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  • The Apple Blowout Report: More Goodies to Chew Over

    January 25th, 2012

    I'm sure you realize that the release of Apple's financials is a staged event. The numbers were already present long before they were unleashed to an expectant audience. The don't just emerge full blown in an email from the company accountant, ready to immediately present to the financial analysts, investors, and the public at large.

    Even though every single detail about Apple's last quarter was known to them for hours or days before you learned what they were, Apple's executives remained stone-faced. There was not a clue as to what they'd contain. Sure, the media has been busy evaluating the pros and the cons, and trying to read the tea leaves. Industry surveys were probed to see a sales trend, and certainly the fact that Verizon Wireless moved more iPhones than any other smartphone in the last quarter only confirmed expectations of stellar numbers when Apple released their quarterly earnings Tuesday afternoon.

    Now ahead of the report, I must admit I was not a little concerned, because inflated estimates may make a stellar quarter seem unexciting, even disappointing. How could Apple possibly match anyone's expectations almost every single quarter?

    Well, can you spell blowout?

    In the first fiscal 2012 quarter, Apple reported a record $46.33 billion earnings, with a record net profit of $13.06 billion, or $13.87 per share. These results compare to revenue of $26.74 billion and a net quarterly profit of $6 billion, or $6.43 per share, for the same quarter last year. The financial community was clearly caught off-guard, since they expected earnings of $38.76 billon, with $10.07 earnings per share. And I thought that maybe they were growing just too optimistic about Apple.

    Two numbers were particularly significant. Some 37.04 million iPhones were sold, a 128% unit growth over last year, and way ahead of analyst estimates of between 30-34 million. Now this number wasn't unexpected. The iPhone 4s remains backordered as it spreads around the world. Apple also continues to make inroads into the Android market, with a gadget that some members of the media felt disappointing because the case was the same as the previous version. Even more fascinating is the news that Apple's iPhone division, which brought in revenue of $24.42 billion all by itself, beat all of Microsoft, who reported $20.89 billion total revenue during the last quarter.

    But the real surprise came with the iPad, with 15.4 million units sold, representing an 111% increase. But analysts expected something in the range of 13 million, in part because of the perception that the Amazon Kindle Fire cannibalized from one to two million iPad sales. Maybe, but Apple has nothing to apologize for, and they appear to dismiss the possibility that they lost any sales to Amazon's tablet.

    Microsoft would surely be concerned at the news that 5.2 million Macs were sold, a 26% unit increase. Compare that to falling PC sales and how that impacted Microsoft's financials. In the meantime, analysts were predicting Mac sales in the range of 5 million.

    iPod sales shrunk to 15.4 million, versus 13.9 million expected. The unit decline was 21% over last year, but don't forget that those 37.04 million iPhones and 15.4 million iPads are also iPods too.

    Meantime, 58% of the quarterly revenue came from overseas sales. In all, Apple now has $97 billion on hand in cash, short-term and long-term securities. What this means is that they are not only thoroughly insulated from a future business downturn, but they can invest huge amounts of money in making strategic acquisitions. But before you start spending Apple's money for them, don't forget that they tend to buy smaller technology companies that meet their strategic needs, and are easily integrated. They don't just buy out competitors with false promises of synergy, hoping to kill the opposition and leave more people out of work.

    According to Apple CFO Peter Oppenheimer, they expect revenue of $32.5 billion and diluted earnings of $8.50 per share for the current quarter. Not too shabby. So as you might have expected, Apple shares soared over 8% in after hours trading.

    Number junkies can find more information in Apple's press release.

    In the quarterly conference call with financial analysts, Apple amplified somewhat on the results. But I continue to wonder why audio quality during these sessions is so bad. Also, Oppenheimer may be a positively brilliant financial manager, but his delivery of the scripted material is always stilted. Maybe Apple can take some of that 97 billion dollars and invest in acting lessons for the senior staff.

    During his presentation, Oppenheimer also revealed that nearly all Fortune 500 companies now support the iPhone. In addition, some 1.5 million iPads are already in use in educational institutions around the world.

    CEO Tim Cook said he didn't think that people who want an iPad would settle for a "limited function" device, clearly addressing such products as ebook readers and the Kindle Fire. Apple will, he said, innovate like crazy to stay ahead. He also remarked that there will come a day when the tablet market grows past traditional PCs, and that IDC data has already indicated that tablets exceeded the sales of desktop PCs in the last quarter. So the PC era is fast, fast coming to a close. Talk about dismissing the competition with a broad brush.

    As to the iPad, he remarked how the iPad has spread into the corporate and education world, remarking that you see them everywhere these days. "It's winning market by market by market," said Cook.

    Predictably, the questions were mostly softball, often concentrating on arcane issues of sales, numbers, inventory and supply chains that aren't terribly sexy. Apple also restricts questions to a single follow-up, so it's not possible to really probe much further past the initial inquiry. Besides, Apple never deviates from their core messaging, and don't expect even a hint about future products, although that does happen on a rare occasion.

    Although iCloud's rollout was somewhat shaky, Apple reports that the online service already has 85 million users. Now if they can fix the lingering problems, and add some critical features removed in the transition from MobileMe, I'd feel happier with the whole thing.

    Meantime, Steve Jobs is no doubt smiling as he looks down upon the company he left behind when he passed away.



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    3 Responses to “The Apple Blowout Report: More Goodies to Chew Over”

    1. DaveD says:

      What an awesome first quarter, but it was even more so.

      It was an amazing road Steve Jobs took Apple on. Returning to the company he co-founded that was on the brink of disaster to a highly successful money maker. It took a lot of years. Putting together a new retail front with the online and retail stores. Providing a content-delivery front with the iTunes store. Getting a handle on the manufacturing front to make new Macs and other “new” devices.

      Making quality, beautifully crafted devices that folks want to buy and use.

    2. Peter says:

      Apple also continues to make inroads into the Android market, with a gadget that some members of the media felt disappointing because the case was the same as the previous version.

      Wait a second.

      According to this article, 64% of those sales went to people who already had an iPhone. And those that are new to iOS merely came from "some other platform" (eg, Symbian, WinMo, RIM, WebOS, etc.)

      Can you offer a citation to back up that statement?

      Gene Steinberg Reply:

      @Peter, Citation? What about the news that the iOS edged Android in U.S. smartphone sales in the last quarter?

      Peace,
      Gene

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