Apple: The Best Is Yet To Come

Apple (AAPL) reported its fiscal third quarter ending June 30th (see conference call transcript), and the numbers were magnificent. The earnings per share came in 20 cents better than estimates at $.92 and revenues were a robust $5.4 billion. The story of the quarter was the increased sales of the Mac computer.

The Mac sales totaled 1.746 million units for the quarter a robust 32% increase over last year's similar quarter. The company also reported iPod sales of 9.8 million units which puts the installed base at over 110 million units.An incredible achievement as Apple still maintains above 70% market share of the MP3 market.

The Mac has the momentum to carry Apple over the next few quarters, at least as the iPhone gains traction. The iPhone sales totaled 270,000 units with CEO Steve Jobs indicating that Apple will sell over 1 million units by the end of the September quarter. He re-iterated that Apple will sell 10 million iPhone units by the end of calendar 2008. By all accounts the number is probably rather conservative. It took Apple 7 full quarters to sell its one-millionth iPod, and now the number is over 110 million!!!

Apple's numbers are going higher for fiscal year 2008. I was estimating an EPS of $4.15 and now have raised to $4.50 on revenues of $31 billion, up from $29.5 billion. The major legs of growth for Apple are in place and gaining steam. The retail store base is now up to 185 strong. The number of customer visits for the June quarter to the retail stores was more than 29 million. The retail store system represented June quarterly revenues of $915 million of the $5.4 billion total. The store base has become a more and more comfortable setting for customers to visit and test all of Apple's products.

Apple is up $13 in the after-market trading, representing more than $10 billion of additional market capitalization. Virtually every analyst that follows Apple will be raising forward numbers so the near-term momentum could lift the stock north of $160. My price target has been $200, but I am raising that target to $225. Apple has the strength and staying power for the next 3-4 years. Earnings will even become more visible and sustainable as the iPhone revenue recognition program kicks-into high gear. Apple will recognize iPhone sales ratably over the 24 month commitment customers make to AT&T for service.

All the growth drivers are in place and for Apple, the best is yet to come...

AAPL 1-yr chart

Disclosure: none

Comments

[quidozz:]

In my view, the big story is 1.75M Macs sold in this quarter (33% growth). With 25% growth YoY in Q4, Apple will sell 2M Macs. That's insanely great!

2007 Jul 26 08:25 AM

[Tom B:]

One presumes there was yoy growth in Windows PC's, as well? Anyone have numbers on that?

2007 Jul 26 10:37 AM

[reinharden:]

"Worldwide PC shipments totaled 61.1 million units in the second quarter of 2007, an 11.7 percent increase from the same period last year, according to US IT research firm Gartner."

reinharden

2007 Jul 27 01:07 AM

[Neil Anderson:]

The introduction of new iMacs will see a surge in sales.

2007 Jul 26 01:59 PM

[davesmall:]

Agree with quidozz that Mac sales are eye popping.

Analysts want to base everything on iPhone sales figures and ignore everything else.

Apple has it all coming together now. The retail stores are humming. Macs are flying out the door. iPhone is the most successful cell phone introducton ever (and that's at $600 a pop). iPod sales are strong. iTunes is humming. Best Buy is putting a store withn a store in 300 outlets.

When Steve Jobs first announced the iPhone he said, "We think we can sell 1 million in 2007 and 10 million in 2008." They're ahead of schedule. None of the wildly overstated estimates came from Apple.

2007 Jul 26 05:40 PM

[frankz00:]

Let's not forget that the iPhone is the precursor to the widescreen 40GB and 80GB models! Built-in 50% upgrade cycle with iPod users!!!

2007 Jul 26 05:58 PM

[Camden:]

Nice to to Mr. Yared upping his estimates. But IMO his '08 estimate of $4.50 is way too low. Once several versions of new Macs come out with Leopard and (no doubt) some with multi-touch screens, you'll see a HUGE surge in sales. Instead of the 1.764 million Macs as shipped during this past quarter I think we may something over 3 million. There are a ton of Mac users that will upgrade. iPhones will be in multiple countries, with at least two versions selling in the U.S. I say the '08 number will be around $5.35. That's based on an '07 estimate of $3.82 and eps growth of 40%. Yes, 40%. That certainly could be light.

For a small taste of what Apple could add to the Mac platform with Aperature and Multi-touch watch this:

www.ted.com/index.php/...

2007 Jul 27 12:09 AM

[mobil dash:]

> For a small taste of what Apple could add to the Mac platform with Aperature and Multi-touch watch this:

> www.ted.com/index.php/...

or this: www.microsoft.com/surf... :D

2007 Jul 27 10:57 AM

[fnballbustr:]

No one's mentioned the itunes platform from which all music and video will be distributed. Look at the competition: Who has a better platform for distributing music? No one. Who has a better platform for distributing video? No one. Apple mfrs the device that get the video from the computer to your TV. The only possible competition would be if a business model took hold where music and video content was free and revenue was derived from advertising only. Could Google do this?

2007 Jul 27 11:49 AM