Apple Earnings Sweet in Sour Economic Times

Apr.24.08 | About: Apple Inc. (AAPL)

Mac, iPod and iPhone maker Apple (NASDAQ:AAPL) reported a very strong quarter for the 3 months which ended in March. The sheer numbers were staggering: $1.16/share in profit on $7.5Billion in revenue. This compares with analyst expectations of $1.06/share profits on $6.9Billion in revenue.

Apple beat on both the top and bottom line but investors aren't yet sure where to go given guidance and a wavering US economy. Apple showed its ability to grow in tougher economic times due to their innovative products, brand value and successful retail integration. A year ago Apple earned $0.87, which represents 33% growth on an EPS basis.

The big deal here is over 50% growth in Mac sales to almost 2.3Million units in the quarter. The quarter also included flat iPod unit sales of 10.6Million and very good iPhone sales of 1.7Million units. Margins were good for the company, as memory prices continued to hit lows. The company guided for earnings of $1.00/share for the next quarter amid steady guidance as component costs will continue to be favorable, according to the company.

News on the iPhone front? All those shortages we've been hearing about that led to speculation of an upcoming 3G model? Seemed to be just that, shortages due to higher than expected demand. Of course unlocking is a big deal and while the company is using the unlocking argument to peg worldwide demand, the sheer percentage of iPhones being bought to be unlocked has to be very high. Although no numbers are given by the company, some outside analysts and reports have pegged unlocked devices as high as 30% of units.

The focus for analysts for this quarter was on Macs and iPhones and according to management, growth rates for both revenue streams are very high. Mac sales of almost 2.3Million units are very strong, coming very close to the record sales number posted by the company for the previous holiday quarter. Sales growth rates in all regions are strong and once again sales of Macs in Apple's retail stores, 50% of the time, went to first time Mac buyers. That old faithful Halo Effect is at work once again.

On the iPhone front, the company has added some complications to revenue going forward due to accounting issues. The company will not recognize any revenue from iPhone sales from after the iPhone 2.0 Software upgrade announcement until the software is delivered. Essentially meaning next quarter numbers for the company will include ZERO dollars in iPhone revenue since the company expects to release the software near the end of June. This will put pressure on margins and the top line numbers when doing comparisons, but will add an additional bump to the following several quarters. The company will recognize this window on an adjusted basis for the full 2 years as with normal iPhone purchases. The company reiterated its internal goal of selling 10Million units in 2008 and their strategy of being in Asia this year.

On the retail side, Apple continues to be the best revenue per square foot retailer in the world. The company plans to open several high profile stores in the remainder of the year, and its "Store within a Store" concept and increased presence at Best Buy (NYSE:BBY) stores has grown to 400 stores.

When all is said and done, it is another fantastic quarter for the electronics maker. Analysts and traders who are still trying to figure out where to go from here consider that Apple's stock has grown from $120 to $160 in the past few weeks. However, without a shadow of a doubt, this company is continuing to grow, has some very exciting events and products in the pipeline, and has the potential to drastically expand market share in the computer and cellphone business segments. All sign can be used to justify further share price gains throughout the year.

The company added about $1Billion in sheer cash, putting its war chest at about $19.5Billion. Not too shabby a rainy day fund I'd say.

Disclosure: Author owns AAPL