CUPERTINO BUSINESS REPORT
Surge'n'Slide: iPhone Heads for Hot Summer as Mac Sales Chill

Sales of the Apple (Nasdaq: AAPL) iPhone grew faster than any other smartphone on the market in 2008, according to new data from Gartner (NYSE: IT).

Customers bought 11.4 million iPhones last year, up 245.7 percent compared to the 3.3 million iPhones bought in 2007. Apple's share of the global smartphone market grew to 8.2 percent, up from 2.7 percent in 2007.

Despite the device's popularity, Apple remained well behind other vendors. Nokia (NYSE: NOK) was the top seller, with 60.9 million phones sold in 2008, followed by BlackBerry maker Research In Motion (Nasdaq: RIMM), with 23.1 million devices sold.

Also, sales of the iPhone slowed in the fourth quarter of 2008 as new and competing smartphones such as the BlackBerry Storm, T-Mobile's Android-powered G1 and Samsung's touchscreen models hit the market.

Overall, worldwide sales of smartphones during the fourth quarter to end users reached 38.1 million units, an increase of 3.7 percent over the fourth quarter of 2007. Global sales of smartphones for 2008 reached 139.3 million devices, up 13.9 percent compared to 2007.

Another iPhone Boost Expected

To a certain extent, the iPhone and the overall smartphone market has showed a great deal of resilience in light of the 15-month-old U.S. recession.

"I do not think the recession has had too much of an impact, as that market segment has not suffered as much as the high mid-tier segment," said Gartner analyst Carolina Milanesi.

The iPhone will probably see an additional sales boost as a result of the summer release of the third-generation iPhone operating system, unveiled by Apple Tuesday, as well as the expected release of new iPhone form factors this summer, Milanesi told MacNewsWorld.

In the meantime, Apple's challenge will be to try to extend the appeal of the iPhone beyond early adopters to the more casual consumer, she said.

There is also another wild card in the equation -- the upcoming release of the Palm (Nasdaq: PALM) Pre, a slick new touchscreen smartphone that, by many accounts, is just as compelling as the iPhone.

However, the effect of the Pre on iPhone sales and overall smartphone sales is difficult to predict.

"We still do not know where the Pre is going to be sold beyond Sprint (NYSE: S), so it's hard to say what the impact is going to be at a worldwide level," Milanesi said. "In the U.S., there are still users loyal to Palm that will be waiting for the device. Given the similarities in the user interface, the device will appeal to users who are looking for an iPhone-like experience. For more experienced users, however, the number of applications and their quality will also determine the appeal of the Pre."

Mac Sales Fall

While its iPhone business is running on all cylinders, the recession has taken a big bite out of Apple's desktop and laptop computer businesses.

Overall Mac unit sales in the U.S. fell by 16 percent year-over-year in February, sales of MacBook laptop units dropped 7 percent and Mac desktop unit sales fell 36 percent, according to the NPD Group.

At the same time, the Windows-powered PC market grew by 22 percent with the help of popular low-cost netbooks. Windows laptop sales grew by 36 percent.

"Mac sales are down because the average price of a Mac is two and a half times what a Windows PC is," said Stephen Baker, vice president of industry analysis at NPD. "That's not a statement on the value of a Mac, but in this kind of an economy, we're seeing a lot of people make decisions to defer purchases or buy something a lot less expensive."

The drop in Mac laptops comes despite what NPD says was a 7 percent dip in the average price for the computers to US$1,512.

Two factors contributed to the 36 percent decline in Mac desktop sales: an overall move away from desktops by consumers as well as -- you guessed it -- good ol' sticker shock.

"Again, the issue is that the pricing on an iMac is very expensive compared to a PC," Baker told MacNewsWorld. "Apple's marketing and focus continues to be on notebooks, which leaves iMacs a little bit behind."

Even with the recent refresh of the Mac desktop and laptop lines, Baker doesn't expect a significant boost in sales of Apple computers.

"New components don't tend to do too much for the sales of computer products these days," he said. "The upgrading of components is interesting to those who are going to buy anyway, but the casual buyers aren't going to be influenced by the innards of a computer."

Stock Snapshot

Apple's stock was at $96.66 per share in late-day trading on Tuesday, up 9.1 percent compared to its closing price of $88.63 per share on March 3.

What's behind the recent surge in Apple's shares?

"First, it's been a very strong equity market in the past week, with most tech stocks up," said Tavis McCourt, an equity analyst with Morgan Keegan. "Second, the iPod shuffle refresh demonstrated some interesting innovation. Finally, NPD data for Mac sales in February in the U.S. was weak, but not as weak as many had feared."