Apple Mac Sales Soar, iPhone Misses
Courtesy of Dan Frommer at Clusterstock
Apple threw us a curveball today: The company reported results in GAAP format, reflecting an accounting change that means they no longer have to distribute iPhone revenue and earnings over 24 months.
Unfortunately, that means Apple’s GAAP results don’t match up with non-GAAP estimates. So analysts are going to have to tweak their models.
As expected, the Mac had a monster quarter. Apple reported 3.36 million Mac shipments, higher than the Street expected. But the iPhone was relatively weak: Apple only shipped 8.7 million iPhones, lower than the 9.1 million Street consensus.
Steve Jobs also touted the Apple tablet in the earnings release: "The new products we are planning to release this year are very strong, starting this week with a major new product that we’re really excited about."
Shares resumed trading at 4:55 and were immediately down about 1%. But now it seems to be creeping upwards.
Join us for LIVE coverage of the company’s conference call, beginning at 5:00 p.m. ET. Click here for the latest.
Key stats:
- GAAP Revenue: $15.7 billion
- GAAP EPS: $3.67
- Macs: 3.4 million vs. 3.0 million consensus
- iPhones: 8.7 million vs. 9.1 million consensus
- iPod: 21 million vs. 21.0 million consensus
- Gross margin: 40.9%
- Guidance (Rev.): $11.0 billion to $11.4 billion
- Guidance (EPS): $2.06 to $2.18
LIVE Conference call coverage: (refresh for the latest)
4:52 Waiting for call to begin..
5:04 Call begins. Opening remarks from IR boss.
5:04 COO Tim Cook, CFO Oppenheimer on the call. No Steve Jobs. (Jobs not expected.)
5:05 Oppenheimer: We’re thrilled to report our best quarter ever! New records for Macs and iPhones. All historical comps busted because of new accounting rules. Peter will explain in detail coming up. Now going over results from release.
5:07 Record Mac sales of 3.36 million, beating by over 300,000. Up 33% year-over-year. Compares extremely favorable to ICD’s 17% year-over-year growth for the market. iMac especially huge.
5:08 New records for K-12 and High ed for Dec. quarter.
5:08 Traditional iPods declined, but 55% y/y increase in iPod touch, sending up ASP and revenue.
5:09 Strong sales of music, video, and apps drove up iTunes sales. Features over 8,000 films, 2,000 HD. App Store more than 3 billion downloads to date in 77 countries. 4-6 weeks of iPod channel inventory on look-forward basis.
5:10 Thrilled to have sold over 8.7 milion iPhones. Compares extremely favorable to 35% year-over-year growth of smartphone market via Canalys. ASP of about $620. (Wowza.)
5:11 Business customers rank iPhone #1 in JD Power survey for second year in a row.
5:12 Retail: 689,000 Macs sold in Apple retail stores. 283 stores in 10 countries. Completed 32 store remodel projects, bringing to 100 in year. Avg rev per store $7.1 million, vs. $7 million year-ago. Record 50.9 million visitors, 46.7 million a year ago.
5:13 Opening 40-50 stores, at least half of which outside U.S.
5:14 Now talking about accounting techniques via FASB. Elected to adopt new principles on a retrospective basis in the December quarter. Retrospectively adopted the new principles as if they had applied in all prior periods. We believe this provides the most comparable and useful financial information.
5:16 Have to estimate the value of future upgrades. Estimating $25 per iPhone, $10 per Apple TV. Difference between sales price and upgrade right is recognized as revenue immediately.
5:19 Expecting GMs around 39% for next quarter.
5:20 Incredibly excited about new-product pipeline. And now it’s time for the Q&A.
5:21 Gene Munster: Any reason to think Mac growth rate won’t continue in current range? Tim Cook: We’re thrilled to see Mac at 33% growth rate. It’s about 2x the market. I wouldn’t want to predict what will occur in the future; we don’t do that other than to give guidance. Some of the markets that we’re in, the Mac growth was spectacular. Italy, France, Switzerland and Spain all grew at 40% and higher. Australia 70%, China almost 100%. There’s some markets out there that we’re doing extremely well in. We’ll just have to see how it takes us.
5:22 Regarding AT&T, obviously a lot of bad press, impacts your brand. Remind us what benefits of sticking with single carrier in US are? Tim Cook: First of all, AT&T is a great partner. Working with them since well before the first iPhone to get it out. More mobile broadband usage than anywhere in the world; vast majority, iPhone users having great experience. AT&T has acknowledged having some issues in a few cities. We have personally reviewed these plans and have very high confidence that they’ll make significant progress toward fixing them.
5:24 Sense of the puts and takes on gross margin during the December quarter? As you know, we’re reporting our results for the December quarter under the new accounting principles. Not comparable. Let me try and help. First, with revenue: Actual revenue of $15.68 billion exceeded guidance under old principles. Roughly half of the "beat" vs. old guidance was the performance of the business, the other half was the accounting change.
5:26 Higher component charges and other costs in March quarter. Seasonal decline in revenue. Not as much leverage on fixed costs. Finally, the US dollar has strengthened, having an impact as well.
5:27 Which component costs up? This quarter as opposed to last quarter: DRAM market constrained, expect prices to go up sequentially. Other commodities that caused prices to fall last year, more in a supply-demand balance. 3.5-inch drive will be supply constrained.
5:28 Guidance include unannounced products? Alluding to event on Wednesday? I don’t have anything to share with you today, so please stay tuned.
5:29 2.7 million iPhone units in the channel, includes demos and in-transit inventory. We probably count that as more conservative manner than others might. For Mac, sequential decline. For iPod, certainly the same. Given expectations that iPod sales will decrease over time, sequential decline may be bigger than in other years. Given that Dec. quarter ended after Christmas, would expect to see a sequential decline for iPhone, too.
5:32 Given the visibility of China, I’ll do so. We started selling in China at end of October, beginning of November. Earlier this month, cumulatively activated 200,000 units. We ramped the point of sales across period of time to end at about 1,500 at end of quarter. Very focused on quality of POS and customer experience. Would prefer to move slow because we’re building the brand for the long term, focused on the long term for that market. Wouldn’t want to forecast where sales may go, thrilled where underway.
5:33 Can you comment on comfort level with channel inventory. I know you were kind of below where you want inventory to be for iPhone? Tim Cook: Grew by about 230,000 from beginning to end of quarter. We are completely comfortable with it.
5:34 Obviously had expension in the quarter with carriers; also launched some larger countries like China and Korea and really needed more inventory than we started with.
5:35 Any update on litigation? Anything? Long standing practice of not commenting on pending litigation.
5:36 iPhone app approval process has come under lots of heat. Is problem the model itself where Apple acts as the gatekeeper, or the implementation? Any feedback from iPhone owners who shop at the store? Would they prefer an alternative. Tim Cook: I think it’s important to keep this in some perspective. Over 100k in the store, over 90% have been approved within 14 days. We created process to make sure it protected consumer privacy, safeguard children, avoid apps that degrade core experience of the phone. Some times of apps are rejected outright, some things like graphic combat scenes may be accepted with some warnings. Most of rejections are bugs in the apps themselves. I think what you have here is something that the noise on it may be occasionally much higher than the reality. I think this is pretty good. Any feedback from iPhone owners? Are they comfortable? I have not, and I don’t see it in the research.
5:39 "Wouldn’t want to take away your joy of surprise for Wednesday" when you see our latest creation. How about help on seeing things from an investor point of view? Stay tuned!
5:41 Re: China. We’ve just started. Although average income is not nearly as high as US or Western Europe, there is a significant sized middle class and up there. I think think it’s somewhat… to do a deep analysis, look at distribution in these countries. Have been selling in Brazil for a while, have been learning. Different because duties and taxes are very significant. But very focused on these markets. If you look at greater China, our revenues tripled year-over-year in that geo. Phenomenal. 58% of revs outside US last quarter.
5:43 App store: What you’re hearing from devs and customers. Paid vs. free? For competitive reasons, we don’t want to share the answers. It’s for competitive reasons. What I will share with you is that we are way ahead of our competitors.
5:46 Early to comment on iPhone halo effect to the Mac. But lots of big companies testing iPhone.
5:47 In countries we’ve gone away from exclusivity, is that sales are largely incremental as we add carriers. Have added in UK, added carriers in France. Added carriers in Scandinavian countries and seen market share increases. Think we’ll see the same for Canada. However, we’ve also selected in most cases countries we thought that would happen in. I don’t want to imply that would happen in every market or that we’re headed that way in every market.
5:49 Acquisitions given LaLa and Quattro… what can we expect? We acquired Quattro because we wanted to offer a seamless way for our developers to make more money on their apps, especially free apps. We occasionally acquire small companies for their technology and talent. That’s why we do it.
5:52 Running app store/iTunes near breakeven, just as always. Some fixed costs, but variable costs high, and investing a lot in these stores.
5:55 iPhone a "runaway hit" in Japan, up over 400% year-over-year in the quarter. Mac growth is above market but we believe we can do better.
5:58 Oppenheimer: I think mobile advertising is in our infancy, with great folks from Quattro who we acquired, looking forward to great product for developers. I honestly don’t know if it’s going to be huge.
6:02 Call winds to a close.
Preview: While investors will obviously be paying attention to the company’s iPhone and Mac numbers, they’re also going to be eagerly listening for clues about Apple’s next gadget: A tablet computer, expected to be unveiled Wednesday at an event in San Francisco.
Today, Apple’s execs will be predictably tight lipped about the product or any features, and could be completely mute, dismissing any questions about the tablet as "rumors." But it’s possible we’ll be able to read between the lines for information about when a new product might go on sale, how it might impact short- and long-term revenues and gross margins, etc.
Meanwhile, the Street is expecting another blowout Christmas quarter and already knows Apple offers "comically conservative" guidance. But any show of weakness last quarter — or especially low guidance — could hurt the stock, because everyone is expecting a slam dunk.
But by the end of the week, we expect more activity around the prospects that a tablet computer could lead analysts to raise long-term estimates (and by how much).
Bonus: 20 guesses about what the Apple tablet will look like >
Photo: Nick Ogawa
