Apple Inc.’s Mac Business Gets Its Groove Back — The Motley Fool

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During Apple‘s (NASDAQ:AAPL) fiscal year 2016, the company saw its Mac personal computer business plunge. Unit shipments dropped 10% with revenue dropping similarly. Apple seemed to blame this decline on the state of the overall personal computer market, claiming that the Mac unit shipment decline was at a rate “similar to the overall [personal computer] market.”

Apple also added that the “effect of weakness in most foreign currencies relative to the U.S. dollar” hurt its Mac revenue.

Two Apple iMacs sitting side-by-side.

Image source: Apple.

During fiscal year 2017, Apple saw a marked turnaround in its Mac business. Revenue was up 13% year over year on unit shipment growth of 4%.

Apple CFO Luca Maestri said during the company’s most recent earnings call that the company’s Mac products “gained significant market share” as overall industry wide PC shipments dropped 1%, per estimates published by IDC.

“This performance was fueled primarily by great demand for MacBook Pro,” Maestri said.

On top of a return to both Mac unit and revenue growth during the year, Apple CEO Tim Cook said that during fiscal year 2017 , Apple’s Mac revenue hit a record. That’s not bad, considering the overall personal computer market has been steadily declining for roughly half a decade.

It’s also worth noting that because Mac revenue growth dramatically outpaced Mac unit shipment growth, Mac average selling prices rose. Apple credits the average selling price increase to selling “a different mix of Macs with higher average selling prices.” It’s clear from these results that Apple’s Mac business is back.

The wonders of consistent refreshes

One thing that probably hurt Apple’s Mac business during fiscal year 2016 was that the company didn’t offer compelling refreshes of its MacBook Pro lineup during that year. Indeed, Apple’s MacBook Pro with Touch Bar lineup didn’t launch until November 2016, which meant the devices didn’t start selling until the beginning of Apple’s fiscal year 2017.

Apple seems to have learned its lesson, though. Even after launching the new MacBook Pro computers in late 2016, Apple refreshed the lineup again in June of this year, ahead of the back-to-school shopping season. These updated Macs were mainly specification bumps (so no big paradigm shifts this time around), but it’s generally easier to market freshly updated computers to customers than nearly year-old ones.

If Apple continues to routinely update its MacBook Pro computers, the company’s Mac business has a solid opportunity to continue to outperform the broader personal computer market.

Tougher comparisons ahead

Although I’m optimistic about the future of Apple’s Mac business, I think Apple will have a tough time in fiscal year 2018 beating the revenue growth rate it saw this year. As noted above, Apple’s Mac performance in fiscal year 2017 benefited from a refreshed set of MacBook Pro products after a year of stagnation.

This year, Apple will need to try to deliver both unit shipment and revenue growth off a much stronger baseline. I suspect that Apple will be able to grow unit shipments again by 1% to 3%. However, I think that average selling price growth will moderate considerably year over year, which could mean Mac revenue growth in the low-to-mid single digit percentages rather than the 13% Apple saw this year.

That’s not a bad thing for Apple; growth atop record revenue is still quite impressive, especially given that the PC market still isn’t the hottest tech market around. But, it’s important for investors to keep their expectations in check to avoid being unduly disappointed.

Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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