Some interesting tidbits Monday night on Apple’s (NASDAQ:AAPL) conversation with analysts following a strong fourth quarter earnings report and what some would say is an uncharacteristically ambitious forecast for the current quarter.
Outlandish Forecast! When
asked by one analyst how Apple could be confident in what seemed an
unusually aggressive forecast for $9.2 billion in sales in the first
quarter, this is what chief financial officer Peter Oppenheimer had to
I’d give you guidance each quarter that we believe we have a reasonable chance of achieving […] Apple has been working incredibly hard for a number of years and now things are just really coming together quite well for us and I couldn’t be happier. Apple is shipping the best products that we have ever made in our history. We just eclipsed the record that we set for Mac sales last quarter by $400,000. iPod sales accelerated after the transition and we’re shipping the best iPods that we’ve ever made. And the iPhone is doing really, really well. So we’re quite confident in the business and we’ve exited the September quarter with a lot of momentum.
- Mac sales: Apple set a new record for Mac sales with 2.16 million units sold, and, as in prior quarters, more than half the buyers in Apple’s retail stores were people who’d never owned a Mac before, Oppenheimer told analysts. As with most of the PC market, Apple saw stronger growth in notebooks than in desktops: Notebooks, which were 62% of all Macs, rose 37% year-over-year, compared to a quite respectable 31% for desktops, said Oppenheimer. Apple ended the quarter with “slightly less than three weeks of Mac inventory,” he said. Oppenheimer warned analysts that after a strong back-to-school business for Macs, the Mac business could be down a little bit in the December quarter, instead of roughly on par with September, as it usually is. The company had 230 Best Buy (NYSE:BBY) stores selling Macs at the end of September and expects that to rise to 270 this quarter.
- International: Sales in Asia-Pacific were the strongest of any region, rising 52%. Apple will open its first store in China next summer, in Beijing, said Oppenheimer. Japan is the company’s “most challenging market,” said Oppenheimer. Still, sales of the Mac in units were up 14% year-over-year, the best sales growth in the country in seven months, he said. Apple’s sales rose faster in Europe, overall, than in the U.S., observed one analysts. Mac unit sales rose 47% year over year. That was because “Europe did not have the typical lull in August that we have seen,” in part because of the new iPod and Mac introductions, chief operating officer Tim Cook said.
- iPhone, iPhone, iPhone: Tons of interesting tidbids here about the iPhone. The company remains “very confident” it will reach sales of 10 million phones in 2008, said Cook. He said that after Apple cut the price of the phone, perhaps as many at 250,000 phones out of the total 1.4 million sold to date were bought with the intention of unlocking the phone. Cook confirmed the company is working with online applications vendor Salesforce.com (NYSE:CRM) to make a version of its software that will work on the iPhone. When asked about whether small- and medium-sized businesses were using the iPhone, Cook replied that, “Clearly, there’s some businesses buying them and very much enjoying them.” I noted in my earlier post that iPod sales of 10.2 million units seemed low compared to some expectations for 11 million. When an analyst asked if there were signs of the iPhone cannibalizing the iPod, Tim Cook replied, “We saw no obvious cannibalization prior to the new iPod announcements. Post the new iPod announcements, we really don’t have enough data to comment yet.” Hmmm….
- Margins dipping a bit: Apple expects gross profit in the first quarter to fall from 33.6% of sales in the first quarter to 31%, because of product transitions and lower prices on things such as iPods, said Oppenheimer. I would note that that 31% is still above the average Street estimate for the quarter of 29.5% gross profit. Lower sales of the company’s iLife and iWork products in the quarter reduce gross margin, even though the company has started selling its “Leopard” operating system, which adds some margin strength. Part of this also has to do with component prices: Apple expects “favorable” pricing on DRAM and NAND flash memory chips this quarter, but pricing for hard disk drives and LCD panels is still tight right now, though it may “stabilize” later this quarter, the company said.
- Deferred revenue: Because Apple is only recording revenue from iPhones in increments over the two-year life of the phone contracts customers take with AT&T (NYSE:T), there’s an interesting break-down of recognized and deferred revenue. Apple’s “total revenue recognized during the quarter from sales of iPhones, iPhone accessories, and payments from AT&T was $118 million,” said Oppenheimer. The company’s deferred revenue for both the iPhone and for its AppleTV product stood at $636 million at the end of the quarter, up from $180 million at the end of June. Lots of future revenue piling up, which, I guess, is the idea. After giving rebates of $100 to iPhone owners last month, Apple is expecting all rebates to be redeemed by the end of December and is recording the cost of the rebates in its cost of goods sold, said Oppenheimer. When an analyst asked for clarity about the way Apple is deferring iPhone revenue, Oppenheimer declined to be specific about whether money paid to Apple from AT&T was being recognized by month or by quarter. “It’s being recognized over time, I’m not going to be more specific than that,” he said.
- Apple retail stores: Average revenue per Apple store in the quarter, across 190 stores counted, was $6.6 million, up from $5.6 million a year earlier. Over 31 million people came to the stores in the three months ended september, or 12,500 per week, said Oppenheimer.
- Education market picking up: Sales into education were the best in the company’s history, said Oppenheimer, with sales up 36% year-over-year.
- Oh, and taxes going up: Apple’s tax rate dipped to 27% in the September quarter, lower than analysts expected, and is projected to rise to 32% in the first quarter.