Apple's Momentum Will Continue

Nov.20.07 | About: Apple Inc. (AAPL)

I have written extensively on the iPhone. You can find them under the iPhone and the Future series as well as the iPhone’s Component Ecosystem series. My last post on Apple (NASDAQ: AAPL) was just a month after the release of iPhone. A month or so later on September 5, it announced a $200 reduction in the price of the 8GB model. The 4GB model has been discontinued. For its early iPhone customers, it is offering a $100 store credit for buying Apple products at its stores. The announcement was met with mixed reactions.

Soon after on September 10, it reached the milestone of 1 million iPhone sales. It started selling iPhones in the U.K. and Germany on November 9, partnering with O2 in the U.K., and with T-Mobile in Germany. It will start selling the iPhones in France from November 29th, partnering with Orange. [I have covered the iPhone’s impact on the U.S. carriers in some detail before.]

Its price is £269 ($567) in the U.K. Though this is cheaper than its launch price in the U.S. in June, it is much higher than the current U.S. price of $399. In Germany, the price is even more: €399 ($585). Early reports show that the response was not as overwhelming as in the U.S. (They are probably waiting for a price reduction as well.)

Apple posted its earnings for the fourth quarter recently on October 22. As per the release, iPhone sales for the quarter were 1,119,000, bringing the total iPhone sales in 2007 to 1,389,000. Total revenue from the sales of iPhones, iPhone accessories, and payments from AT&T was $118 million.

Total revenue for the quarter was $6.22 billion, up 28.5% y-o-y and 15% sequentially driven mainly by record Mac sales and the strong demand for iPods. Its net quarterly profit was $904 million, or $1.01 per diluted share, compared to $542 million, or $.62 per diluted share in the year-ago quarter. The company's gross margin was 33.6 percent, up 29.2% y-o-y.

Apple shipped a record 2,164,000 Macs, reflecting a 34% y-o-y growth. It sold 10,200,000 iPods during the quarter, up 17% y-o-y.

For fiscal 2007, revenue was $24 billion and net income was $3.5 billion. For the first quarter of fiscal 2008, Apple expects revenue to be around $9.2 billion, and earnings per diluted share of around $1.42. Its stock is trading around $166 after hitting a 52-week high of $192.67 on November 7, and its market cap is around $145 billion.

So what is the outlook for the foreseeable future? Mac Sales will continue to gain momentum, I think, given that the Apple brand is getting such visibility across the iPhone, and the iPod. Also, the much anticipated Vista, Microsoft’s new OS, is now in the market, and will be for the next decade, probably, and is not a very good Operating System. It is quite possible, that this will be decade of Apple establishing itself in the PC business once again.

Furthermore, iPod’s international potential has still not been explored. With the growing wealth in volume markets like India and China, it is likely that the iPod’s momentum will continue.

Finally, the iPhone’s early numbers are good. The product will get better with iterations, and the convergence device movement is more than real right now, and the smartphone market is steaming hot.

In summary, Apple has three businesses, all of which, in my opinion, will continue to grow well. If you believe that, then Apple is still a growth stock.

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