At its third product event this year, Apple announced Apple silicon is available for the first time in three of the company’s seven Mac products, replacing Intel chips. A more critical observer may view the announcements as mere speed bumps that the Mac lineup typically receives every couple years. We see the takeaway as less obvious: Apple is measurably improving the value proposition of its Macs related to speed, battery length, and integration across devices. Simply put, Mac is becoming more competitive with the PC.
Dusting off the “growing Mac market share” playbook
Apple doesn’t need any help convincing its base of 120m active Mac users to stay loyal. They do need help strengthening their case with PC users to switch to Mac. PC users account for about 92% of global desktop and portable computing units and represent an opportunity to gain market share largely forgotten by Apple investors.
It’s not a surprise that the Mac has been forgotten, as the segment’s revenue growth has averaged only 3% over the past decade. This compares to average iPhone revenue growth of about 16% during that period. The Mac segment currently accounts for about 11% of sales and, even with market share gains, will likely remain in the 10%-15% range of sales for the foreseeable future.
That said, the Mac business has seen a resurgence during the pandemic. In the nine quarters prior to the outbreak, Mac revenue was on average flat, with a range of -5% to +9% growth. In the two most recent quarters, Mac has grown 22% and 29% respectively. What’s even more impressive is that this revenue acceleration came after Apple’s June announcement that it would be refreshing the Mac lineup with its new chips. Typically, when companies announce new products on the horizon, sales of the existing models drop precipitously. The recent revenue performance of Mac is testimony to how fundamental it has become to working and learning from home.
Marketing catalyst for the Mac
First, it was the new Apple Watch Series 6 and the iPad Air on September 16. A month later it was the 5G iPhone 12 lineup. Last, Apple Silicon Macs. By segmenting its product launches into three separate events, Apple has built excitement around each new product, giving consumers multiple weeks to dissect each product before the next one is released. In short, Apple has succeeded in getting us to talk about the Mac, after years of obscurity.
Steady improvements drive value proposition
The new Apple Silicon MacBook Air and MacBook Pro maintained their previous price points of $999 and $1299 respectively, while providing faster speeds and battery life upgrades. While the company did lower the price of Mac mini by $100 to $699, the mini represents a fraction of Mac’s overall business. Additionally, the new M1 chips offer better integration across other Apple devices, including the ability for iPhone users to run mobile apps on their Mac even if the app isn’t built for Mac. For example, Mac users will now be able to play ‘Among Us’, a popular mobile game that is available on iOS and iPad OS, but not macOS. The bottom line is that app developers can now reach the Mac audience without building an application specifically for macOS.
Hardware as a service
Apple continues to take friction out of the buying process by offering trade-in rebates for old devices and monthly financing options to consumers when buying a new device. For example, Mac upgraders can receive up to $670 hassle-free when they trade in an old MacBook Air and finance a new MacBook Air for $83.25/month for 12-months with no interest when they use their Apple Card. We maintain our view that a hardware subscription bundle is a logical next step for Apple, as we believe the company is uniquely positioned with its customer support and growing payments infrastructure to successfully execute on such a strategy.