook revealed that the company sold a total of 62 million iOS devices in the past quarter. Subtracting the iPhone and iPad from that number yields a total of approximately 10 million iPod touches sold (assuming Cook wasn't also counting the Apple TV as an "iOS device," that is). This means the iPod touch now accounts for almost two-thirds of all iPods sold; the iPod nano, shuffle, and classic combined are now essentially one drop in Apple's massive bucket. Small wonder, then, that Apple's music-only iPods weren't updated at all this year.

The steep year-over-year decline in iPod sales came as no surprise. The iPod reached its all-time sales peak in Q1 of 2009, with 22.7 million units sold. Three years later, the iPod has clearly lost its mojo. With only 15.4 million iPods sold during the holiday quarter, the iPod barely outperformed its sales during the 2006 holidays. Apple sold five million fewer iPods this holiday season compared to the previous year.

As a matter of fact, Apple sold more iPads than iPods over the holiday quarter. This is a sharp contrast to the 2010 holiday season, when the iPod outsold both the iPhone and iPad. In late 2010, iPod sales were a few million units higher than the iPhone and exceeded those of the iPad by nearly 3 to 1. In late 2011, the iPad pulled just ahead of the iPod, and the iPhone outsold the iPod by more than two to one.

As recently as four years ago, the iPod was by far Apple's biggest cash cow; revenues from iPod sales exceeded even Mac sales by a healthy margin during the 2007 holiday season. iPod sales are rapidly falling, however, making it clear that the device is no longer among Apple's high-priority projects.

Given the yearly declines in iPod sales, it's easy to envision a not-too-distant future where the iPod is relegated to niche status. It's unlikely Apple will stop selling the device altogether, as it still addresses markets not served by the iPhone, but the days when the iPod was central to Apple's fortunes are long gone.

iTunes

Apple's revenues from the iTunes Store, App Store, iBookstore, and iPod-related accessories totalled more than $2 billion over the quarter. Look back to exactly ten years earlier, to the first quarter of 2002; quarterly revenues were a mere $1.375 billion for the entire company.

It's long been speculated that the various iTunes-related retail services operate at break-even or, at best, at a modest profit, and the services exist merely to spur growth in Apple's hardware sales. That scenario may have been true years ago, but with a 42 percent year-over-year growth in revenue, iTunes is starting to look like a pretty lucrative business all on its own.

Peripherals

Apple sold $766 million in peripherals during the past quarter. Again, when you compare that to the company Apple was 10 years ago, the difference is stunning; sales of all Macs combined during Q1 2002 amounted to barely over $1 billion. If Apple's sales of peripherals continue to increase by the same rate, by Q1 2013 it'll be taking in nearly as much money from peripheral sales as it made from the Mac in 2002.

If Apple counts the Apple TV among its peripherals, then the device accounted for a fairly significant portion of the overall sales. With 1.4 million units sold during the quarter, Apple's "hobby" would account for nearly a fifth of all peripheral sales.

iOS

Apple sold 37 million iPhones, 15.4 million iPads, and (going by Tim Cook's numbers as revealed during the conference call) around ten million iPod touches over the holiday quarter. That's a grand total of 62 million iOS devices sold in three months -- all running the latest release of iOS, not some year-old version of it, and all of them virtually guaranteed OS updates for several years.

During the last quarter, iPhone sales reportedly exceeded sales of all Android handsets, from all vendors, combined. The iPad continues to utterly dominate the tablet market; Tim Cook reported no measurable impact on iPad sales even after the debut of the most popular Android (forked) tablet so far, the Kindle Fire.

Apple earned almost $34 billion in revenue from iPhone and iPad sales -- in three months. Google's revenue for 2011 -- all of Google, for the entire year -- was $37 billion.

Clearly, Android is winning.

Average revenue per unit sold

Comparing Apple's unit sales versus its revenues gives us an opportunity to see, on average, how much money Apple takes in with each sale in each product category. In turn, this gives us a general idea of which items in each category gain the most sales.

  • Desktop Macs: $1309

With 11 different models ranged over the Mac mini, iMac, and Mac Pro, the average selling price of a desktop Mac is $2072. The Mac Pro's high prices drive that average selling price much higher than the actual revenue/unit number, which leads me to believe that sales of the Mac Pro are negligible at best.

Looking at the numbers, it seems the 21.5-inch iMac is very likely Apple's most popular desktop model, followed by the 27-inch iMac, then the Mac mini. I would be shocked if the Mac Pro accounted for more than 10 percent of overall Mac desktop sales last quarter.

  • Portable Macs: $1254

The MacBook Air and MacBook Pro combine for a total of 9 different models at an average selling price of $1588. The revenue/unit numbers from Apple's earnings suggest that the MacBook Air and 13-inch MacBook Pro account for a majority of Apple's portable sales, with much lower sales for the 15 and 17-inch MacBook Pro models.

  • iPods: $164

The revenue/unit numbers for the iPod line are lower than the lowest-priced iPod touch, but higher than the highest-priced iPod nano. With the iPod touch accounting for at least 50 percent and as high as 66 percent of overall iPod sales, this suggests that the 8 GB $199 iPod touch is Apple's most popular iPod, with significantly lower numbers of 32 or 64 GB iPod touches sold.

  • iPhones: $659

Unsubsidized iPhones range from $375 for an iPhone 3GS up to $849 for a 64 GB iPhone 4S. With five total models on offer, the average sale price across the iPhone line is $634, lower than the actual revenue/unit numbers in Apple's earnings.

To perhaps no one's surprise, this suggests the iPhone 4S is Apple's most popular iPhone. Given that the revenue/unit average is slightly higher than the $649 price for an unsubsidized 16 GB iPhone 4S, I'd theorize that while Apple's most popular iPhone is likely the 16 GB iPhone 4S, sales of the more expensive 32 GB and 64 GB models must also be fairly brisk to counterbalance the the (admittedly much less popular) iPhone 3GS and iPhone 4 on the low end.

In other words, despite being labelled as a "disappointment" by a tech press weaned on months of rumors about a substantially redesigned iPhone 5, it appears Apple sold every iPhone 4S that came off the assembly line.

  • iPads: $593

Between the Wi-Fi only and Wi-Fi + 3G options, the iPad 2 is available in six models at an average selling price of $664. With the iPad's revenue/unit number falling below that, but still significantly higher than the $499 price of the low-end Wi-Fi model, the numbers suggest that Apple's mid-range iPads are fairly high sellers.

Sales numbers of the iPad very likely map closely to the models' prices, with brisk sales of 16 GB models, decent sales for the 32 GB option, and comparatively lower (but still more than satisfactory) sales of the 64 GB iPad 2. Unsurprisingly, the revenue/unit number suggests the Wi-Fi only iPads significantly outsell their Wi-Fi + 3G cousins.

Overall

To put it mildly, Apple's earnings report shows a company in a very robust state of health. While iPod sales are in steep decline and some segments of Mac sales are showing signs of levelling off, the astonishing uptick in iPhone and iPad sales more than makes up for it.

The iPad by itself, in one quarter, brought in more revenue than 230 out of the Fortune 500 companies earn in an entire year.

The iPhone by itself, in three months, brought in more revenue than McDonald's made in all of 2010.

Apple has $97 billion in cash. It could buy an iTunes copy of the film 2001: A Space Odyssey for everyone on Earth and still have $27 billion left over. How about a potentially better use of its money? After adjusting for inflation, Apple is a little over halfway to being able to finance its own version of the Apollo Program, all by itself. If you cut it down to just one mission, Apple is easily capable of building its own spaceport, developing and building its own launch vehicle, training its own astronauts, and sending a team of humans to the moon and back -- and it would still have tens of billions of dollars left over.

Apple may not enjoy this level of success forever, but it's showing no signs of slowing down anytime soon.

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