The World Is Going Macintosh

The Kelly Letter owns shares of Apple, and we were very pleased with the company’s results last night.

I sent the following to subscribers last weekend:

We have two reasons for owning Apple:

  • The iPhone has the potential to be the world’s first device that keeps people connected at all times, and third party software development will help it become the de-facto standard as the network effect cements it on top.

  • With more work moving from the hard drive to the internet, fewer people will care what operating system they’re using, which will provide many customers the freedom to choose Macs over PCs for the first time ever. Most will conclude that Mac is the better experience.

Last week served up evidence that the second reason is playing out well. Macs continue to gain market share against PCs, accounting for 6.5% of unit shipments in the first quarter compared with 5.2% in the year-earlier period, according to Gartner.

Amazingly, Macs even worked their way inside IBM. In the first quarter, 24 IBM researchers tested Macs and 18 concluded that the experience was better than that provided by PCs. IBM is now expanding the Mac testing to 100 of its researchers.

If IBM is slowly switching to Mac, can the rest of the world be far behind? Watch Mac market share keep growing.

We are watching it grow every quarter, as we did last night.

In its fiscal 2Q, Apple was expected to ship 2.1 million Macs. It shipped 2.3 million. It was expected to ship 10 million iPods. It shipped 10.6 million.

In its fiscal 2Q a year prior, Apple reported net income of $770 million or 87 cents per share. Last night, it reported net income of $1,050 million or $1.16 per share. One-year net income growth of 36% is fantastic, and so is unit growth of 51%.

Chief Financial Officer Peter Oppenheimer said: “We are very pleased with iPhone momentum and customer feedback continues to be outstanding. We remain confident in achieving our goal of selling 10 million iPhones in calendar 2008.”

No wonder earlier this week Lehman Brothers initiated coverage of Apple with an Overweight rating and $195 price target. Analyst Ben Reitzes wrote: “Despite the economic environment, we do not believe that Apple’s momentum has waned in Macs. In fact, Macs may have reached a tipping point with share on its way toward doubling over the next 3-5 years.”

For an excellent summary of Apple’s resurgence under Steve Jobs, see Robin Bloor’s article Will Apple Keep On Keeping On? The short answer is: Yes.

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