Apple and The Law of Large Numbers
There's been much talk about the perceived limits to Apple's continuing growth due to what's called the Law of Large Numbers. This axiom or financial rule suggests as Apple's revenue grows the chance of sustaining current rates of growth diminishes as more growth is required to maintain the same percentage of growth.
In my view applying the Law of Large Numbers to Apple at this time is a fallacious argument. It might appear valid to casual observers of the company or to those fixed on applying commonly accepted axioms in their investment strategies without regard to the unique circumstances of a particular enterprise, but for now this axiom or financial rule does not apply to Apple.
In the June quarter close to 50% of Apple's revenue was derived from products that did not exist in the market just over three years ago. In the September and December quarters, well over 50% of Apple's reported revenue will be derived from iPhone and iPad sales. At the moment there's no practical limit to the size of the market for these two products.
Apple's oldest hardware product line, the Macintosh, has sustained a roughly 33% unit sales growth rate over the past three fiscal quarters. In the June quarter operating segments exclusive of the Americas and Apple's international chain of retail stores accounted for just over 41% of unit sales. In Europe alone unit sales increased 46% over the prior year period. While Mac sales continue to grow at a pace greater than industry averages, the Mac still accounts for less than 10% of domestic PC sales and garner a much lower percentage of global market share. Although Apple's offerings in the sub-$1,000 PC market are limited to the Mac mini and nominally the MacBook, the company recorded in the June quarter the largest shipment into the educational channel in the company's history. This occurred during a period in which public education spending remains severely constricted.
Apple Retail Stores
At the end of the June quarter Apple had 293 retail stores open for business. During the September quarter Apple will open 24 new stores and store sales and foot traffic continue to accelerate. In the June quarter store revenue increased 73% to $2.578 billion and produced average store sales of $9 million. Foot traffic into the stores reached a record 60.5 million visitors, an increase of 57% over the prior-year period. With an increase of over 8% in the number of stores in the September quarter alone, store sales and foot traffic will continue to rise at record levels for the foreseeable future.
Management reports roughly 50% of the 677,000 Macs sold at Apple retail stores in the quarter were to customer who had never owned a Mac before.
The Apple iPad
In the June quarter and in limited release, The Apple iPad and constituent products accounted for $2.166 billion of reported revenue, representing almost 14% of Apple's reported revenue activity. The Apple iPad remains in constrained supply and even Apple's management does not have a reliable metric to gauge global demand for this currently unique device.
In the September and December quarters the Apple iPad and constituent products should deliver between 15% and 20% of Apple's reported revenue. This is revenue from a product that was not present in the market as recently as five months ago and will deliver significant year-over-year revenue gains for the next several quarters.