Mac sales plummeted in calendar Q1, worrying AAPL investors over post-pandemic trends, recession fears, and supply chain issues. Is it time to panic or just stay vigilant?
- Apple’s Mac shipments dropped a whopping 40% YOY, raising concerns for investors as global PC sales declined by 29%.
- Despite the Mac’s recent underperformance, its long-term growth remains resilient; Apple’s ARM-based architecture could still boost demand for PCs in the future.
- Investors should remain watchful, but not panic. Mac accounts for just 10% of Apple’s revenues, and a single quarter’s decline doesn’t necessarily signal long-term negative trends or impact other segments.
The key piece of Apple-related news to start the week was IDC’s report on personal computer shipments. In calendar Q1, global unit sales declined a steep 29% YOY. Much worse was the Mac: a drop of 40%. Apple stock (AAPL) – Get Free Report sold of by as much as 2.7% on Monday.
Should AAPL investors be concerned about this most recent sign of weakness? I explore the topic in more detail below, starting with some background on how the PC industry has performed in the past 10-12 years.
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Figure 1: Apple: Is The Mac In Trouble? What Investors Should Do Photographer: Nina Riggio/Bloomberg
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PC: Secular Decline, COVID-19 Boost
Personal computer sales had been on the decline for a decade prior to the start of the pandemic. In Q1 of 2010, 85.2 million units had been sold worldwide. Exactly ten years later, the number had dropped by a cumulative 38% to 52.9 million. See chart below.
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Figure 2: personal computer (PC) unit shipments worldwide from 2009 to 2022, by quarter. Statista
To blame was the usual suspect: the adoption of tablets and even large-screen smartphones, whose technologies have become so advanced that many of them can comfortably compete with many personal computer on capabilities while offering the benefit of mobility.
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Then, the pandemic started, kickstarting the “everthing from home” trend. Device users spent more time watching TV and gaming for entertainment, and working from their dining room tables. As a result, PC sales spiked 27% between the 2019 and 2021 holiday quarters..
But since that peak in 2021, computer sales have plummeted 28% through Q4 of last year. The culprits are many: (1) the end of the pandemic, (2) fears over a recession, (3) supply chain issues in Asia impacting component production, among others.
Apple’s Mac: Outperformer
Despite the decline (and short-live recovery) in the personal computer space in the past 12 years, the Mac has performed very well.
Apple stopped providing unit sales figures a while ago, but the 42% increase in Mac revenues between Q1 of 2010 and Q1 of 2020 helps to paint a rosier picture. Things only got better from that point forward.
Between the holiday quarter in 2019 and the comparable period in 2021, Mac dollar sales skyrocketed by 52%. It is very likely that Apple’s new ARM-based architecture improved device performance and helped to boost demand for its PCs.
Back in 2011, Apple did not even feature among the top five PC vendors in the world. By last year, the Cupertino company assumed the fourth position and controlled nearly 10% of the entire global market.
Is This The End Of The Party?
The sharper-than-average drop in Mac shipments observed in Q1 of the new year is atypical, by historical standards. However, it is not inconsistent with the outlook provided by Apple’s management team during the most recent earnings call.
Back in early February, CFO Luca Maestri made it clear that “Mac [and iPad] should decline YOY due to tough comps and rough macro landscape.”
Regarding tough comps, Mac revenues grew by 15% and 70%, respectively, in fiscal Q2 of last year and the year before. Should Mac revenues this time drop by 40%, the three-year stacked growth of 6% per year is far from exhilarating, but also not disastrous.
The worst-case scenario, in my view, is if Apple’s sharp decline in unit sales (if confirmed) is a reflection of a softer consumer spending environment. Apple stock has performed very well recently, in part, due to the perception that the Cupertino company is in a better position to weather an eventual deterioration in economic activity.
This new development could prove this thesis wrong and put pressure on valuations, which are currently high because of this relatively lower risk perception.
Lastly, it may be a bit disappointing that Apple has just released new versions of the MacBook Pro and Mac mini in mid-January. Weak segment sales suggests that the new products may have failed to gain much traction with consumers out of the gate.
What AAPL Investors Should Do
In summary, IDC’s most recent report can only be interpreted as bad news for Apple, and the dip in share price confirms the idea. However, I do not think that AAPL investors should panic.
For starters, Mac represented only 10% of total company revenues in fiscal 2022. But also, a single quarter of poor performance in the Mac segment does not mean that (1) a negative trend has formed or that (2) Apple’s other businesses will be impacted equally.
In my view, investors should be attentive to the new developments leading up to fiscal Q2 earnings day, in less than four weeks, but not necessarily rush to hit the sell button at this point.