Once again on Wednesday, Apple reported excellent earnings.

Though most of the reaction was positive, some expressed concern over whether Apple’s good fortunes will prove sustainable in a challenging U.S. economy. It strikes me Apple has just proved its powerful brand can keep drawing consumer’s cash even in a souring economy.

Apple could not have done much better in the March quarter, the best 2Q in company history. Revenue hit $7.51 billion, representing 43 percent growth year over year. Apple made a $1.05 billion profit, increasing its cash stash to $19.4 billion. Every operating segment did well, led by extraordinary growth in Mac sales.

Apple’s conservative guidance for the June quarter did generate some hand wringing among analysts, particularly the bit about Apple’s gross margins hovering around 33 percent.

I don’t see much of a problem here. Even if Apple just barely makes its numbers, the June quarter will be far from a disaster. Apple Chief Financial Officer Peter Oppenheimer said the company expects revenue of $7.2 billion – a 33 percent year over year increase. He estimates earnings per share at about $1.00, which translates to about $900 million in profits.

Of course, Apple always lowballs its guidance to make it easier to exceed the numbers.

In a MarketWatch story yesterday BMO Capital Markets analyst Keith Bachman pointed out that over the past three years Apple has predicted an 18 percent drop from 2Q earnings, but in fact reported gains averaging 10 percent in the June quarter.

If Apple follows this historical pattern, it will earn about $8.25 billion in revenue and $1.15 billion in profits. Not bad in a struggling economy.

Now let’s take a look at Apple’s 2Q report segment by segment:

The Mac: Three words: growth, growth, growth. Desktop sales were up 37 percent, powered by strong iMac sales and a refresh of the Mac Pro. Laptop sales were up 61 percent, helped by the new MacBook Air and a refresh of the MacBook and MacBook Pro lines. Apple shipped a total of 2.29 million Macs in the quarter, a prodigious 51 percent increase year over year.

Oppenheimer noted in his remarks that Mac sales grew 3.5 times faster than the overall PC market growth rate. He also said Apple’s U.S. education business increased 35 percent year over year, “its highest growth rate in any quarter in the last eight years.”

And the Mac’s strength extended beyond U.S. borders. Apple Chief Operating Officer Tim Cook said sales in the Americas were up 52 percent year over year; in Europe up 48 percent; and in Japan up 47 percent.

Each of the past several quarters has set some sort of record for Mac sales. I see this trend continuing for quite some time.

The iPod: Sales of the iPod increased only 1 percent year over year to 10.6 million units. Many observers interpreted the small increase as a “maturation” of the MP3 player market and a sign that Apple can no longer expect much growth in this segment.

But mere units sales of iPods doesn’t tell the whole story. Revenue from the iPod increased 8 percent because many of those sold were more expensive iPod Touches. And let’s not forget the 1.7 million iPhones – they also serve as fancy iPods.

In any case, Apple has retained its market dominance in this space, holding 73 percent of the MP3 player market in the U.S.

Meanwhile, Oppenheimer said the iTunes Store holds 85 percent of the legal download market, hinting that rivals such as Amazon have not proven as formidable a threat as once feared.

The iPhone: On the one hand, the 1.7 million iPhones Apple sold exceeded the company’s expectations, leading to shortages in some areas. But unless the pace picks up significantly, Apple can’t meet its target of selling 10 million iPhones in 2008. At the 2Q rate, Apple would sell 6.8 million iPhones by year’s end.

With the iPhone 2.0 software due out in June – near the end of the next quarter – and widespread anticipation of a 3G iPhone in the same time frame, one would expect diminished iPhones sales in 3Q while customers await the new goodies.

Yet in his remarks Oppenheimer reiterated the 10-million iPhone goal for 2008. Apple rarely lets its expectations get too far out of line with reality, so I’m guessing it’s figuring on several factors to alter the equation.

The factors that could hamper sales in the coming quarter will accelerate them in the second half of the year. Beyond that, Apple will continue to introduce the iPhone into new international markets throughout 2008.

Will it be enough to hit 10 million units by December? Apple must think so.

Apple Retail: The performance of Apple’s retail stores has gotten scant mention, but this segment continues to amaze. Revenue from the stores grew 74 percent year over year. Sales of Macs in the stores rose 67 percent. Operating profit doubled.

Apple continues to expand the chain, adding four more stores for a total of 208, including 15 in the United Kingdom. Oppenheimer said Apple plans to open its first stores in Australia, China and Switzerland in the next few months. Overall, Apple expects to add 45 more stores in 2008.

Oppenheimer as usual noted that half of the stores’ computer sales were to customers “new to the Mac,” a statistic that makes more sense now that Mac sales are exploding.

Posted by David Zeiler at 12:36 PM | Permalink | Comments (6)
                    

Over the past month investors have reconsidered the selloff in Apple stock that took place in January and February, when AAPL fell nearly $80 from a close of $198.08 on Dec. 31 to $119.15 on Feb. 26.

Helped along by a 228-point rally on Wall Street today, AAPL picked up another $6.55 to close at $161.04, its first close over $160 since Jan. 18.

Concerns earlier this year about slowing iPhone and iPod sales spooked some investors into selling AAPL, but those investors forgot about the Mac. Even back in January when the stock was getting pummeled, both Apple and several of the analysts who follow the company predicted continuing growth in Mac sales.

Sure enough, when research firms Gartner and IDC released their first-quarter reports on PC market share, the Mac’s stellar showing stole the spotlight.

Gartner says Mac shipments increased 32.5 percent, from 762,000 to 1 million units, compared to the same quarter a year ago. According to Gartner Apple snared 6.6 percent of the U.S. PC market compared to 5.2 percent in the first quarter of 2007.

Compared with Gartner’s 2006 numbers, the Mac’s growth trend is even more dramatic. Apple had 4 percent of the market in the first quarter of 2006. Mac unit shipments are up 440,000 from the same period of 2006, a 77 percent increase.

Meanwhile IDC’s data shows Apple with a 6 percent share of the U.S. market in the first quarter, compared to 4.9 percent in 1Q 2007, with unit shipments growing 25.1 percent to 950,000.

It should be noted that Apple’s relative market share changes seasonally. For instance, back in the third quarter of 2007 Gartner reported Apple with 8.1 percent of the U.S. market. But the year-over year increase in units shipped grew at a similar pace, 37.2 percent.

The one consistent element to every research report on the PC market I’ve seen in the past year is that the number of Macs shipped keeps increasing year over year, as does its market share.

When Apple reports its first quarter earnings this coming Wednesday, we’ll find out the truth about iPod and iPhone sales (I suspect the concerns of January will prove unwarranted), and we should get confirmation on the Mac’s soaring numbers.

If it turns out Apple’s core businesses with the Mac, iPhone and Pod continued to do well despite reduced consumer spending and recession worries, expect to see AAPL continue its climb upward.

Jason Schwartz predicted today in a post on the Seeking Alpha site that AAPL could hit $300 in 2009 on Mac sales alone, but gives plenty of reasons why he thinks the company’s other businesses will thrive as well.

While $300 a share might sound crazy, Apple has a long history of transforming the improbable into reality. It wouldn’t surprise me.

Posted by David Zeiler at 5:17 PM | Permalink | Comments (4)
                    

Apple reported another record quarter yesterday, posting impressive numbers once again. But with expectations running even higher (not to mention a stock market getting bruised by fears of a recession), investors sent AAPL shares tumbling.

Once again, Apple shipped the most Macs ever in one quarter: 2.32 million, 7 percent increase over the previous quarter and a 38 percent increase year-over year. The surprise here was that desktop sales increased 20 percent from the previous quarter, while laptop sales were flat. Year-over-year, laptop sales rose 38 percent and desktops a hefty 53 percent.

Apple Chief Financial Officer Peter Oppenheimer said the Mac desktop rate of growth was over five times that projected for the overall PC desktop market (estimated at 10 percent in the most recent IDC figures). He attributed the desktop gains to the popularity of revamped iMac models released in August.

Investors had no gripes with the Mac’s performance, but deflated by the iPod’s. Though iPod sales rose to 22.1 million, an increase of 5 percent from last year, many analysts had estimated sales closer to 25 million.

Meanwhile, the iPhone sold 2.3 million units. So far it appears sales of the most hyped product of 2007 have not slowed. Oppenheimer said during the earnings conference call with analysts that Apple is “confident in our goal for 10 million for calendar 2008.”

In his Macworld keynote Jan. 15, Steve Jobs said that 4 million iPhones had been sold to date, Oppenheimer noted, which included 3.7 million sold through the end of December. That means Apple sold 300,000 iPhones over the first two weeks of January – not bad post-holiday sales for a pricey consumer electronics device.

Overall Apple exceeded its own forecasts by earning $1.76 a share with profits of $1.58 billion on revenue of $9.6 billion. Though this beat the analysts’ consensus earnings estimate of $1.62 a share on revenue of $9.47 billion, most expected much better results. In the often-wacky world of Wall Street, that means Apple’s earnings are a disappointment.

On top of that Oppenheimer offered lower than anticipated guidance for next quarter’s earnings, further feeding the concerns of already jittery investors. Never mind that Apple is projecting revenue growth of 29 percent year-over-year. After watching AAPL get pummeled last week following the absence of an iPhone-caliber product at the Macworld show, it took only a whiff of negativity to launch a fresh wave of selling.

After shedding $5.72 during regular trading yesterday, AAPL dropped another $17.71 in after hours trading, putting it at $137.93, a 23 percent fall from its December high of $202.96.

Apple’s biggest problem now is the perception that the prospect of imminent economic trouble here in the U.S. and throughout the world will mean slower sales in 2008. Oppenheimer declined to address the issue directly during the conference call, but it could put a drag on Apple’s fortunes this year.

Still, there’s this tidbit of good news: between the boffo profits and other cash generating operations, grew its cash stash by $3 billion, to a phenomenal $18.4 billion. That’s one heckuva rainy day fund.

UPDATE: The selloff continues; as of noon AAPL was down about $26, a 17 percent drop from the previous day's close, leaving the stock under $130. It's getting nasty.

Posted by David Zeiler at 4:24 AM | Permalink | Comments (0)
                    

Apple stock got hammered Friday losing $14.88, or 7.6 percent in a session that saw the Dow lose 256 points and the Nasdaq 98.

While the bad day on Wall Street didn’t help matters, apparently the AAPL sell off was precipitated when J.P. Morgan analyst Christopher Danely lowered his rating on Intel from overweight to neutral. Danely said channel checks indicated Intel had a slowdown in orders in the fourth quarter of 2007.

Two days earlier Bank of America Securities also downgraded Intel for similar reasons. Intel’s stock lost $2, or 8.1 percent Friday after the one-two punch.

Wall Street interpreted Intel’s possible problems as a harbinger of trouble for the PC industry and punished PC makers accordingly. In addition to AAPL’s losses, Dell shares shed 6.8 percent and Hewlett Packard dropped 5.6 percent.

While I won’t dispute the analysts’ contention that Intel’s business could be slowing heading into 2008, I’m not so sure sales of Macs will suffer. Mac sales have been rising steadily for two years, and with fresh product announcements less than two weeks away at the Macworld show, I’d be surprised to see that trend change.

And it should be noted that even if Mac sales do turn out to be weaker in the first quarter of 2008, Apple has two other strong core businesses in the iPod and iPhone. Just a few weeks ago UBS analyst Ben Reitzes raised his price target on AAPL from $220 to $235.

Wall Street should know better by now than to lump Apple in with the other PC makers. When less reactionary investors see AAPL trading at $180.05, two words will come to mind: buying opportunity.

Posted by David Zeiler at 7:17 PM | Permalink | Comments (3)
                    

Three –count them – three investment research firms have concluded this week that Apple faring very well during this holiday shopping season.

This comes as no surprise to those of us who have watched Apple prepare for a very merry Christmas by unleashing the iPhone in June, new iMacs in August, new iPods in September and a new version of Mac OS X, Leopard, in October.

But let’s hear what the experts have to say.

First, Shaw Wu of American Technology Research: “Well, it’s looking like Apple’s most optimistic guidance in eight quarters is turning out to be conservative after all,” the analyst wrote in a report released Wednesday. “Back in October, we had concerns that Apple might have been too aggressive in its outlook, but our recent checks with supply chain sources lead us to believe it is positioned to deliver upside.”

Wu cited strong iPod sales, predicting 25 million units sold, and strong Mac sales, predicting 2.3 million “driven by Mac OS X Leopard and switchers.” However, Wu did foresee iPhone sales falling “slightly below” expectations.

Next up, we have Mike Abramsky of RBC Capital. Abramsky sees “a massive Mac Christmas quarter” with shipments of 2.4 million units. That would break the record for Mac sales in a quarter. For calendar year 2008, Abramsky envisions a boost in the Mac’s U.S. market share to 9.3 percent from 7.2 percent and global share to 3.7 percent from 3.1 percent.

Finally, Bear Stearns analysts Andrew Neff, Bill Hand and Ted Chung sent a note to clients Thursday raising its AAPL stock price target for 2008 from $243 to $249. The team based its optimism on “favorable feedback from retail channel checks (strength in notebooks, higher iPod sales), feedback from Asia checks (which indicate sequential uptick in Mac units vs. guidance for sequential decline) and strong acceptance of the new Leopard OS.”

As for the Christmas, they see the company “well-positioned for the holidays given the confluence of product cycles for Mac (new Mac, low channel inventory, Leopard OS, Best Buy store expansion) and iPod (strong new product acceptance).

In 2008, Bear Stearns sees the Macworld show in January setting the tone for the year (as it often does): “While we’re encouraged by AAPL’s evolution into a company with multiple growth engines – including our thesis that iPhone is emerging as a personal digital lifestyle device and view that video could be the next big driver – we note that AAPL will need incremental products (e.g., 3G iPhone, ultraportable Mac, other products TBA) in early “08 to buck seasonality issues.”

Not coincidentally, a new subnotebook and a 3G iPhone have been two of the hottest Macworld-related rumors on the Web in recent weeks. Jim Goldman of CNBC gave both rumors a major boost on Thursday when he reported that a “source close to some of the Asian manufacturers partnering with Apple Inc.” had confirmed the subnotebook for Macworld and the 3G iPhone by June.

Following this onslaught of positive reports (and a decent week on Wall Street), AAPL rose $12.08 for the week, closing at an all-time high of $194.30.

As great as 2007 has been for Apple, is it possible that 2008 will be even better?

Posted by David Zeiler at 6:27 PM | Permalink | Comments (2)
                    

Apple made the list because it sells Hannah Montana videos, TV episodes and albums through the iTunes Store. But Tribune?

According to the Stockpickr.com site, Hannah Montana is filmed at Tribune Co. Studios at KTLA Channel 5 in Los Angeles. I had no inkling that I worked for a company associated with such greatness.

The other companies on the list are: Disney (for obvious reasons); Nintendo (for its Hannah video games); Time Warner (for its coverage of the show in People and Time magazines); CBRL Group (because Cracker Barrel is one of Miley Cyrus’s favorite restaurants); Yum! Brands (Long John Silver’s is Miley’s other favorite restaurant); Vivendi (because Billy Ray Cyrus, Miley’s father in real life and on the show, has written songs for Universal Music Group that have been used on the show); Warner Music Group (same reason as Vivendi); and JAKKS Pacific (it distributes Hannah-themed toys).

Full disclosure: Having a young daughter has resulted in my own frequent exposure to Hannah Montana TV episodes and songs. I’m a fan, too.

Posted by David Zeiler at 12:28 PM | Permalink | Comments (14)
                    

By now anyone reading this will know that Apple reported another blockbuster quarter yesterday. I listened to the conference call last night and heard a number of tidbits neglected in many news stories. But before I give you those, here’s a summary of the results and my thoughts on what they mean:

Apple did not set an all-time record for quarterly earnings but did break its record for the September quarter by raking in $6.2 billion in revenue for a profit of $904 million. The profit was a whopping 67 percent year-over-year increase and far exceeded analyst predictions ($1.01 per share versus 85 cents per share).

All segments contributed. Though overshadowed by the iPod and iPhone in terms of publicity, the Mac chipped in with 2.16 million units, responsible for 62 percent of Apple’s revenue. It broke the previous quarterly record for Mac shipments by 400,000 and represented a year-over-year growth rate of 34 percent, a rate consistent with the last four quarters. By comparison, the worldwide PC market grew just 14.4 percent and the U.S. PC market only 4.7 percent, according to Gartner’s third quarter market share report. No wonder Mac market share keeps increasing.

The iPod sold 10.2 million units, a 17 percent increase over the year-ago quarter. This is impressive when you consider that the new models weren’t introduced until Sept. 5, three weeks before the quarter ended, and that the iPod faced in-house competition from its iPhone cousin.

The iPhone, for its part, sold 1.1 million units for the quarter. Apple Chief Operating Officer Timothy Cook credited the controversial $200 price drop with helping to spur sales. More on the iPhone later.

Oppenheimer didn’t have much to say about its software sales, which includes such items as iLife, iWork, and Final Cut Studio, but that broad category pulled its weight with a 36 percent year-over-year revenue boost.

Apple’s “other music-related products and services” category, which includes the iTunes Store, had revenue growth of 33 percent year over year. Oppenheimer said the iTunes Store had an incredible 85 percent of the paid digital download market for music in the United States according to Nielsen SoundScan data.

Apple’s retail stores experienced 42 percent growth in revenue (further proving that Gateway simply executed the retail concept poorly). As usual, Oppenheimer noted that 50 percent of the customers buying Macs were new to the platform, which jibes with the boffo sales numbers.

To keep the momentum going, Apple plans to open 40 more retail stores over the next year, both in the United States and abroad, including one in Beijing next summer.

But enough of the basics. Here are some other nuggets I gleaned from the conference call:

Talking up the enterprise: In response to a question about Mac and iPhone sales to small and medium businesses, Cook said Apple is “doing well there and growing” and that “we’re providing a solution in iPhone that many businesses love.” Given that Apple historically has paid little heed to businesses, preferring to focus on its image as a consumer electronics company, Cook’s statement might signal that Cupertino is preparing to actively court the enterprise market.

iPhone sales: Oppenheimer repeated Apple’s expectation that it will sell 10 million iPhones in the calendar year 2008. It won’t be easy. When Apple cut the price of the iPhone, Piper Jaffray’s Gene Munster did a survey on daily iPhone sales, estimating 9,000 phones per day before the price cut and 27,000 per day after. He also called that “unsustainable,” offering 13,500 as a more realistic number. For Apple to sell 10 million iPhones in 2008, it will need to average about 27,400 per day. Of course, in 2008 Apple will be selling the iPhone in Europe and eventually Asia.

Unlocked iPhones: Many pundits had guessed the number of people buying iPhones to unlock them for use on a network other than AT&T’s was in the 2 to 5 percent range, though Munster earlier this month had guessed 10 percent. Cook said Apple has estimated 250,000 of the 1.4 million iPhones sold were purchased with the intent to unlock -- close to 18 percent of the total.

Cash: Apple now has $15.4 billion in cash and no debt. Last year at this time it had $10.1 billion and in 2005 it had $8.26 billion. Talk about a cash cow.

High guidance? Oppenheimer stunned the analysts on the conference call by offering guidance of 9.2 billion in revenue for the December quarter, $700 million higher than current analyst projections and a 28 percent increase year over year. Apple is legendary for lowballing in its guidance and then beating it handily. With new iMacs, new iPods and the iPhone launching overseas going into the holiday buying season, the company’s most lucrative quarter, Apple could be feeling more confident than usual. But consider this: the September quarter revenue it reported yesterday represented a 29 percent increase year over year. Perhaps guiding at 28 percent is not so outlandish after all.

Posted by David Zeiler at 1:06 PM | Permalink | Comments (0)
                    

Apple’s stock rose as much as 4 percent today on a report by research firm iSuppli that the iPhone snatched 1.8 percent of the mobile handset market in July, outselling all other so-called “smart phones.” That category includes Research in Motion’s legendary Blackberry. According to iSuppli, sales of the iPhone also matched those of LG Electronics’ Chocolate, the most popular “feature phone” (a less-capable category of cell phone) in the United States.

Remember, Steve Jobs’ stated goal for the iPhone was to grab just 1 percent of the cell phone market. For the iPhone to nearly double that in its first month is a tribute to Apple’s sixth-month marketing frenzy leading up to the device’s retail debut.

The bigger question here is whether the iPhone will be able to sustain its market share as the novelty gradually wears off. I would consider the iPhone an ongoing success even if its share drops much closer to 1 percent. Sales at that level would still meet Apple’s expectations, though doubtless be greeted by headlines such as “iPhone sales plummet,” or similar sensationalist drivel.

But our friends at iSuppli don’t foresee any drop-off in iPhone sales; on the contrary, they project steady sales growth for the next four years. The El Segundo, Calif.-based company repeated its prediction of 4.5 million iPhones shipping in 2007, “rising to more than 30 million units in 2011.” Again recall that Jobs has set an iPhone sales goal of just10 million over the first 18 months. An iSuppli press release gives iPhone sales projections of 13.5 million for 2008, 21.1 million for 2009 and 26.8 million for 2010.

Sales figures like that – if they indeed come to pass -- will not only please Steve Jobs, but everyone else who holds AAPL stock.

Posted by David Zeiler at 2:44 PM | Permalink | Comments (3)
                    

Apple posted its best June quarter in company history, with virtually every product line contributing to a net quarterly profit of $818 million, yet many new stories couldn’t resist focusing on the iPhone. Because it debuted on the evening of June 29, the iPhone had only 30 hours of sales to contribute to Apple’s third quarter. But as the Paris Hilton of consumer electronics, it gets more than its share of media attention.

After AT&T lowered expectations with the announcement that it had activated only 146,000 iPhones in the product’s first two days, everyone was eager for Apple’s number. As it happened, Apple says it sold 270,000 iPhones, much higher than AT&T’s number but far short of the outlandish analyst estimates of 500,000 and up. A few stories even referred to the number as “disappointing.” (Some of you may be wondering where you last saw that 270,000 figure; I made that guesstimate in my entry on Tuesday.)

Apple itself never announced a goal for the first weekend, although it has repeated often a goal of selling 10 million iPhones by the end of 2008. The company expects to sell 1 million iPhones within the current quarter. That it failed to meet the sky-high expectations of a few feverish analysts is not cause for concern. As Apple CFO Peter Oppenheimer pointed out during the earnings conference call yesterday, it took all of seven quarters for Apple to sell 1 million iPods.

Analyst consternation notwithstanding, the iPhone has enjoyed a resoundingly successful launch. Oppenheimer said Apple plans to start rolling out the iPhone in Europe before the end of this year and in Asia before the end of 2008. Apple officials predictably deflected all inquiries regarding plans for future iPhones, but Oppenheimer did say the company is committed to the product as a “third business” to compliment its Mac and iPod segments. If you want still another hint of Apple’s grand intentions, try this teaser Steve Jobs quote from the press release: “Our new product pipeline is very strong.” He could be talking about Macs and iPods, but that remark is the back end of a longer quote lauding the initial success of the iPhone. Combine the iPhone’s spread onto other continents with the inevitable introduction of models at lower price points, and you’ll get some idea of this product’s tremendous growth potential.

It will take a while, though, for the iPhone to make a dent in Apple’s earnings because the company plans to use subscription-like accounting to spread the revenue from each sale over 24 months. Consider this, however: if you could toss the 730,000 iPhones the company expects to sell by September 30 into its fourth quarter earnings, it would probably comprise about 7 percent of the total. For comparison’s sake, the iPod accounted for less than 12.5 percent of Apple’s third quarter revenue in 2004 – more than two and a half years after its introduction. Just one quarter later the iPod accounted for nearly 23 percent of revenue, and in the most recent quarter, 29 percent. How much do you think the iPhone will contribute to Apple’s bottom line in 2009?

Investors understandably have been preoccupied with potential iPhone profit all year, boosting Apple’s shares almost 50 percent. But the iPhone isn’t the only horse in Apple’s stable: the company’s oldest and still most lucrative business, its Macintosh computers, has been growing dramatically and shows no sign of slowing down. I’ll discuss that further in another post later today...

Posted by David Zeiler at 6:29 AM | Permalink | Comments (1)