Apple's virtuous business cycle for 2007

We have all heard about the "iPod halo effect" where iPod owners increasingly are buying Apple computers. Well, it appears that the iPhone has kicked that effect into high gear. First, Pacific Crest Securities has used NPD data to claim that Apple computer unit sales are up 101% year over year, with revenue up 108%. That is a a lot of Mac and MacBook business goodness that we can relate to; we were responsible for three MacBook and MacBook Pro purchases ourselves in that period. Then, we have data from Net Applications showing that Apple computer market share has risen two points in the last six months to more than 6% world-wide. And then we have securities firms like Goldman Sachs predicting that iPod sales, despite their first quarter seasonal dip, are also rising year-over-year and could approach 11 to 12 million units in the first calendar quarter of 2007. And finally, we have a survey done by Morgan Stanley noting that iPhone interest is actually larger than what the market currently anticipates, with 20% of the respondents who had heard about the iPhone and its features being "extremely interested in purchasing one".

What does all this data mean? It means that a virtuous marketing cycle is dramatically improving Apple's already robust business:

1. Apple brand awareness is driving increased iPod sales.


2. Those new iPod customers are creating additional Macintosh sales, driving up Apple's market share in both categories.


3. Increasing Apple market share is driving more brand awareness and interest in new products.


4. Increasing interest in Apple products is driving iPhone demand in advance of its release.

The best news: all this positive activity is happening in advance of three huge events that will drive even more awareness over the second quarter.

One is the fact that iPod sales since its introduction will pass 100 million units world-wide in April 2007. Tim Cook just announced that Apple has already sold more than 90 million, and by our estimates, an 11 million unit Q1 would put Apple within 2 million of that mark, a number easily achieved in a single month.

Secondly, the Mac OS X 10.5 Leopard release, with its corresponding release of iLife '07 and iWork '07 will generate huge amounts of positive publicity, particularly in contrast to the fairly tepid Windows Vista launch.

Lastly, of course, we'll see the iPhone launch in June. Forget the fact that most consumers won't be able to buy iPhones because of supply constraints and early production glitches. The rarity of iPhones will only drive more market awareness and more demand. Cingular and Apple will see overnight lines at their stores as people queue up for their chance to be part of the iPhone phenomenon. Every other cell phone manufacturer will be asking, "How did they get this kind of response for a single product?" And the answer to that question will be, "They didn't."

Full disclosure: the author is long Apple shares at the time of writing.

Technorati Tags: Apple, iLife, iPhone, iPod, iTunes, Leopard, Mac OS X, Marketing