Apple Earnings Sweet in Sour Economic Times 7 comments
an article to
-
Font Size:
-
Print
- TweetThis
Mac, iPod and iPhone maker Apple (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 (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
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication in the last week
Seeking Alpha 100 » -
Fastest Climbers
Those with the largestSee all
increase in followers
in the last week
Fastest Climbers » -
Top Commenters
Top commenters,
as ranked by their peers-
1
User 353732
-
2
Moon Kil Woong
-
3
doubleguns
-
4
optionsgirl
-
5
Mayascribe
Top Commenters » -
1
-
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
You don't really expect us to fall for this statement, do you? You even mention later that iPhone revenue is recognized over a two-year period for accounting purposes. So iPhone revenue from all the iPhones Apple has already sold will still be coming in, even if the revenue from new sales is deferred until after the iPhone 2.0 software is delivered.
Apple is doing so well, they WANT to push some of the earnings out, to level things out, provide an ongoing cushion, and turn cyclical product sales into smooth revenue streams for booking purposes.
THAT tells you, they KNOW they are going to EASILY BEAT whatever "guidance" { I prefer to call it confusion } they give. Imagine, in a DOWN MARKET, where everyone is trying to show every dime they can, to shore up the sinking ships, Apple is doing the opposite, SLOWING DOWN recognized revenue streams.
Think for a second what this must really mean, they KNOW they have the rest of the year in the bag, they KNOW that with the 3G iPHONE and whatever else they have planned are going to be blowout sellers...so they are SLOWING DOWN the recognition, not wanting things to SPIKE UP SO HIGH NOW, that they can't keep up the pace.
Apple's CFO stated forward guidance was $7.2B, inline with expectations, and EPS of "about $1", while expectations are $1.10. Let me be clear, Oppenheimer stated, "ABOUT one dollar". He didn't say one dollar and zero cents. He said, "about". In other words, people are assuming he meant $1.00, when he said nothing of the sort.
Imagine, what else he said, forward guidance on GM was 33%. That's almost exactly what this quarter's GM was at 32.9%. While it's indirect, there's no reason why we can't do a quick-and-dirty calculation on what EPS Apple is really expecting. Last quarter they had $7.5B in sales. Next quarter they expect 96% of that with $7.2B. Well, they just had $1.16 eps, and 96% of that is $1.11. Add a fraction for the GM difference between 32.9% and 33%, and you can see, Apple's actual eps guidance is about $1.12, with analysts expecting $1.10.
In the conference call, you definitely get the impression that Oppenheimer does NOT want to do the math for you. He snippily answers the Bear Stearns analyst by essentially saying that. Here are the numbers, you can do the math. "Well, you’ll have to make your estimates but we sold 1.7 million phones during the quarter. We made the announcement on March 6th. You know what we sell the phones for and we recognize the revenue over 24 months."
Additionally, the analysts didn't know because Apple hadn't announced it, so they couldn't factor in that Apple was not going to factor in iPhone revs after March 6th until the Software ver 2 is delivered in late June. That's going to cost about $100M if they sell another 1.7M iPhones. So, comparing apples to apples, you'd have to adjust Apple's revenue number up $100M to $7.3B, to compare it to the analysts' $7.2B.
The bottom line is once the analysts look carefully at what Oppenheimer said, they'd realize that Apple's guidance exceeded analysts' expectations. Adjusted revs were $7.3B to the analysts $7.2B and eps was $1.12 to the analysts' $1.10. These are minor details, but the story in the media changes significantly when Apple's actual guidance is a little higher than analysts' expectations rather than 12% lower.
The big news, IMHO, is that corporate america is really warming up to Apple in the enterprise. Employees are demanding it of IT. IT would rather keep spoon feeding MS 'solutions' but they have no reason to deny anyone an Apple as the Macs are far more compatibly than anything else (used to be MS's strong point but only because of their sheer numbers). Same is true of iPhone. IT was flailing their arms around, yelling about 'security' as usual, but the Outlook/Exchange support with iPhone II will be better than any other 'smart' phone.