• Apple’s Financials: Wall Street Screws Up Again!

    July 16th, 2005

    Maybe they need a new set of tea leaves, or perhaps they should call on the services of the real life psychic who is portrayed in the TV show Medium. Regardless, when it comes to Apple Computer, Wall Street just can’t get an accurate fix on what’s going on.

    Consider: In the last few weeks, you heard that iPod sales were slowing, and that Apple better come up with a successor real quick or it will lose its advantage. Wrong! You also heard that sales of new Macs would be hurt by the plan to switch to Intel processors. Wrong again!

    Apple’s quarterly financials, announced Wednesday afternoon, confounded Wall Street estimates once again. Here’s a brief look at the stats: Revenue came in at $3.5 billion. Net income for the quarter ending June 30 increased to $320, or 37 cents a share. This is a record for Apple and compares to $61 million, or 8 cents a share, for the same quarter last year. Those so-called analysts expected income at 31 cents a share. Of course, if you’re into raw numbers, you can get your share direct from Apple, without filtering from commentators.

    The iPod? Well, the analysts said sales would be flat or slightly lower, but sales increased to 6.1 million players, and revenue soared to $1.1 billion, an increase of 16 percent over the previous quarter, and over 343 percent since last year. Bear in mind that the average selling price for iPods went down, because of newer, cheaper models. Right now, the iPod has about 75% of the digital music player market, and its closest competition has less than 5%. Saying the iPod appears to be unstoppable is an understatement.

    Another bright spot in Apple’s financial picture is the continued growth of iTunes Music Store sales. Despite the alleged competition from those subscription services, current estimates put Apple’s share of the legal music download market at more than 80 percent, according to Neilsen Soundscan. So much for those cheap Yahoo subscriptions, and has anyone heard much about MSN Music? Last I heard, Microsoft was even giving away extra songs to entice people to sign up, with, apparently, not a whole lot of success.

    What about Mac sales? Is Apple going to throw in the towel, or at the very least suffer big time because of the planned migration to Intel chips? So far, the answer is no on both counts. In the words of Timothy D. Cook, Apple’s executive vice president for worldwide sales and operations, “We saw no obvious reduction in sell-through after the announcement.” To be fair, Apple is being cautious here. They were working on sales data covering only a few weeks, and it may take a while to see if Mac users are holding off on buying new computers until there’s an Intel processor inside. That’s a reason why Apple is projecting flat sales for the current quarter, meaning things won’t change very much. Here the very same analysts who underestimated Apple’s income are now saying the company is just being cautious and that sales will probably continue on their upward spiral.

    According to a report published in The New York Times, Richard S. Chu, financial analyst for SG Cowen Securities Corporation, had this stage comment, “The question for the investor is, Do you want to worry about something that is more than a year away?” The answer is probably not, and, frankly, my personal opinion is that the furor over the planned switch to Intel will largely fade into the background over the next few months except for a small subset of power users who care about such things. What does this mean? Well, I’m not a Wall Street analyst, and do not play one on TV, but I think that as folks look towards their computer needs over the next few months, they’ll take the sensible approach. If they need a new Mac now, they won’t worry about what kinds of parts Apple plans to use a year or two from now. Isn’t that the way it should be?

    At the same time, there is one possible trouble spot in all this joy. All right, Mac sales were quite positive, at 1.182 million units, and the growth rate is said to be three times that of the PC industry. This means Apple is continuing to grow market share, and it does appear that the legendary iPod halo effect continues to influence sales. Sure, that’s 35% above last year, but much of that increase was confined to desktops, of which 687,000 were sold. Laptop sales, said to be the real growth factor in the PC industry, amounted to 495,000 units, an increase of just 8% from last year.

    So what’s the cause of that modest iBook and PowerBook growth rate? Are Mac users lying in wait for faster models? If so, expect to wait a while, because it doesn’t seem as if we’re going to see any great improvement in portable performance until those Intel chips are ready to roll. So what can Apple do to goose sales? Well, with a war chest of $7.5 billion in cash, Apple can well afford to cut prices and not suffer all that much. What about a $799 iBook, and a $1,999 17-inch PowerBook? Dropping prices and, if possible, adding extra features and a tad more performance, could go a long way towards moving a lot more Mac portables into customer’s hands for the rest of the year. Or at least that’s my totally uninformed opinion.

    You’ll also want to listen to this week’s episode of The Tech Night Owl LIVE for some sage comments about Apple’s sales picture from noted industry analyst Joe Wilcox of JupiterResearch.

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