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Apple Reports Positive Q1 2009 Earnings

apple earnsMany retailers fell apart this holiday season, their registers ringing up far less of the holiday cheer than they’d have liked.  Companies were cutting staff. Cash was being conserved.  Spending, especially on premium products was way down.  Apple, despite the so called “Apple Tax,” the name sometimes spitefully applied to the higher pricing on Apple’s products, bucked the trend.   Earnings for the period ended December 27th, while shadowed with some elements of mixed quality, handily beat expectations. 

For the first quarter of Fiscal 2009, Apple reported its best revenue result of all time.  Total sales for the quarter crossed past $10 billion to $10.17b.  Year over year, the gain was 5.8% compared to last year’s sales of $9.6b.

In Q1, Apple generated $3.6b in cash.  Net profits were up 1.5% year over year (y/y) to $1.61b, or $1.78 a share.  Using non-GAAP numbers adjusted to provide an alternate view to subscription accounting, a practice Apple began  last quarter, net income would have been $2.3b on sales of $11.8b.

In October, Apple had projected they’d come in with first quarter earnings of between $1.06 and 1.35 a share on revenue of $9 to $10 billion.

Because Apple’s forward guidance tends to be extremely conservative, many analysts give those numbers little attention and rely on their own projections.  For Q1, the consensus among analysts’ projections from both Thomson Reuters and Bloomberg surveys was for earnings of $1.39 a share.  The actual result of $1.78 share easily surpassed that.

While no reporting Wall Street analyst was close to that, RBC’s Mike Abramsky won the month’s crystal ball trophy for best overall estimates of unit sales.  His predictions were among the closest to the actual result for iPod, iPhone and Macbook sales. He took best, or second best, in each category (a Table showing comparative projections is available here via Venture Beat). 

Apple’s performance on the quarter was driven heavily by international sales growth and also, thanks to keen demand for new model iPods and Macbook computers introduced in September and October respectively.

Breaking out the numbers by category…

Apple sold 22,727,000 iPods during Q1.  Sequentially, both the unit sales and category revenue metrics were up over 100% relative to Q4 2008 (up 106% in units and 103% in revenue).   Year over year, the performance was more measured.  Unit sales over Q1 2008 were up a modest 3%. Revenue compared to the year ago period was down 16%.
•By market share, relying on third party data referenced during the earnings call, Apple claims greater than 70% of the U.S. MP3 player market.  The company also has greater than 70% share in the U.K and Australia.  Share in Japan is upwards of 60%.

•The portables category provided Apple some of its strongest growth and demonstrated the company’s resilience as compared to other computer makers in the present economy.   In Q1 Macbook’s rang up unit sales of 1,796,000 units, good for a 7% sequential improvement and a 34% Y/Y acceleration.  By revenue, Macbook sales were good enough for an 11% sequential improvement and a 23% Y/Y gain.     Portables accounted for the majority of the 2,524,000 computers the company sold during the quarter.

Desktop Computers
• In stark contrast to the portables category, desktop computers saw weak performance on the quarter both in unit sales and realized revenue.  Unit sales, at 728k, were down 22% sequentially and 25% Y/Y.   Revenue was down 23% sequentially and 31% Y/Y.

• A lack of recent upgrades for the iMac and Mac Mini product lineups was likely a significant contributor to the weak overall result.  iMacs account for a majority of Apple’s desktop sales.  Rumors have hinted a refresh was imminent for several months but so far, that has failed to happen.

iPhone Sales
• For the 2008 calendar year, Apple sold 13.7m phones and recognized revenue of $1.25b, well ahead of stated goals.   For Q1 of 2009, however, total unit sales did taper off sequentially.  On the quarter, Apple sold 4,363,000 units, a sequential decline of 37% compared to the 6,892,000 units sold in Q4.   Analysts had been expecting a consensus result of 4.5m units. On the high side, Piper Jaffray’s Gene Munster had bullishly estimated 6.4m units. Weaker than expected unit sales notwithstanding, iPhone recognized revenue was up 55% sequentially. 
•Life to date, Apple has sold 17 million phones.

Retail Stores
• During Q1, Apple stores hosted 46.7m visitors.  Impacted by the economy, revenue per store dropped to an average of $7m, as compared to $8.5m a year ago. 
Apple has 251 stores across 10 countries presently.  2009 should see the launch of an additional 25 with half of those being internationally located.

Other numbers and info
• Cash: at the close of the quarter, Apple has over $28b in cash.
Apple TV – while still characterized as a “hobby,” Tim Cook suggested the TV / Net convergence device is closer to being relevant.  Year over year, he said, sales were up 3x.
• Steve Jobs’ health, a subject that just won’t go away, was the subject of the first question asked during the analyst Q&A. Tim Cook reminded the analyst that Apple has a strong organization and that Jobs, while on leave, is still a participant in strategic decisions.

Looking ahead to the second quarter, Apple is maintaining its usual conservative stance.  Current projections from the company are for revenue in the range of $7.6b and $8b.  Earnings per share are estimated in the range of 90 cents to a dollar.  Gross Margin is expected to trend down slightly to 32.5%.

Analysts are looking for a second quarter target of $1.13 a share on revenue of $8.2b.

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Prior Metue Coverage of Apple Earnings
Apple Q4 2008 Earnings
Apple Q3 2008 Earnings
Apple Q2 2008 Earnings
Apple Q1 2008 Earnings
Apple Q4 2007 Earnings
Apple Q3 2007 Earnings



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