Apple posts nice Q1, but pessimistic on Q2
Updated at 3:45 p.m. PST following the conference call, with changes throughout.
Apple's first quarter hit on all cylinders, as the company continued its financial run on the strength of its Mac business. But anyone looking for reassurance about the overall health of the economy later this year didn't get it from Apple.
The company posted revenue Tuesday of $9.6 billion for its first fiscal quarter, which ended December 29. That's better than the $9.5 billion expected by financial analysts, and Apple also gave them good news with its earnings-per-share number of $1.76, better than expectations of $1.62 per share. That translates to net income of $1.6 billion, up 58 percent from last year.
Mac sales were up 44 percent compared with last year, as Apple continued its resurgence in personal computers. But investors will wonder if the iPod gravy train is coming to an end, as Apple's iPod sales of 22.1 million iPods was well below Wall Street expectations of 24.7 million. That's just 5 percent unit growth compared with last year, but iPod revenue was up 17 percent, so perhaps Apple sold more high-end iPod Touches than iPod Nanos or Shuffles as a percentage of its mix during the quarter.
Apple executives supported that argument during a conference call with financial analysts after the release of the company's earnings. Apple gained iPod share internationally, but iPod units sales in the U.S. were flat, said Tim Cook, Apple's chief operating officer.
While not specifically addressing the missed Wall Street target for iPod unit sales, Cook did say that iPod unit sales met the company's own expectations. And the iPod Touch is off to a good start, he said, which accounted for overall iPod revenue growth that matched last year's first-quarter revenue growth.
"This was the most expensive iPod we've introduced in some time," said Peter Oppenheimer, Apple's CFO. The company thinks the iPod Touch really belongs in a different category than the broader music player market, saying the iPod Touch has a chance to "become the first mainstream mobile Wi-Fi platform." Nintendo and Sony might have minor quibbles with that statement, but Oppenheimer's point was that you can't necessarily use years of iPod sales to chart the progress of the iPod Touch.
On the Mac front, Apple enjoyed another spectacular quarter, with Mac unit growth of 44 percent and revenue growth of 47 percent compared with last year. "The Mac business is on fire," Cook said, and the increases were led primarily by the new iMac desktops Apple introduced last August. Apple estimates that 19 percent of the Mac installed base is running Leopard, Mac OS X 10.5, and Leopard generated $170 million in revenue for Apple during the first quarter it went on sale, compared with the $100 million that Tiger, Mac OS X 10.4, generated for Apple in 2005.
CEO Steve Jobs already tipped the company's hand on iPhone shipments at Macworld, noting that Apple had sold 4 million iPhones as of his keynote speech. Apple sold 2.3 million iPhones during its first quarter, and Cook reiterated Apple's goal of shipping 10 million units during 2008.
In other business, Apple plans to double the number of Best Buy stores that are selling Macs within the next six months, going past an analyst prediction earlier this month that it would pull that off by early 2009. Apple sold 504,000 Macs through its own retail stores, up 64 percent from last year's first quarter, and just like last quarter, 50 percent of those buyers were new to the Mac, Cook said.
All in all, it adds up to a very solid first quarter for Apple. Even the disappointing iPod sales sold had a silver lining, since Apple took in 17 percent more revenue on only 5 percent unit growth. But the guidance will not help assuage a shaky stock market.
Apple is notorious for providing conservative guidance below Wall Street's expectations, but it guided well below expectations with predictions of $6.8 billion and 94 cents a share. Lots of companies would kill for that kind of performance, but Wall Street wanted more of Apple, with expectations of $7 billion in revenue and earnings per share of $1.09.
Analysts asked several times whether Apple foresaw a slower second quarter based on the economic environment, and perhaps wisely, Oppenheimer declined to attach his name to a negative forecast that could send stocks plunging Wednesday.
"We'll leave the economic forecasting to others. I am confident in our business, our strategy, and our products," Oppenheimer said. He may be right to be confident, but if average consumers pull back substantially on their spending, we're all going to feel it. Apple shares fell 11 percent in after-hours trading.
Tom Krazit writes about the ever-expanding world of Internet search, including Google, Yahoo, online advertising, and portals, as well as the evolution of mobile computing. He has written about traditional PC companies, chip manufacturers, and mobile computers, spending the last three years covering Apple. E-mail Tom. 
in the history of the company. Apple has about $18 billion in cash
in the bank. The whole country is panicking about a possible
recession and the stock market is tanking.
Yep, I'd say Apple is officially a beleaguered company once again.
Let's start the death-spiral countdown clock again shall we.
come with an FM tuner. :)
From the article:
"[i]Despite the hubbub over Vista's features, revenue inched just 15% higher in fiscal 2007. The company is guiding investors to expect a 15% to 17% advance this fiscal year. Then that's all she wrote -- make that all she coded -- for Microsoft. Analysts expect the top line to inch just 10% higher next year."[/i]
...and yet MSFT gets rewarded by Wall Street.
Meanwhile, we have Apple kicking arse and playing it safe in their predictions (only roughly twice the percentage rate of growth that MSFT is predicting), but they get punished for it.
Ain't that just a kick in the pants?
Personally, I'll put money on Apple... they have the brighter future of the two corps.
/P
right? :)
The stock market does look scary right now. Apple is covering their butts with the second
quarter predictions. It's hard to believe so many people are freaking out this bad though. Of
course the quarter after Christmas is going to be slower. That goes without saying, but aapl
at $137 in after hours trading? Down $60 in a month when the company is looking the best it
has ever looked?
I guess it makes sense. I wish I would have sold at $200 so I could pick it up again now at a
bargain.
cynical, bleak, fatalistic, dark, despairing, despondent,
depressed, hopeless.
That's not what I got at all. Their numbers are always down
from Quarter 1 to Quarter 2. Note: Q1 = Christmas. In the last
two years their revenue has dropped 73% and 75% between from
Q1 to Q2. This year they are projecting 70%.
Their products set the standard in their categories. They have
entered established markets and eaten everyone else's lunch.
They are poised to do amazing things in mobile computing.
Pessimistic hardly seems like the right word.
Q2 revenues...
The thing is how long can they continue to release products that no one exceeds?
Even the legendary quality advantage of Toyota is getting narrower and narrower compared to American cars, and that was a huge gap at one point.
It's hard to imaging it could last another 20 years.
are in place.
That's how-
The Mac hardware is superior to most. Not necessarily all -- but most PCs I've had the pleasure or displeasure of owning. Alienware -- maybe, but I'm not a gamer or looking for neon accent lighting in my computer.
The Mac OS continues to prove its resiliance. Far less concern about security. Not bulletproof as shown by even Mac morons that download sketchy sw, but there's morons under any rock. And many orders of magnitude less threats overall.
Yes, the WinFanBois will wet themselves thinking a Mac might suck -- but they generally are speaking from a lack of experience. The MacFanBois -- they do have better kit, but it's just a freakin' adding machine. Pity one has to tear down anything good in this culture of cynics. The Mac is overall a better experience - and Apple will just have to live through another 20 years of dire predictions about their fate, eh?
apple tries to follow. This is why they can continue to be
successful.
Rompstar - Romberry x Peak19 x Trainwreck x SweetTooth
lol
that growth.
If the market thinks (steadily growing, cash-rich and debt-free) Apple should be downgraded, what will they think about the others? Especially those with major problems like Sprint, Motorola, Palm. 2008 looks bloody for Tech stocks.
technical damage to lot of good stocks like AAPL, INTC is not fair!
Motorola - bad bad earnings
Microsoft - earnings up - outlook good
Let's be sure to also point out that Apple's iPod sales of "only" 22.1 million was "disappointing" and downplay the fact that iPod revenue was actually UP by 17 percent. Somehow this is a bad thing. It would be better, I guess, to have to sell more units to make less money.
As a Mac and iPhone user, I'm plenty happy with Apple. And as an Apple investor who bought at under $30 BEFORE THE SPLIT, I'm plenty happy as well.
Recession is happening due to media not because of bad economy.
BAN all the news about recession and ban CNBC for 3 months. Economy will be back to normal...
If we want a stimulus package that will work, We need some kind of a federal matching fund for people who pay off debt. If your minimum payment on your credit card is $100 and you pay $600 the government matches your payment by $500. Matching should be even better (x1.2?) for mortgages.
I don't like the idea of adding to the national debt, however this would trade $1 of national debt for reducing $2 or more of American debt.
Right now, Apple stock is down 18%, for today alone. In contrast, Microsoft stock is "only" down 2% for the day. (Source: Bloomberg.)
The only problem I have with Apple is the P/E ratio (Not that bad) and the fact that it does not pay a dividend.
R&D = 246 mil
Marketing = 960 mil
In all honesty, they have some nice ads. Apparently they have nearly a billion dollars worth of ads.
http://www.sec.gov/Archives/edgar/data/320193/000119312508009715/0001193125-08-009715.txt
When they do make hardware they do a darn good job of it - see Xbox 360 (version 2 xbox) has been clubbing the competition pretty well since its release.
Apple's number one application by a secondary vendor... guess what it is? No - it's not Open Office - it's Microsoft Office. Microsoft is kicking ass and taking names in the corporate sector - stealing away business from the likes of IBM and Oracle as they shuffle out low cost software.
Sorry man - your comments just don't make any sense.
- New information about future Apple technology.
- by ralfthedog January 25, 2008 12:22 AM PST
- I have just found out from an inside source that the next version of the iPhone will incorporate anti positron technology. This is a very reliable source and I am 100% sure that it is true.
- Like this Reply to this comment
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