Apple’s Financials: A Conspiracy?

October 19th, 2009

Well, folks, Apple did it all over again. They confounded those alleged Wall Street analysts by beating the street and pretty much disproving any lingering skepticism about their ongoing success.

Here’s what I mean: Sales estimates for new Macs were as high as 2.85 million for the last quarter, but Apple sold 3.0.5 million, breaking another company record. Where the skeptics suggested that iPhone sales would be considerably lower than expected, because of supply constraints, Apple actually moved 7.4 million, a seven percent growth over last year.

Well, in the latter case, the critics were partly right. During the quarterly phone call with analysts, Apple admitted there were problems meeting demand, which they claim to have largely resolved earlier this month. So that surely augers well for the current quarter.

All in all, Apple’s sales totaled $9.87 billion with profits of $1.67 billion or $1.82 per diluted share for the quarter, which actually ended September 26th. Last year, sales for the comparable period were $7.9 billon, with profits of $1.14 billion or $1.26 per diluted share.

Not everything came up roses, however. Sales of desktop Macs continue to shrink compared to note-books. Some 787,000 desktops were sold, a 16 percent decline in unit sales. Portable sales soared 35 percent. However, other PC makers are suffering from the same problems, as sales trend portable. Worse, those companies are finding most of those increases are confined to the low-profit netbook category.

Apple, at least for now, still hasn’t announced any intention of entering the cheap note-book category. Even the reports of a tablet-based computer speak of something that will cost more than twice what the base-level netback sells for. In any case, I don’t think anyone expects such an animal to emerge from Apple’s contract production facilities until some time in 2010.

As to operating systems: In the first five weeks on sale, Snow Leopard is shipping at twice the pace of Leopard. Apple claims demand is actually higher than they expected, which might be true considering the 10.6 upgrade is not feature rich. On the other hand, $29 is surely a cheap price to pay and the upgrade process, particularly compared to the Windows XP to 7 mess, is almost seamless.

The iPod continues to command over 70% of the U.S. market, but sales were held to 10.4 million units, an eight percent decline compared to last year. Once again, though, even the skeptics agree that some of the lost sales are simply going to the iPhone. So long as Apple continues to cannibalize itself, few will complain. Well, maybe Microsoft, since their Zune HD is off to a typically lackluster beginning, at least based on sales rankings at Amazon.

With the Windows 7 coming out party happening later this week, I wonder if anyone truly believes that’ll change anything when it comes to Apple’s ongoing market share increases. You see, with every previous Windows release, Mac sales have actually increased. Again, that’s contrary to what the analysts want you to believe. What’s more, you can bet that Apple will go after Microsoft’s horrendous XP upgrade process.

As most of you no doubt expected, the session with financial analysts produced the typical softball questions. Maybe they hold back because they don’t expect Apple to accept the difficult queries, or they lack the journalistic chops to probe. So as you might expect, folks, Apple wasn’t asked about the infamous Snow Leopard Guest account bug, which may soon be resolved anyway in the next 10.6 maintenance release.

Now it’s not our habit to simply repeat an Apple release and quote lots and lots of numbers. If you are interested in probing the figures more carefully, feel free to check Apple’s press release on the subject for all the information you need to get the sense of their performance in the last quarter.

Meantime, while Apple remains coy when they’re asked about anything that might give a clue about new products, a response from Chief Financial Officer Peter Oppenheimer provides a strong hint, when he explains that profit margins are about to decrease in part because of “new products we have and will announce, delivering greater value, lower gross margin than predecessors.”

Update: Apple’s product updates occurred without fanfare Tuesday morning. First, to recap the speculation: The aging MacBook might be replaced with a slimmer form factor, accompanied by a price cut ranging from $200 to $300. The iMac may also be trimmed down somewhat, to take advantage of ongoing parts miniaturization. Some are actually hoping that Apple will install the low-power quad-core Intel processors on some models, and perhaps provide a little more external expandability to satisfy the needs of folks who find the Mac Pro to be much too expensive. The Mac mini? If it gets an update, it’ll probably be minor, although it would be nice to see a small price cut to pull in extra sales from skeptical buyers who continue to suffer from financial distress as the holiday season approaches.

In the end there were no price cuts, but every upgraded product offers more value for the money. We’ll cover this in more detail in a separate article.

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11 Responses to “Apple’s Financials: A Conspiracy?”

  1. dfs says:

    A couple of comments. First, iPod sales would be dropping off a lot more dramatically if it weren’t for the iPod Touch, which is actually a spectacular performer (and probably it would perform a lot better except that some potential buyers are holding off until Apple brings out a version with a camera). Second, if you are going to speculate about new upcoming Mac models, a long-shot dark horse might be a Mac Pro with an added SATA port, something that is long overdue when you consider the number of SATA hard disks now on the market (I’m not holding my breath waiting for a Blu-Ray drive, the licensing problems are probably still too knotty).

  2. DaveD says:

    What a nice job Apple has done in a tough economic climate. This is never what I would have expected. For a lot of folks, price is not an obstacle.

    But, I have to admit that Microsoft had a big hand in this. Their “laptop hunters” advertising worked so well for Apple. So, I hope Microsoft continues on making more of this kind of commercials. Microsoft’s clueless CEO Steve Ballmer put his foot in his mouth when he said back in April 2007 with this statement, “There’s no chance that the iPhone is going to get any significant market share. No chance.”

    With clueless CEO Steve Ballmer still at the helm and the business plan of “copying Apple” with Windows 7, Zune HD, and next on the list… the Microsoft Store, It may be a blessing in disguise. The consumers can do a side-by-side comparison and become better shoppers. Which is better? Pretty, easy-to-use products from Apple or wannabe products from Microsoft and others?

    Rephrasing this classic quotation as a question: Is imitation the sincerest form of flattery?

  3. Kathe Wittenberg says:

    The online Apple store is down… a note of “we’ll be back soon” is what is shown. Sounds like something’s coming soon!

  4. ChampagneBob says:

    With todays new announcements we see no price cuts or anything with a lower margin (if anything volume increase should reduce fixed costs….. soooooo what does this mean that margins will go down this quarter?

    Something new is going to happen just before the holiday selling season goes into full gear (remember they are talking about increased air freight to get sufficient product to market on time).

    Could the new tablet be on its way sooner than we think? That’s my guess, because it would take the thunder out of Windows 7 kickoff, the price should be in the $499/$599 price range and possibly subsidized on AT&T’s network… Verizon is probably out of the game for now based on the most recent announcements and their ad attack.

    It’s going to be interesting see see what’s up for the margin drop to make sense…..

  5. MichaelT says:

    I think the fact that this rollout was so quiet was to prepare for another Event. This upgrade was significant enough for its own event in the past, but I think what Apple wants to do is have all the attention focused on the new device.

    • @MichaelT, It’s getting a little late now for a major product update. The current refresh leaves sufficient time for even custom models, such as the quad-core iMac, to arrive in November. That doesn’t give Apple much additional time to introduce something altogether different and have it gain traction.

      I’m thinking that this is it for now. You won’t see anything else will 2010.


      • MichaelT says:

        @Gene Steinberg, I agree, but I think they are downplaying the Mac thing. As I said in a previous post, I think Apple considers the Mac old news. I think we’ll see less emphasis on it as time goes on. Of course now, while it’s still very profitable, they’ll keep it up—new models, OS upgrades, etc. But I think the emphasis has shifted since the iPhone, and the new product (whatever it may be) will be a step toward the future as Apple sees it.

        Exciting times.

        • DaveD says:

          @MichaelT, I don’t think Apple considers the Mac old news, just the desktop Macs. The emphasis is on whatever is the next big thing. Apple has many successful accomplishments (recession, what recession?) as we close out 2009. The competitors are constantly nipping at Apple to get a piece of their successes.

          Apple needs something to stay way ahead of the pack in 2010.

  6. ken h says:

    I hope Apple always sees Mac and iPhone as parts of a single related organism or entity, whatever word you wish to choose.

  7. KenC says:

    I think someone needs to publicize that iPhone sales were up 40%, not 7%. Shipments were up 7%, but actual sales were up 40%. How do I know?

    Last year, Apple let the channel inventory run down as they cleared out the EDGE iPhones. When the 3G iPhone launched, they had to refill that channel. How much was that? 2M units. This all occurred a year ago. So, of the 6.9M iPhones shipped, only 4.9M were sold. This year, they added about 500k to inventory, so of the 7.4M shipped, only 6.9M were sold, but that’s about 40% greater than last year. That’s a big deal that hasn’t gotten any media attention. In fact, people were saying it’s a bit disappointing.

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