Apple Posts Blockbuster Quarter, iPad Sales Rise Dramatically

Apple announced blockbuster financial results for the fourth quarter of 2010, as predicted, with a record net profit of $6 billion on record revenues of $26.74 billion. As the company noted, it was "firing on all cylinders" with strong Mac, iPhone, and iPod sales. But the most startling statistic was for sales of the company's iPad device, which easily shattered even the rosiest of predictions, setting up the company for a strong 2011 in which the iPad will usher in a new era of simpler, more mobile computing.

"We had a phenomenal holiday quarter with record Mac, iPhone, and iPad sales," Apple CEO Steve Jobs noted in a prepared statement. (Jobs is currently on another mysterious medical leave.) "We've got some exciting things in the pipeline for this year, including iPhone 4 on Verizon, which customers can't wait to get their hands on."

Apple's quarter was almost preternaturally positive. The company generated $9.8 billion in cash flow, experienced a gross margin of 38.5 percent, and saw 62 percent of its revenues come from international markets. Sales of its Mac, iPhone, and iPad products were all up dramatically no matter how you measure such things, and even the declining iPod product line saw only a slight dip of 7 percent, year over year.

Fearful of the reaction from Apple executives—and of a possible ban from future events—timid, Apple-friendly reporters declined to ask about Jobs' health issues during a post-announcement press conference. But COO Tim Cook, who is running the company in Jobs' absence, noted on his own that Jobs has driven "an unparalleled breadth and depth of talent and innovation" in the company and that "excellence has become a habit." He added, "We feel very confident about the future of the company." The inference being that, Jobs or no Jobs, Apple has a strong future.

There's plenty of evidence to support that notion. Here's a breakdown of the company's various product lines in the quarter:

Mac. Apple's oldest product line is going gangbusters, thanks to innovative and exciting new products like the MacBook Air. The company sold a record 4.13 million Macs in Q4, good enough for 4.42 percent of the global PC market (and 4.13 percent for all of 2010). Just the Mac business alone generated $3.7 billion in revenues, Apple noted. Most of Apple's Mac sales (2.93 million) were portable devices, and the remainder (1.2 million) were desktops. Apple said that it has indeed seen some cannibalization of Mac sales from the lower-cost iPad, but Cook said, "If this is cannibalization, it feels pretty good."

iPhone. Apple sold an astonishing 16 million iPhone smartphones in Q4 2010 and claimed it could have sold more if it simply made more. (There were no reports of iPhone shortages in the quarter, however.) This figure represents an 86 percent jump over the same quarter a year ago, and a nice leap over the 14 million iPhones it sold in Q3. Apple said that its growth outpaced overall smartphone growth for the quarter, implying that it picked up market share at a time when most analysts believe the device is being outpaced by Google Android. The average selling price of the iPhone was $625 in the quarter, and 88 of Fortune 100 companies are now deploying iPhone, according to Apple.

iPad. Apple's biggest success story of the quarter, arguably, was the iPad, which had experienced a disappointing quarter in the previous period, coming in well below expectations. This time, that was reversed, and the iPad's 7.3 million in unit sales was well above expectations. The iPad accounted for $4.6 billion in revenues—more than that for the Mac, by the way—with an average selling price of over $600 per unit. Apple is continually adding new markets and expects growth to be "huge" going forward. "We feel very, very confident," Cook added, while trashing the competition: Windows tablets are too big and heavy, have "weak" battery life, and require a keyboard or stylus, he said. And Android tablets are still "vapor." Cook noted that Apple has "huge first-mover advantage," a superior ecosystem, and "record" mainstream success. He's right.

iPod. Apple's iPod business has been on a slow decline for years, and that trend continued in Q4 2010 with 19.4 million units sold, down 7 percent. But over 50 percent of iPod sales were of the iPhone-like iPod touch, which actually grew 27 percent year over year. (Apple might consider breaking this out as its own product category in the future.) And the iTunes business generated another $1.1 billion in revenue, largely from non-music related (i.e., movie and TV show) rentals and purchases.

iOS. The software platform behind Apple's iPhone, iPod touch, and iPad is called iOS, and Apple pointed out during the analyst conference call that combined sales of all iOS devices worldwide exceeded 160 million units by the end of 2010, thanks to 40 million units sold in the most recent quarter. The point here is simple: Platforms matter, and when it comes to mobile platforms, nothing rivals Apple's products. Cook noted that Apple's "integrated approach" is superior to that of the competition and "takes out all of the complexity for the end user." Apple is integrating key ideas, if not technologies, from iOS into its next Mac OS X version, which is due later this year.

Retail stores. When Apple announced its plans for retail stores several years ago, it was routinely questioned about following PC maker Gateway down a failed path. The predictions were wrong: In Q4 2010 alone, Apple's retail operations generated $3.5 billion in revenues—up a whopping 95 percent from a year before. But you don't need numbers to understand the impact of Apple's retail stores: Just visit one and note the throngs of eager consumers yourself. Apple opened six new stores in the quarter, generated an average of $12 million in revenues per store, and now has more than 320 stores worldwide.

Apple didn't discuss Apple TV sales, but previously noted it was about to sell 1 million units of the current device by the end of December and presumably did so.

While Apple's products are almost universally consumer-oriented, the company noted again and again that it is making huge inroads with business customers, as well. Cook noted that the "consumerization of IT" trend was "a mega trend" for the company and was resulting in huge growth from unexpected places. "CIOs are coming to the realization that the creativity of the employee is really more important than everyone using the same thing," he said. "You could run your whole business off an iPhone or iPad." Meanwhile, more than 80 of the companies in the Fortune 100 are using or evaluating the iPad and iPhone. This is unprecedented and "incredible," Cook added.


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