Apple Blows Through Estimates

Update: See conference call transcript

Apple (AAPL) in its fiscal second quarter shipped 2.29 million Macs to lap even the most optimistic Wall Street projections.

Apple had been expected to ship 2.1 million Macs, according to Piper Jaffray analyst Gene Munster, one of Apple’s biggest supporters on Wall Street.

Since Mac sales (statement, preview) were expected to carry the quarter it’s no surprise that Apple blew through Wall Street estimates too. Apple reported net income of $1.05 billion, or $1.16 a share, in its second quarter on record revenue of $7.51 billion. According to Thomson Financial, Apple was expected to report second quarter earnings of $1.07 a share on sales of $6.96 billion.

In Apple’s second quarter a year ago, the company reported net income of $770 million, or 87 cents a share, on revenue of $5.26 billion. You could complain about gross margins falling to 32.9 percent from 35.1 percent a year ago, but that’s nit-picky.

As expected, Mac sales got most of the focus this quarter and Apple didn’t disappoint with unit growth up 51 percent from a year ago. As for the iPhone, Apple sold 1.7 million units, which met Wall Street targets. iPod units topped expectations at 10.6 million compared to a consensus guesstimate of 10 million.

Meanwhile, Apple as expected lowballed Wall Street estimates for the fiscal third quarter. The company projected earnings of $1 a share on revenue of $7.2 billion. For the June quarter, Apple was expected to report earnings of $1.10 a share on sales of $7.16 billion.

Among the notable conference call highlights (full transcript):

• CFO Peter Oppenheimer said Apple had 3 to 4 weeks of inventory.
• About a third of the Fortune 500 has signed up for Apple’s beta enterprise program with 400 higher education institutions. “And more are being added each week,” said Oppenheimer.
• Apple had 208 stores with average revenue of $7.1 million, up 48 percent from a year ago.
• “We remain very confident about our business,” said Oppenheimer.
• Tim Cook, chief operating officer, said that component costs were at historically low levels. Apple expects prices to rise.
• Cook added that Apple is confident that the company will ship 10 million iPhones by the end of the year. He noted that the end of the quarter did experience some out-of-stock issues. Apple said iPhone inventory is low at its retail stores as people are buying the devices to unlock them. Cook couldn’t quantify more on iPhone unlocking.

Apple ended the quarter with $19.4 billion in cash.

Among other odds and ends:

• Total deferred Apple iPhone and Apple TV revenue clocked in at $3.82 billion at the end of the fiscal second quarter, up from $3.28 billion at the end of 2007.
• Portable revenue was $2.14 billion in the second quarter, up from $1.35 billion a year ago. Desktop revenue was $1.35 billion, up from $914 million a year ago, but off from the first quarter.
• Other music related products and services revenue (iTunes) had revenue of $881 million, up from $808 million in the first quarter.
• Retail revenue in the second quarter was $1.45 billion, up from $834 million a year ago.

Comments

[Trader T]

APPL's customer retention is very good. The market has underestimated the value of a dedicated customer base that tend to buy multiple products.

[Seriously ?]

Full disclosure -I have a pitiful amount of AAPL.

Not sure what a fair P/E for this stock is, but I really don't see anyone slowing down this train.

What other company puts out the combination of highest quality software /hardware ? No one.

Dell ? MSFT ? RIMM ? I'm sorry I just don't see how Jobs and co can lose at this point. The iphone will just get better, and OSX is already a light year ahead of the Vista debacle. There is now very little reason to not buy a mac computer as you can get ALOT of bang for your buck.

The sky is the limit with this company. They haven't even really begun to take a huge market share in the Home PC market or the corporate market. Eventually there will be a tipping point when most of your friends have and are using macs and then corporate will follow. AAPL should then be able to have a MSFT stranglehold on the market, except this company will be peddling you the software and hardware out of their own stores - O and would you like a song and movie with that ?

Seriously , is there anything this company can't make ? As ridiculous as is sounds GOOG is the only company I worry about, but their ecosystem is about as disentangled from AAPLs as possible at the moment. ( most likely due to Mr. Schmidt) ( checked your iGoogle page from your iPhone yet ? )

[James Katt]

The problem for Apple is that analysts want the moon and the stars and have unrealistic fantasy expectations of what Apple should do. This is why despite blowing through the analysts estimates, despite doing exceedingly well, Apple's stock tanks.

When reality finally comes to the market, Apple's stock continues to slowly rise. This is why, in a way, I love it when Apple's stock tanks. It is a great buying opportunity. Some analysts even talk down Apple's stock so that they can tank the stock price, so they can then make their own investments in Apple - i.e. make insider investments and trades - realizing how great a stock Apple is.

So - despite how maddening it is to see Apple continually blowing through estimates and then having it's stock downgraded and fall afterwards, such a fall in stock price should give the investor joy as a buying opportunity, realized when in the interim, Apple's stock only rises.

When Apple's stock fell from $200 to $120 a share, for example, after the previous blowing through of estimates, I bought shares. The stock then went up recently to $160. This meant in the past 3 months I made roughly a 33% profit by selling. Wow! Thank you Apple! Now that it will gain tank, it is another buying opportunity.

By having Apple's stock tank badly then go back up again to higher ranges, and by doing this repeatedly because in reality, Apple is a great company with an undervalued stock, the smart investor and analyst will want the stock to tank after blowing through estimates. They can make money continually on Apple as a result since the stock will inevitably go back up again - with a realistic peak at $200/share. The better the tank, the more the money one can make on Apple.

Thus - bring on the tanks!