Recession Takes Bite Out of Mac Sales

By Paul Carton and Jim Woods

Everyone knows consumers have ratcheted down their spending, but just how much is the negative purchasing environment affecting consumer PC sales?

According to our latest ChangeWave consumer survey, things are bad. And despite the accolades greeting Apple's (AAPL) recent earnings announcement, the survey shows the continued economic downturn will hit the California manufacturer especially hard this quarter.

The Jan. 5-12 ChangeWave survey of PC buying among 3,476 consumers also looked at another trend bedeviling Apple -- the increased demand for low-end netbook computers.

Tightening PC Market

The survey revealed a post-holiday consumer PC market that has turned significantly weaker. Just 6% of respondents said they plan to buy a laptop in the next 90 days -- two points lower than in our November 2008 survey. Five percent said they'll buy a desktop -- down one point from previously.



These numbers are both record lows for PC buying plans in a ChangeWave survey.

Demand for Netbooks Rises

The tough spending environment has been a sales catalyst for low-cost, highly portable laptop computers with smaller screens, popularly known as netbooks.

The survey found a rise in netbook sales, with 19% of laptop purchasers saying they bought a netbook during the past 90 days, and 14% of future laptop purchasers saying they plan to buy a netbook in the next 90 days.

The beneficiaries are manufacturers who offer netbooks, including Acer, ASUS International and, more recently, Dell (DELL) and Hewlett-Packard (HPQ).

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But the trend toward netbooks is not good news for Apple.

Apple Feeling the Pinch

Our surveys show that the short-term outlook for Apple Mac sales may be worse the Street expects. Only 27% of respondents who said they plan to buy a laptop in the next 90 days said it will be a Mac -- down six points since November to our weakest visibility reading for Apple laptops in nearly two years.



The weakness is only slightly mitigated by a one-point increase in Apple's share of desktop purchases (28%) going forward.

When we looked back at sales during the holidays, Apple also showed weakness. For instance, among those who bought a computer in the past 90 days, 22% said they bought Apple laptops and 17% desktops -- down four points each from our previous survey.

But if our survey numbers are correct, then why did the Street react so favorably to Apple's latest earnings announcement?

Cracks in the Apple

First, Apple's latest earnings call focused exclusively on year-over-year Mac sales comparisons, which actually did show growth. But as RBC's Mike Abramsky points out, their quarter-over-quarter comparisons were anything but stellar.

"According to Apple, they shipped 2.5 million Macs -- down 3% quarter to quarter despite their refreshed Macbooks line," said Abramsky. "Even scarier is the 22% quarter-to-quarter decline in desktops, revealing sharply slowing consumer demand. Moreover, U.S. growth year over year dropped from 26% to just 5%."

"Granted, despite their quarter-to-quarter slowdown, Apple's earnings appeared less worse than many investors had feared," said Abramsky. "However, Apple's Mac growth estimates for all of 2009 are just 4%, compared to 38% in 2008."

When you add in the 37% quarter-to-quarter decline in iPhone sales, its no wonder Apple issued an exceptionally cautious outlook for the current quarter. Note that it was well below the Street's already ratcheted down estimates.

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More Trouble Ahead

In yet a further sign of trouble going forward, the ChangeWave survey shows future demand for the Mac OS X Leopard operating system (29%) has dropped five points to its lowest level in more than a year.

On the other hand, demand for Microsoft (MSFT) Windows XP -- the system typically used on netbooks -- rose slightly.

Adding to Apple's woes -- and those of the rest of the PC sector -- overall electronics spending remains one of the weakest consumer categories this quarter. Only 15% of respondents said they'll spend more on consumer electronics in the next 90 days, compared with 41% who said less.



Bottom Line

When you look long term, once the global economy comes out of recession, Apple will likely be one of the strongest trees standing in the forest.

But we're not out of this recession yet, and the extraordinarily price-sensitive and worsening PC market presents serious obstacles for Apple, compounded by the relatively strong demand for netbooks.

Add in the company's leadership problems and it's clear that Apple is vulnerable.

In the fall we said "Our results for the next 90 days show Apple has a considerable visibility problem, representing the real Achilles' heel for the company."

Even more so for the next 90 days.

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Paul Carton is the Director of Research for the ChangeWave Alliance Research Network. Jim Woods is a Senior Editor for ChangeWave. The Research Network is a group of 20,000 highly qualified business, technology and medical professionals -- as well as early adopter consumers -- who work in leading companies of select industries. ChangeWave surveys its network members weekly on a range of business and consumer topics, and converts the information into a series of proprietary quantitative and qualitative reports.

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