The Apple Financial Report: Wall Street Fooled Again!

January 18th, 2007

You can bet that Apple’s conservative guidance about income for a subsequent quarter must take Wall Street by surprise. It seems as if they add a little to the estimate, read a few tea leaves, and come up with projections that are way off the mark.

It’s almost axiomatic that so-called financial experts will assert guidance that underestimates Apple’s true earnings. Such things almost seem to happen often enough that people who believe in conspiracy theories might think that such behavior is deliberate, and not just the result of making a few mistakes. Or maybe you shouldn’t trust estimates.

In any case, the analysts estimated Apple’s revenue for the last quarter in the range of $6.42 billion, but it was actually $7.1 billion, up from $5.75 billion last year. Profits were estimated at 78 cents per share, and ended up at $1.14 per share, up 77 percent from last year. Do you recall when Apple couldn’t earn this much in an entire year?

Should I say it? Yes I will. The earnings were records for Apple Computer, and I’ll cover a few more highlights in this column. You can get many of the raw figures direct from Apple’s site.

While the alleged experts said that some 16.5 million iPods would be sold, the reality was way better, some 21.1 million. That’s 50 percent over last year, so take that Microsoft! Mac sales weren’t too shabby either, at over 1.6 million, which is up 28 percent from the same quarter last year. The actual breakdown is 969,000 note-books and 637,000 desktops.

There’s little doubt that desktop sales remain somewhat tepid in the scheme of things because professional Mac users are still sitting on the sidelines awaiting a Universal version of Adobe Photoshop. Sure there’s a public beta of the forthcoming CS3 version out now, but you don’t do real work with public betas. Indeed, I wouldn’t be surprised to discover that some of these folks are buying recent PowerPC Macs, used or refurbished, rather than the Intel-based versions. In fact, I know of one design studio in my area where the owner did just that, not wanting to chance a move to Intel right now, although the Power Mac G5 Quad he bought instead didn’t really save him all that much money.

If there is an area where Apple sales didn’t quite meet estimates or hopes, it was the number of Macs shipped, where the numbers were closer to 1.75 million. On the other hand, let’s be real here. Apple’s peak sales actually occur during the previous quarter, due to educational sales. So this is the first time Mac shipments haven’t declined for a first fiscal quarter. That’s progress.

Still more information emerged from the conference call with analysts. Although Apple kept some facts close to the vest as usual, you can still get a decent picture of what’s going on.

For example, the iPod had 72 percent of the U.S. market in December, according to NPD, and iTunes dominates the legal music download arena with an 85 percent share.

Now as to that stock option mess, according to Apple CFO Peter Oppenheimer, during the conference call, the company is “voluntarily and proactively” cooperating with the authorities during the ongoing investigation of the whole affair. Indeed, the skeptics are still wondering if Steve Jobs might get still somehow caught up in some sort of legal mess, despite the claims that he really didn’t appreciate the unsavory accounting consequences of approving the backdating of stock options.

But that’s nothing I’m about to comment on right now. Even the people who don’t like Jobs wouldn’t really want to see him forced out of Apple.

On a more pleasant matter, Mac OS 10.5 Leopard reportedly remains on track for a spring release, and, according to VP Tim Cook, they don’t expect sales to be impacted as folks await the upgrade.

For the current March quarter, Apple’s estimates remain extremely conservative, with revenue at between $4.8 to $4.9 billion and earnings of 54 cents to 56 cents per share. If you take those numbers seriously, if Apple can manage to exceed those figures, they end up coming up roses.

All in all, it seems quite hard to find bad news out of all this, and I don’t want to seem paranoid. But it probably won’t stop some tech pundits and financial “experts” from trying.

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4 Responses to “The Apple Financial Report: Wall Street Fooled Again!”

  1. Al says:

    I’m a retired Wall Street executive who has been a Research Director, Chief Investment Officer for a mutual fund company and a mutual fund portfolio manager. To be fair, today’s security regulations have made companies less willing to sahre information with analysts. Who wants to be sued if you miss your fiancial targets. Too many firms and analysts, it is better to be conservative and hit your targets then miss them. Try estimating any companies earnings without knowing all of the important data you need – you’ll find it isn’t as easy as you think.

  2. RD says:

    I think financial analysts, especially stock analysts, are one of the biggest bunch of b*llsh*t artists around. It’s not all their fault. It’s also the public’s and the media’s fault for demanding that they have a story for every twitch of the market. So whenever stock X moves up or down, they come up with standard lines like ‘Oh, there’s some profit-taking going on’, or ‘Oh, they’re reacting to the Fed’s latest statements’ or some other canned after-the-fact tautological ‘analysis’. When they do get things right, it’s on those really obvious one’s that only a moron or a sitting U.S. president would miss.

    Bottomline is, they don’t really know. Just pause a moment and think. If they really knew, then they would be keeping all this knowledge to themselves and be making gazillions of dollars on the stock market. Logical enough, eh?

  3. Javier says:

    No one is going to force Steve Jobs out of Apple – not as long as Apple continues to please the stockholders. If Steve is convicted he can run Apple from his jail cell like any other Don.

  4. DL says:

    Mac sales weren’t too shabby either, at over 1.6 million, which is up 28 percent from the same quarter last year.


    This isn’t the entire story; Q1-2006 was a 14-week quarter, which makes Q1-2007’s Mac numbers look even better by comparison.

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