While Apple Continues to Lowball Outlook, Mac Shipments Surge

Apple (AAPL) on Monday reported fiscal third quarter earnings of $1.07 billion, or $1.19 a share, on revenue of $7.46 billion, well ahead of Wall Street estimates as Mac sales continued to surge. However, Apple lowered its outlook.

Apple was expected to report earnings of $1.08 a share, according to Thomson Financial. In the year ago quarter, Apple had earnings of $818 million, or 92 cents a share, on revenue of $5.41 billion.

However, gross margins fell 34.8 percent, down from 36.9 percent a year ago.

As expected, Macs fueled Apple’s quarter (statement). Apple shipped 2,496,000 Macs in the quarter, up 41 percent in units from a year ago. Those results were also ahead of expectations. Apple’s Mac tally wasn’t totally unexpected given that the company has been picking up market share at a rapid clip. Indeed, Apple is the third largest PC vendor in the U.S., according to Gartner.

The company also sold a little more than 11 million iPods in the quarter, up 12 percent from a year ago. Apple moved 717,000 iPhones in the third quarter, up from 270,000 a year ago. Here’s how the figures stacked up against estimates from Piper Jaffray analyst Gene Munster. As you can see Apple topped most of its targets.

The catch: Apple issued a conservative outlook. In a statement, Apple CFO Peter Oppenheimer said the company will report earnings of about $1 a share on revenue of $7.8 billion for its fiscal fourth quarter. For the September quarter, Wall Street was expecting earnings of $1.24 a share.

However, I’d argue that Apple is low-balling estimates again. Munster provides Apple’s track record. The formula is to lower the bar and then hurdle it easily.

By the numbers:

• Apple’s research and development expenses for the September quarter were $292 million, up from $208 million a year ago.
• The company had $20.7 billion in cash, cash equivalents and short-term investments.
• iPhone and Apple TV deferred revenue in the third quarter was $4.06 billion, up from $2.24 billion in the September quarter a year ago.
• Revenue in the Americas was $3.43 billion in the third quarter, up from $2.68 billion a year ago. Europe revenue was $1.65 billion, up from $1.16 billion a year ago. Apple also got traction in Japan with revenue of $365 million, up from $258 million.
• Retail store revenue was $1.44 billion, up from $915 million a year ago.
• Portable revenue was $2.23 billion in the third quarter, up from $1.57 billion a year ago. Desktop revenue was $1.37 billion, up from $956 million a year ago.
• Other music related products and services (iTunes) had revenue of $819 million, up from $608 million a year ago, but off 7 percent sequentially.

Here’s the breakdown:

Update:

• In a call with analysts today, the company was asked about a New York Post report that questioned whether Steve Jobs was suffering complications from, or a reappearance of, the pancreatic cancer cured by surgery nearly four years ago. The response was simply: “Steve loves Apple. He serves as CEO at the pleasure of Apple’s board and has no plans to leave Apple. Steve’s health is a private matter.”
• AppleTV is still considered to be a “hobby” product and, while the company remains committed to it, it’s not considered to be as large as the mac or ipod businesses and does not have potential of the iPhone business.
• There were 11 new stores opened in the quarter, including Boston and a first in Australia, bringing the total to 216. The company said it is on track to bring that number to 242 by the end of the year. Apple store sales of Macs were up 44 percent over the previous year quarter and more than half of those sales were to first-time Mac owners.
• Apple sold its 1 millionth iPhone 3G within three days of its launch in 22 countries. By comparison, the company noted that it took 74 days to sell 1 million iPhones during the first launch and two years to see 1 million iPods. The company plans to launch in an additional 22 countries in August. The company said it’s confident in production and feels good about its supply. The demand for the new iPhone was “stunning” and demand is a very difficult thing to predict, the company said in response to questions about the launch problems earlier this month. It also re-confirmed its confidence in reaching its goal of 10 million iPhones in calendar year 2008.

Senior Editor Sam Diaz contributed to this entry.

Comments

[Toni +]

Wow ! Down 8% after hour. Better than expected.

I'm really happy, hope some idiot will comment negatively on Mr. Job's health tomorrow.

Maybe they can squeeze this abused stock a little more.

This is great.

[Toni +]

Q: What about Steve’s health? Sorry to ask, but would you address. Peter: Steve loves apple. He serves at the pleasure of the board and has no plans to leave Apple. His health is a private matter.

Oh gosh, this will help a lot tomorrow. Helping right now, I see.

This will be printed everywhere at libitum.

[Brandon]

I laugh, while Apple tumbles for no good reason at all due to obvious market manipulation by shorts, financials go up for no good reason because they can't be naked shorted. I'm not that worried because the fundamentals are good, but it sucks because I knew this would happen but I decided to stay long because I thought 3g Iphone demand would cause Apple to give decent guidance for a change.

Oh well, the stock will be back up at 180 within 2 months anyways.

[Murphy]

I'm going to scrape together whatever I can and add to my position as aapl tumbles over the next few weeks. Unless something concrete emerges about Jobs the stock will easily bounce back by Christmas - and surge past 200.

[iInvest]

I've been buying aapl for the past year, time to buy some more :o)

[iInvest]

Toni & will... Ever heard of buy LOW, sell Hi... :D

[MC Peter-D]

oops. "taking a hit"

[Camden]

Brandon,
Re: "Oh well, the stock will be back up at 180 within 2 months anyways."

I'm a AAPL bull like you. This company is on a roll. But times are tough and they DID lower '09 gross margins to 30%. GMs are likely going to be around 33-34% for all of '08. So investors will probably give AAPL a lowered PE as well. I wouldn't expect a rally any time soon (but a short-lived bounce from this sell-off IS likely).

------
Anyone see the hatchet job CNBC did on FAST MONEY? They totally mis-reported information about the CC. They saw a headline from the AP stating Jobs was not on the call and then ran with it, saying that he is normally on the call and it's not up to them to speculate why he wasn't today – then talked about his health problems. They should have know he hasn't been on the CC in years. Jim Goldman called in at the end of the show and explained that the situation making the host of the show look like a fool for his stupid reporting.

[MichaelComeau]

One thing I worry about is that the size of Apple's EPS beats seems to be diminishing a bit. Whatever, the momentum players are going to drag Apple out behind the bar and give it an ass whooping. I'd be in no hurry to get back in tomorrow morning.

[fatcat]

I will say again,AAPL 120 by november...nothing against the company,I really like everything about it...It's the market and the consumer.Walmart had a pretty nice Dell laptop for $350 this weekend,any Mac would be $900 more.People are being squeezed...they would rather have the Mac,but their checkbook says buy the Dell,and trade up to the Mac later,if they can.

With freshmen reporting to college next month that must have a laptop,the lowend machines will rule.Us guys here on this thread can afford a Mac,but you have to think about the masses...and Apple can't maintain their stock price on Iphones alone!

[TraderZ]

I have bought shares in the low 150s and will buy more tomorrow. I have yet to make a losing trade. I predicted this exacly on the other zach bass post that aapl woulf forecast $1 and stock would get to mid 150s.

way overdone here for a company that will earn $5.25+ a share this year.

[jmmx]

Can't wait to see what this new "product transition" is that they are working on! I don't think it is going to be tame if it is eating up so much of their margin.

hehehe

[BillFromHw2hBlog]

Market has to have to be conservative and have a show-me attitude, Apple is going to be down for sure, but could help lift the market in another three months if the overall economy improves and it beats, which is very likely. As I stated on my site, the market is still in the bottoming process.

[Charity]

I checked guidance going back to December 2006, and actual numbers kicked guidance's ass EVERY QUARTER.

They should open-source Apple TV, let some geeks tool around with it and make it into something decent. THEN sell it. :)