Apple Cranks out Solid Q3
The economy continues to be a drag on earnings for many consumer technology companies but Apple isn’t one of them. After the close of markets Tuesday, the company reported 3rd quarter earnings of $1.24b, or $1.35 a share, up from $1.07b, or $1.19 a share for the same period a year ago.
For the quarter ended June 27th, Apple’s revenue grew 12% to $8.34b and gross margins jumped to 36.3%.
Where competitors have seen revenue and earnings falter, Apple surged.
Neither Apple’s prior guidance for earnings of 95 cents to $1 per share on revenue of $7.7b to $7.9b nor Wall Street’s more realistic consensus forecast of $1.17 per share on $8.2b in revenue proved close to the reality.
In the third quarter, concerns about an otherwise contracting PC market impacting sales were a non-issue as Mac sales more than held up.
Apple portable computer sales were up 25% sequentially (by units) while desktop sales grew 4% over the prior quarter. (Year over year, the portables category reported unit sales growth of 13%. Desktops pulled back 10%. Overall, Apple’s total CPU units were up 4%).
“We generated outstanding sales of 2.6 million Macs, setting a new June quarter record and nearly meeting the all-time quarterly record we set last September. Mac sales increased by more than 100,000 units over the prior year’s June quarter.” CFO Peter Oppenheimer said during the analysts call.
“To grow 4% [in total year over year CPU units sold] with IDC forecasting a negative three and Gardner forecasting a negative five, that puts us seven to nine [percentage] points ahead of the market and we are thrilled with those performance numbers.” Tim Cook added later.
Apple was also “thrilled” with its iPhone performance. The company sold 5.2m iPhones during the quarter. Over 1 million 3GS handsets were sold by the third day after the phone’s June 19th launch. In the near term, demand for the phone is expected to exceed supply.
One of only a few areas of weakness was drooping iPod sales. Sequentially, unit sales for the consolidated MP3 player category were down 7% and revenue off 10% compared to the 2nd quarter. Year over year, the performance was also off 7% on unit sales, and down 11% in revenue.
Apple attributed part of the iPod categories’ sales decline to a 400K unit reduction in channel inventory. Decreasing demand for what Apple is now calling its “traditional MP3 players” (the Nano, Shuffle and Classic) was also a factor. Apple reassured this decline was not a surprise and part of internal forecasts.
“We expect our traditional MP3 players to decline over time as we cannibalize ourselves with the iPod Touch and the iPhone,” Peter Oppenheimer said.
iPod Touch sales, picking up where the traditional iPods slipped, were up 130%.
Looking ahead to the fourth quarter, Apple is maintaining its usual conservative stance. Current projections from the company are for revenue in the range of $8.7b and $9.05b with earnings per share in the range of $1.18 to $1.23. Gross Margin is targeted conservatively at 34%. Operating Expenses are estimated to be about $1.445 billion, including $150 million related to stock-based compensation.
Analyst forecasts are currently projecting earnings of $1.30 a share on revenue of $9.05b (Thomson Reuters poll).
Breaking out key earnings information from the analysts call and press release by the numbers:
iPod
• Apple sold 10,215,000 iPods during Q3, generating $1,492 m in revenue. Sequentially, unit sales were down 7% and revenue off 10% compared to the 2nd quarter. Year over year, the performance was also off 7% on unit sales, and down 11% in revenue. Apple attributed part of the iPod sales decline to a 400K unit reduction in channel inventory. Decreasing demand for what Apple is now calling its “traditional MP3 players” (Nano, Shuffle and Classic) was also a factor.
• Demand for iPod Touch, in contrast to the “Traditional MP3” products, was up 130% year over year.
• 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.
• As of last week, iTunes customers had bought and downloaded more than 8 billion songs from the store since its launch.
Macbooks
• The portables category has been strong for Apple, but with IDC and other’s releasing data showing continuing contracting in the PC market, there were eyes watching to see Apple’s result. At 1,754,000 units, Macbook’s were up where the rest of the market was down – gaining 13% year over year. Sequentially, unit tallies for Macbook sales were up 25% over the 2nd quarter.
• By revenue, Macbook sales were off 2% year over year to $2,200m but up sequentially by 16%.
Desktop Computers
• Desktops showed some weakness year over year but gained sequentially. Y/Y Units were off 10% to 849k. Desktop revenue was off 18% . Sequnetially, Apple picked up gains of 4% in units and 8% in revenue.
iPhone Sales
• Last quarter there were more than 35k applications available for the iPhone (and iPod touch). This quarter, the number rose to above 65k. More than 1.5b applications have been downloaded. This combined wealth of software, mixed with the new iPhone 3GS, fueled unprecedented consumer demand for the products. Apple sold 5.2m iPhones in the third quarter, up 626% y/y by units and 37% sequentially. Over 1 million 3GS handsets were sold by the third day after the phone’s June 19th launch.
• Recognized revenue (phone sales, accessory sales and carrier payments) was up more than 300% from last year to $1.69b. The sales value of phones sold during the quarter was $2.9b.
Gross Margin
• Apple had conservatively guided for Gross Margin to run about 33%. The result, at 36.3% was far higher thanks to better than expected component costs and other factors.
Retail Stores
• During Q3, Apple hosted 38.6 million visitors in the stores compared to 31.7 million visitors in the year-ago quarter. Average revenue per store (254 stores) was $5.9 million compared to $6.8 million last year. In total, the stores recognized $1.5 billion of revenue during the quarter compared to $1.45 billion last year. Retail segment margin was $321 million, or 21.5%, up from $297 million or 20.6% in the year-ago quarter.
• Apple added six stores and now has 258 stores. The company says they remain on track to open a total of about 25 stores during fiscal 2009 and will also complete the remodel of 100 stores to their new design. 27 stores were remodeled during the 3rd quarter.
Other numbers and info
• Cash: at the close of the quarter, cash plus short-term and long-term marketable securities totaled $31.1 billion.
• Geographically, revenues from the “Americas” segment accounted for $3,827m of total revenues. The region’s year over year gain was 11%. Europe returned stronger growth with a 22% increase to $2,006m.
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Prior Metue Coverage of Apple Earnings
•Apple Q2 2009 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
