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  • The Apple Earnings Report

    April 23rd, 2008

    I’d like to say that there’s no truth to the rumor that the financial media and Wall Street analysts are out to get Apple. But they’ve had a long-term habit of creating negative spins about Apple’s ongoing sales picture that have, at times, knocked its stock price for a loop. So I suppose you know where I’m going here.

    Take the claim that there were hundreds of thousands, perhaps over a million, unsold iPhones left catching dust in stock rooms, a theory that was quickly abandoned as it became clear there are an awful lot of these gadgets being unlocked and used with unapproved providers around the world. You also heard that, while Mac sales were extremely high, iPod sales had gone flat and maybe even declined.

    So what is the truth?

    Well, basically it appears that the analysts penchant for underestimating Apple’s achievements haven’t changed. For the quarter ending in March, Apple reported sales of $7.51 billion, or $1.16 per diluted share, compared to $5.26 billion and 87 cents per diluted share for the same quarter last year. Profits came in at $1.05 billion, compared to $770 million last year.

    The analyst crystal balls predicted revenues of $6.95 billion and earnings of $1.07 per share.

    Sales of new Macs continued to soar, with 2,289,000 units sold, representing an improvement of 51 percent compared to the same quarter last year. Despite claims that fewer iPodes were sold, sales actually increased but barely. Unit sales amounted to 10,644,000, one percent above last year, but revenue growth was up eight percent, in part due to sales of higher-cost models, such as the iPod touch.

    According to Apple, the average sale price of iPods was $171 for the quarter, compared to $160 last year. In addition, iPhone sales amounted to 1,703,000.

    You can check Apple’s site for the raw numbers, if you’re so inclined.

    In its regular conference call with financial analysts, Apple executives delivered their usual enticing tidbits of information, fleshing them out only when it had some strategic advantage.

    So we learned, once again, that 50% of the sales of new Macs at Apple’s retail stores are new to the platform. This is what they always say, but they never seem to be asked just how they come by these numbers. I mean, I’ve registered new Macs periodically, using the Setup Assistant, and I’ve never seen a question asking what kind of computer I had previously.

    When it comes to the iPhone SDK, Apple reports that more than 200,000 developers have signed up and downloaded the SDK. Of these, 400 developers are involved in higher education, and the roster also includes more than a third of the Fortune 500 companies.

    Clearly the iPhone is a serious contender for the enterprise, what with Apple’s decision to license Microsoft’s ActiveSync technology. RIM, makers of the BlackBerry, surely have a lot to fear. What’s more, if millions of iPhones turn up in businesses, can more business-oriented Mac sales be far behind?

    In case you’re wondering, Apple says it’s still on track to sell 10 million iPhones by the end of the year and the iPhone 2.0 software is due in late June, essentially on schedule.

    The 3G iPhone? Well, you know Apple never comments on unreleased products.

    Apple’s cash reserves continued to soar, reaching $19 billion. It was also announced this week that Apple spent an estimated $278 million to purchase PA Semiconductor, a firm that designs low-power chips based on the Power PC platform.

    That step alone raises huge question marks. For one thing, Apple supposedly abandoned that chip technology when it moved to Intel processors, so where does its new acquisition fit in? Apple isn’t saying, of course, but it does appear that Apple might use its new assets to produce chips for the iPhone and iPod. Since Mac OS X is quite portable when it comes to processor families, I suppose this won’t present a serious development Issue.

    What’s more, if Apple builds the chips themselves, there’s nobody else to blame for late delivery of a new version or production shortfalls

    More to the point, just what does Apple plan to do with the rest of its cash hoard? $278 million is chump change for a company the size of Apple and it may take a year or two before the real reason for the purchase is known, if then. That would, of course, depend on whether the chips will actually ever find their place in a future Apple product. You never know.

    What about this quarter? Well, Apple is forecasting sales of approximately $7.2 billion, just a hair above the $7.16 billion that Wall Street expected, but profits will be $1 per share, as opposed to the $1.10 per share financial analysts expected.

    So what happened to Apple’s stock in after-hours trading? Funny you should ask. It tumbled once again, in part over the company’s conservative outlook and the perilous state of the U.S. economy. So what were you expecting?

    Well, maybe this: As of Thursday morning, the stock was heading upward once again. Maybe Wall Street got a needed dose of sanity this time out.

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