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Apple Confirms iPhones Targets, But Will Defer Some Hardware Numbers

Apr. 23, 2008 6:29 PM ETApple Inc. (AAPL)8 Comments
Eric Savitz profile picture
Eric Savitz

On the company’s post-earnings conference call, Apple (NASDAQ:AAPL) CFO Peter Oppenheimer said the company remains comfortable with its target of 10 million iPhones for calendar 2008.

The company expects gross margin in the June quarter to increase to 33% from 32.9% in the previous quarter. That reflects expectations of continued favorable component pricing.

Oppenheimer noted that revenue growth of 43% was more than twice the growth rate as last March. U.S. revenues grew 40% in the U.S., and 47% internationally. Retail store sales were up 74%.

Some other tidbits:

  • Apple store visits of 33.7 million was up 57% year over year. 50% of CPU buyers in the stores were new to the Mac. Education unit growth was up 35% year over year, the highest in the last eight year.
  • Macs were 59% of revenues. That is 3.5X the recent IDC estimate of PC sector growth. Recent quarters had been 2-3x the PC growth rate.
  • Desktops up 37%; portables up 61%.
  • Mac channel inventory is 3-4 weeks.
  • Expected iPhone to decline more on a sequential basis than it did, creating stock outs; channel and store inventories currently low. More phones being bought with intention of unlocking, which “remains a significant number,” according to COO Tim Cook.
  • U.S. MP3 revenue is 73%. Over 85% share of legally purchased downloaded music.
  • iPod channel inventory 4-6 weeks.
  • Deferred revenue now $1.93 billion, up from $1.44 billion at end of December.
  • Over 200,000 iPhone SDK kit downloads.
  • Will open 45 stores in 2008.
  • Tax rate in the quarter was 29%, below expected 32%, due to higher mix of foreign income. Will be 31% in second half.
  • Delaying start of revenue recognition of the iPhone for phones sold since the March 6 SDK launch event, announcing specific new features in iPhone 2.0 software. Will start resumption of recognition

This article was written by

Eric Savitz profile picture
Tech Trader Daily is a blog on technology investing written from Palo Alto, California by long-time Barron's West Coast Editor Eric J. Savitz. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Eric joined Barron's as a feature writer in New York in 1988, after four years at the Dow Jones news wires. In 1995, he moved to California as the magazine's first reporter in Silicon Valley, creating the Plugged In column. Eric left Barron's in 1998 to become executive editor of The Industry Standard. He rejoined Barron's in Palo Alto in late 2001. Eric also writes the monthly Tech File column for Smart Money magazine. Visit Tech Trader Daily (http://blogs.barrons.com/techtraderdaily/) and Barron's Online (http://online.barrons.com/).

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Comments (8)

If you're going to use an ugly slur like "camel jockey" you might as well at least spell it right. And making fun of "Mecca U." is cowardly crap. What do you know about higher education in the Middle East? Apparently nothing.

You raise a good point: sell-side analysts are for the most part garbage. They always hedge their bets, in case their predictions turn out to be wrong. Additionally, there are incredible conflicts of interest that many of the commenters here seem to be already be aware of. An important point though, is that while there is unlikely a conspiracy, the bulge brackets do make money off volatility, etc. Unfortunately, many smaller investors react to and trust their predictions too much. It becomes a self-fulfilling prophesy (at least in the short run). And like you said, our acknowledgment of and reactions to this situation exacerbate this to some degree.

In the end though, recognizing that the market is the way it is, we as shareholders need to react. Of course, I'm not happy that I have to adjust my position so much and so frequently (and carefully, given the recent fickleness). However, these days that's life as an AAPL shareholder, as I'm sure you're aware of. When the time comes that I can't handle the heat, I'll get out of the kitchen. A lot of the people on here bashed Shaw Wu when he downgraded, but a large part of that had to do with this situation - he didn't like the volatility, and that's a fair point when deciding whether to buy or sell. Of course, he hasn't been perfect in his predictions. Noone is. But as many of the great money managers (who actually have skin in the game, vs. most of these analysts) have said, you only need to be right 60% (obviously an arbitrary number, but you get the point) of the time to make serious money. The caveat is that you need to weigh your positions based on confidence levels - much like card counting in blackjack.

The ignorance and herd-behavior out there is terrible. Until that changes, I will continue to assume that the analysts are questionable, but too many people believe them - and I will adjust my positions accordingly.
The only thing left to say...is that when the financials lower there future earnings estimates every analyst sighs with relief that now we know the real truth...as opposed to Apple who seemingly provides accurate and acheivable financial goals and strives to surpass them...and even more discouraging are the analyst who pick one aspect of Apple's great product lineup and expect them all to act like rising stars when everyone who really knows business that "Cash Cows" like IPOD pay the bills...they overlook the "residue" business that keeps on paying both from deferred revenues and from the "iTune" store...or the overwhelming success of their retail outlets in the US...whereas all the other "high end" retailers including Starbucks whines about "customers" spending money on living...if you offer value the customers will support you... it all comes down to ethics...Apple appears to have...other companies don't and a fair number of the analyst appear to get paid to trash/manipulate the stock especially during earning report times...

I researched the last few earnins reports and the pattern is always the same...unfortunately I was not aware of this...I will be in the future like aapl shareholder above...
I know this sounds stupid (take a look at my handle), but the real thing is that the dumb money was looking for a GOOG +20% move and didn't get it....so they sell. I also trimmed position because I read some crazy rumors about $1.30 EPS which I just thought was unrealistic. Looks like AAPL will take a pounding tomorrow, but I'll hold and add on the weakness. I love these guys long term. It's truly sad when + 36% doesn't cut it and other get away with huge losses. I guess it's all about the pre-earnings run up. Oh well. Doesn't change my mind.
APPL Shareholder...

FWIW, I'm in for 1900 shares, just so you know.

You mention CONSENSUS ESTIMATES. Fair enough. Let's see, the "concensus" ranged from 94 c to 1.18c a range of 25%. Street average, 1.07. Now DURING THE LAST FEW MONTHS, and especially the last few days, I saw analysts who had EARLIER TRASHED the stock, quietly RAISE their estimates, WHILE AT THE SAME TIME, holding to the "worries" about the companies future growth.

Come on. How can you RAISE your estimate, and at the same time, DECLARE the company maybe, mightbe, shouldbe, couldbe....perhaps, even possibly in danger?

Now you sound rational. Great. But what did THEY force you to do? TRIM your position by 60% PRIOR to the numbers in a company that you KNEW was going to beat the numbers, right? So, their stupidity, caused YOU to sell, to protect yourself from the OTHER stupid analysts missing the REALITY, and you sell, triggering them to sell, triggering...etc, etc.

All on what basis?

Some twits in a cubicle that couldn't analyse the odds of picking up a one legged leper in a singles bar.

Again, I'm venting.

In THIS market, with the USA going into the shitter, Apple should SOAR on good news, not FALL LIKE A ROCK, and banks and financial firms should be shut down for gross incompetance.


I think the point that you're missing is that EPS came in lower than consensus estimates. To a great degree, the share price will reflect consensus (whether EPS, growth prospects, etc). This means that if investors go into earnings with certain expectations (which again, should be reflected in the share price), when Apple does not meet those expectations, it's obvious that there would and should be a correction in price.

I should note that I am a huge believer in Apple (and an shareholder). However, you have to realize that extremely high growth expectations are being priced into the stock. Just take a look at the ttm P/E ratio. I trimmed my position by over 60% ahead of these earnings for the very reason that it is often so difficult to meet street expectations (which again, are priced in).

In the end, Apple is an amazing company. I remain a believer in Apple's long terms prospects, but I will also continue to increase and decrease my position to take advantage of the spikes and avoid the selloffs.
Tan, your rant was eloquent, insightful and accurate IMO. Thanks!

Apple FAILS to make enough money to bail out ENTIRE US Banking System!

-->> DOWN 15%

As an aside, in a market where DAILY you are having the best and the brightest come in with a begging cup in hand, asking some camel jocky to come and bail them out, a guy with a community college degree from Mecca U, going in to SAVE the thousands of Haaavaaard MBA's, you have Apple, quietly taking on the best in the world, methodically beating them at their own games, some of which have been dominant for ages, and what does Wall Street focus in on?

THEY are not growing "fast enough" SMASH THE STOCK.

Profits up ONLY 37% SMASH THE STOCK.

Meanwhile, Bumpkin Bank with 1,000 worldwide offices reports they ONLY wrote down their ENTIRE CAPITAL BASE by 30% this *QUARTER* and relieved the stock RISES 5%.

At one point in my career, I harbored a lingering belief that underlying the games, there was ADAM SMITH's *INVISIBLE HAND* at work and ultimately that would come out. I no longer harbor those beliefs, a room full of monkeys with typewriters banging away at random, seems to be MORE LOGICAL than what I've observed in the past year in the financial markets.

And when you have the COMMIES IN CHINA, beating the pants off the CAPITALISTS in the USA consistantly, you REALLY have to stop and think. Is this bassakwards or what?

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