Apple (NASDAQ:AAPL) reported third quarter earnings last week that once again blew away street expectations. Revenues rose to $28.6 billion, an increase of 82% from a year ago. Operating income hit a new record at $9.4 billion and net income soared to $7.3 billion. Mac sales once again significantly outpaced PC sales, rising by 14% against the 3% growth estimated by IDC.
Enterprises are adopting iPods and iPhones at a significant rate. 86% of Fortune 500 companies and 47% of Global 500 companies have the iPad in either testing or development. Consumers are rushing out to grab iPads, which are selling at twice the rate of Macs.
In a significant development that may have far reaching implications for Apple’s future growth, last quarter Apple sold more iPads than Macs to the K-12 market. Slightly more than 20 million iPhones were sold last quarter as Apple continues to show strong growth against the many Android (NASDAQ:GOOG) products on the market.
During the conference call management was coy regarding the third quarter, stating that we will see “a lot going on this fall” and “a future product transition that we’re not going to talk about today." We already know of iCloud and there are rumors swirling about a low-end iPhone, iPad3, and refurbished MacBook Airs.
Historically, the biggest concern for investors has surrounded Apple’s spectacular growth. Already one of the top three companies in the world by market capitalization, critics wonder how Apple will sustain its growth model. A look at some recent patent filings provides clues as to where Apple may be headed in the future.
The first and potentially game-changing patent for iBooks allows children to tap on a word, allowing an associated picture or video to describe the word. Apple has also devised a gesture to call up a word in a student’s native language, which would make learning a new language much easier. This particular patent has the ability to advance chips for iOS devices by allowing users to interact with the text in a myriad of ways. For example, the readers of an iBook to can have text read to them or interact with media content to better understand a word or phrase. This presents the possibility of opening up magazines, newspaper articles, analyst reports, comic books, and maps to a wide variety of new uses.
Think about the immense potential as we learned during the third quarter conference call that Apple sold more iPads than Macs to the K-12 market surprising analysts and Apple. If Apple can create brand awareness at a young age, there is a higher probability it will retain that customer as she grows and matures. It is possible that a child born in the next year may grow up never using a desktop computer; her first learning device may be an iPad, and she'll grow from there.
A second patent would place microphones at the front and back of iPhones in a similar manner to the way cameras are presented today. The initial benefit would be to increase and improve the ability of people to report on actions as they happen. The increase in private reporters either through reporting news as it happens, bloggers doing interviews, or just friends recording a message, allows the user to be more interactive with her audience. As the speech is detected, the camera switches between video streams, allowing users to create active content.
Apple did not just blow earnings expectations out of the water once again; it set the stage for growth well into the future.
Disclosure: I am long AAPL.
Additional disclosure: Source: 3rd Q conference call, earnings release, and Patently Apple website.