Apple's spring lacks pizzazz but should be solid

Maybe Apple really is recession-proof.

When Shaw Wu of American Technology Research made that claim earlier in the year, I concurred with my colleague Charlie Cooper, who wondered what expensive strain of finely cultivated California parsley was in Mr. Wu's pipe when he wrote that report.

Even Wu recanted just before Apple's earnings report Wednesday, cutting his expectations for the company amid concerns about the economy and the fact that Apple isn't expected to release any significantly new products until the 3G iPhone.

It seems, however, that people like Apple's current products just fine. Apple's fiscal second-quarter revenue and earnings far outpaced analyst expectations, and the company sold more Macs and iPhones in the quarter than had been expected. iPod sales were slow, with only 1 percent growth compared with last year, but the sales figures were in line with Wall Street expectations as the product matures.

The full effects of any slowdown in the economy certainly have yet to hit the tech industry. Starbucks revised its outlook for the year Wednesday, citing a weaker environment, and McDonald's reported earlier this week that sales had declined in stores that had been open more than a year. But Intel, IBM, and Google turned out strong performances last week, and Amazon.com reported a phenomenal quarter Wednesday.

The current quarter might be the only one that dings Apple, though the company actually seems bullish, by its standards. Apple is notorious for undercutting Wall Street's guidance heading into a particular quarter, but unlike the previous quarter, when Apple slashed expectations, its current guidance is closer to the industry view.

But as Wu pointed out Wednesday, Apple isn't expected to get any kind of boost from a major product introduction in the quarter, with all the goodies expected to arrive in the second half of the year. So, let's take a look at each segment of Apple's business and see what might lie in store over the next couple of months.

The Mac. The star of Apple's second quarter was clearly the Mac, with shipments of 2.3 million units, an increase of 51 percent compared with last year. Portable shipments increased 61 percent, and even desktop shipments were up significantly, at 37 percent.

Apple's third quarter brings a rise in educational buying from elementary and secondary schools, Peter Oppenheimer, Apple's chief financial officer, said on a conference call following Apple's results. Otherwise, it's really not much of a quarter, and it is generally considered the slowest period of the year for the PC industry.

However, there doesn't seem to be anything slowing down the Mac's momentum on the horizon at the moment. Oppenheimer said that about half of all Macs sold in Apple's retail stores are bought by people new to the Mac, which is the same proportion Apple has quoted for several quarters now. As long as people keep coming to the stores, and Apple maintains quality control on the Mac, that trend should continue.

The iPod. Once the crown jewel of Apple earnings reports, the iPod is getting old. Apple's market share has held steady, Oppenheimer said, but the overall market appears to be getting saturated, especially in the United States. A price cut in the iPod Shuffle helped stimulate some demand in the quarter, but Shuffle sales were still down for the quarter.

The iPod Touch is increasingly touted as the future of Apple's iPod division, and Oppenheimer reiterated that stance Wednesday. He thinks that the iPhone 2.0 software--also slated for the iPod Touch--will help boost demand as new applications come to the model. But iPod shipments probably won't show dramatic growth in the quarter.

The iPhone. The newest member of Apple's arsenal could be in for an interesting quarter. Apple ran into supply constraints toward the end of the second quarter, after misjudging the pace of demand for the iPhone around the world.

Still, European demand--at least through official carriers--does not appear as strong as it is in the United States, as shown by the price cuts enacted on iPhones in the United Kingdom and Germany. And Apple might have a slight problem on its hands as the drumbeat increases around a 3G iPhone.

A CNET News.com reader wrote in Tuesday night, wondering if he could turn in his recently purchased iPhone after learning that a new model is probably on the way. You can, assuming that you bought it within 14 days, but if more and more people decide that they don't want to buy an iPhone until the 3G model comes out, Apple could have a short-term demand problem during its third quarter that could bounce back, once the 3G model arrives.

However, anyone who does buy an iPhone between now and late June will be able to get the added features of the iPhone 2.0 software as a free upgrade. Analysts peppered Oppenheimer with questions about the need to defer iPhone revenue until the software is ready, but forget about that: it has no impact on the potential iPhone customer.

All kidding aside, no company really is recession-proof, except for perhaps bankruptcy law firms. If the U.S. economy takes a severe tumble in the second calendar quarter of the year (its third fiscal quarter), Apple could feel a pinch. Given the strength and appeal of its products at the moment, I wouldn't anticipate something too severe, but Wall Street has high expectations of the company.

And in the second half of the year, Apple should have a 3G iPhone, a second-generation iPod Touch, and a new notebook design. And that's, of course, assuming that the company doesn't have a wild card up its sleeve with a mobile Internet device, a Mac tablet, or a gaming console, all of which have been rumored this year.

Either way, Apple is in perhaps the best shape in its history heading into the rest of the year.