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Apple Q2 Earnings: Another Strong Showing

apple earnsIn the second quarter, despite the economy’s effect on consumer sales, Apple’s train continued to roll ahead with plenty of steam. Wednesday, the company announced the best non-holiday earnings in its history.

After the close of market, Apple reported net income of $1.33 a share ($1.21b), up 15% year over, on revenue of $8.16b. Both numbers bested Apple’s own conservative guidance, and expectations.

On a non-GAAP basis, adjusted as Apple’s begun doing, adjusted sales totaled $9.06 billion for quarter. That’s $900 million higher than reported revenue. Adjusted gross margin was $3.62 billion and adjusted net income was $1.66 billion.

During the quarter, computer sales contracted around the marketplace. Apple wasn’t immune. The company saw its first Mac sales drop in six years, but Apple still outperformed the broader sector.

For the quarter, Mac sales were off just 3% compared to market surveys benchmarking computer sales down around 7% (and on a sell-through basis, Peter Oppenheimer said Apple was essentially flat year-over-year:  “Our overall units sell through of Macs was flat year-over-year and given the tough year-over-year comp and the challenging economic environment, we feel very positive about our Mac performance.”).

Offsetting the computer sales, both iPhone and iPod Touch sales were very strong.

Of things on the watch-list leading up to the announcements: gross margins for the quarter were stellar, well ahead of guidance, and expected questions on Steve Jobs’ health and product pipeline were asked but largely deferred.

On the subject of Steve Jobs: Peter Oppenheimer commented only that the company is looking forward to his returning at the end of June.

On future product pipeline, Tim Cook said only that the "product pipeline is fantastic for the Mac.”    He also dismissed some of the rumors about a netbook saying in response to an analyst question, “For us, it’s about doing great products. And when I look at what is being sold in the netbook space today, I see cramped keyboards, terrible software, junky hardware, very small screens, and just not a consumer experience, and not something that we would put the Mac brand on quite frankly. And so, it’s not a space as it exists today that we are interested in, nor do we believe that customers in the long term would be interested in. It’s a segment we would choose not to play in.” 

Looking ahead to the third quarter, Apple is maintaining its usual conservative stance.  Current projections from the company are for revenue in the range of $7.7b and $7.9b.  Earnings per share are estimated in the range of 95 cents to a dollar.  Gross Margin is targeted conservatively at 33%.

Breaking out the rest of the earnings information from the call and release by the numbers:

Apple sold 11,013,000 iPods during Q2, generating $1,665 m in revenue.  Sequentially, unit sales were down 52% and revenue 51% compared to the holiday period of Q1. Year over year, the performance was up, but only slightly.  Unit sales over Q2 2008 were up 3% while revenue compared to the year ago period was down 8%.
•By market share, relying on third party data referenced during the earnings call, Apple continues to claim greater than 70% of the U.S. MP3 player market.  

• The portables category has been strong for Apple, but with IDC and other’s releasing data about the PC market contracting in this economy, there were eyes watching to see Apple’s result. At 1,398,000 units, Macbook’s were down but only 2% year over year – less than reported stats for the broader market. By revenue, Macbook sales were off 12% to $1,895m.  Some of the revenue drop off appears the result of reduced eduational spending (off 11% in the US), and consequence of fewer US customers opting for Macbook Pro models.

Desktop Computers
• Like portables, desktops also dropped off but seemed to beat the greater market. Y/Y Units were off 4% to 856k. Desktop revenue was off 22%

iPhone Sales
• There are more than 35k applications available for the iPhone (and iPod touch) at Apple’s store and the company is inching up on a billion applications downloaded. That threshold is likely to be crossed in the next 24 hours. That uptick is being fueled by continuing strong demand for the iPhone 3G. Apple sold 3.8m this quarter, up 123% y/y.
• The phone is now available in 81 countries.
• Recognized revenue (phone sales, accessory sales and carrier payments) was up more than 300% from last year to $1.52b. The sales value of phones sold during the quarter was $2.2b. (Apple will defer revenue on phones sold after March 17th, in anticipation of iPhone O.S. 3.0.)

Gross Margin
Apple had conservatively guided for Gross Margin to trend down slightly to 32.5%. The result, at 36.4% was the highest in two years thanks to better than expected sales and reduced costs.

Retail Stores
• During Q2, Apple hosted 39.1 million visitors in the stores during compared to 33.7 million visitors in the year-ago quarter.  Average revenue per store was $5.9 million compared to $7.1 million last year.  In total, the stores recognized $1.47 billion of revenue during compared to $1.45 billion lasty year.
Apple added one store and now has 252 stores. The plan remains on track to open a total of 25 stores in fiscal 2009, half of which will be outside the US.

Other numbers and info
• Cash: at the close of the quarter, Apple had nearly $29b in cash.
• Combining the iPod Touch and iPhones, there are about 37m devices fueling the App Store’s growth.
• Geographically, international sales were 46% of the quarter’s revenue.
•Channel inventory for Macs was three to four weeks at the beginnning and end of the quarter. For iPods’ the quarter ended in the company’s target range too.

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Prior Metue Coverage of Apple Earnings
Apple Q1 2009 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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