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Apple Runs Away with Another Quarter. Hints of New Product?

There comes a point when calling each successive performance a record starts to get a little ridiculous.  Apple crossed that threshold a long time ago but the fiscal rocket ship flying out of Cupertino isn’t showing any signs of slowing down either.   Even in spite of lofty expectations and market acceptance of Apple’s generally conservative guidance, Apple yet again flew by the benchmarks laid down to measure its performance.

Monday,  Apple’s reported revenue for the September quarter up 25% year over year to $9.87b (the company’s second best total on record).  Profits surged 47%.

For the fourth quarter, Apple earned $1.67b, or $1.82 a share, compared to $1.14 billion, or $1.26 a share, in the same period a year ago.  Operating margin was Apple’s highest ever at $2.19b.  The results easily trumped analyst expectations which projected earnings of $1.42 a share on revenue of $9.2b (Thomson Reuters).

Using a familiar turn of phrase, CEO Steve Jobs said he was “thrilled” with the performance.  He was particularly pleased with iPhone and Mac results. 

In the September quarter, Apple sold almost 7.4m handsets.  Sell-through was up 38% year over year.  For Macs, unit sales were 3.05m.  That was up 17% , well ahead of a global PC market which crawled forward at just 2% (according to IDC).   For 19 of the last 20 quarters, Apple has outpaced the market.

“Thrilled”… no doubt.

Looking ahead, Apple is guiding toward a strong holiday quarter.  Revenues are projected in the range of $11.3 to $11.6 billion.  EPS is targeted at $1.70 to $1.78.   (Analysts expect earnings above $1.90 a share).

The one area to drop: Gross Margin. Gross margin is expected to decline (Apple is forecasting 34%), but all indications are this is going to be largely the result of a new product introduction.    Nothing specific was disclosed but both Steve Jobs and Tim Cook spoke of a strong product pipeline.  CFO  Peter Oppenheimer also confirmed during the call that one of the drags on gross margin is going to be “significantly more air freight” charges for delivering product to retail.    When pressed by an analyst on what product was going to cause this, Oppenheimer said he couldn’t be specific. Translation: probably something out of the existing mix.

Tablet as rumored? New iPhone model?  Apple TV remake?  Something else?   What’s coming is anyone’s guess but it does appear something is headed for stores before calendar year end.
To the data, breaking out key earnings information from the analysts call and press release by the numbers:

Apple sold 10, 177,000 iPods during Q4 generating $1,563 m in revenue.  Sequentially, unit sales were even and revenue was up 5% compared to the 3rd quarter. Year over year, the performance was off 8% on unit sales, and down 6% in revenue. 
• Decreasing demand for what Apple is calling its “traditional MP3 players” (Nano, Shuffle and Classic) seems to have continued as a factor but demand for iPod Touch, in contrast to the “Traditional MP3” products, was up 100% 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.
• iTunes now has stores in 23 countries and is the world’s largest music retailer. (more info)
Apple began and ended the quarter within its target four to six week range for iPod channel inventory.
• The portables category has been strong for Apple, and the trend continued in the fourth quarter. At 2,266,000 units, Macbook’s were up 35% year over year.  Sequentially, unit tallies for Macbook sales were up 29% over the 3rd quarter.  
• By revenue, portables sales were up 27% year over year to $2,866m and up sequentially by 30%.  
• Portables represented 74% of the Mac mix.
• Desktops showed some weakness year over year and sequentially. Y/Y Units were off 16% to 787k. Desktop revenue was off 20% . Sequentially, Apple notched drops of 7% in units and 4% in revenue.
• In US Education Sales, Mac sales were up 12% to the companies highest quarterly result.
• Channel inventory for Macs remained in Apple’s target range of three to four weeks.

• This quarter, the number of applications rose to above 85k. More than 2b applications have been downloaded. 
Apple sold nearly 7.4m iPhones in the fourth quarter, up 7% y/y by units and 41% sequentially.
• Recognized revenue (phone sales, accessory sales and carrier payments) was up more than 185% from last year to $2.297b. The sales value of phones sold during the quarter was $4.5b.
•iPhones will go on sale in China Oct 30th with 1000 points of sale to start.
•In Enterprise use, the iPhone is being “deployed or piloted” at more than 50% of the Fortune 100 and more than 50% of the Financial Times 100

Gross Margin
• Gross Margin beat guidance by 260 basis pts to come in at  36.6% . 

Retail Stores
• During Q4, Apple hosted 45.9 million visitors in the stores compared to 42.7 million visitors in the year-ago quarter.  Average revenue per store (262 stores) was $7.1 million compared to $7.6 million last year.  In total, the stores recognized $1.87 billion of revenue during the quarter compared to $1.72 billion last year. Retail segment margin was $410 million, or 22%, up from $301 million or 17.5% in the year-ago quarter.
Apple added 15 stores and now has 273 stores. The company says they plan to open new stores in France in November including one at the Louvre.  A high profile store on the Upper West Side of Manhattan is also planned.

Other numbers and info
• Cash: at the close of the quarter, cash plus short-term and long-term marketable securities totaled $34b, up from $31.1 billion in Q3
• Geographically, revenues from the “Americas” segment accounted for $4,297m of total revenues.  The region’s year over year gain was 20%.  Europe returned stronger growth with a 45% increase in revenue returning $2,491m.

Prior Metue Coverage of Apple Earnings
Apple Q3 2009 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




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