World of Apple

In a weeks time Apple will reveal the results of its second fiscal quarter of 2012. As ever all eyes will be on the world’s largest company who last quarter reported over a handful of record breaking figures including record breaking quarterly revenue of $46.3 billion.

Let’s just spend some time recapping Apple’s first fiscal quarter of 2012 which is historically always Apple’s largest quarter due to holiday sales, in this particular instance the quarter was made even more impressive due to pent up demand for the new iPhone which was released during the quarter with those figures coming in at just over 37 million units.

The iPad was of course the gift to have for Christmas and despite common knowledge that a new model would only be a few months away sales came in at a healthy 15.4 million, representing year-over-year growth of a whopping 111 percent. Macs also performed well during the quarter and for the first time Apple reported sales of over 5 million Macs with year-over-year growth of over 25 percent, put in perspective against a declining PC sales market then that is impressive.

Looking ahead to Apple’s fiscal second quarter which ended on March 31 it’s unlikely that we’ll see a record breaking quarter like the one past but it will be notable for a number of reasons.

(more…)

Apple today held its annual shareholder meeting on its Cupertino campus. The meeting which I gave some detail on at World of Apple yesterday went as expected with no announcements of particular importance. Most notable from the meeting was a continued insistence from CEO Tim Cook that the company was in discussions about its massive cash pile, which is approaching $100bn, but had nothing to announce at today’s meeting.

Despite Apple advising against proposal 7 the procedure to elect board members with a majority vote has been adopted. It sees board members agree that they must voluntarily resign if they do not receive a majority vote. At today’s meeting all the directors were elected with more than 80% of the vote.

Ernst and Young were also approved as Apple’s auditor for the financial year.

Proposals on directors declaring conflicts of interest, shareholders having a say on directors pay, and disclosure of political contributions were all not approved.

Following the formal procedures Tim Cook took the stage, noting on Steve Jobs’ passing Cook said that “There’s not a day that goes by that I don’t miss him.” Cook also thanked shareholders for their condolences and says that his sadness has turned to determination.

Recounting figures that we’ve heard before Cook said that last quarter Apple had more than 360 retail stores with 110 million people visiting during the quarter.

Phillip Schiller and Peter Oppenheimer also joined Tim Cook on stage to answer questions with one shareholder coming out against a regular stock dividend, instead suggesting that Apple uses the cash to acquire video content. Cook replied by saying:

“On cash, we’ve been thinking about cash very deeply, the board has been looking into what is in shareholders’ best interest … We’ve spent billions on the supply chain, retail, etc… My message there is that the board and the management team are thinking about this very deeply… And we will do what we think is in the best interest of shareholders.”

[…]

“We haven’t had to own a music label to accomplish what we did in music.”

On questions about Apple’s future TV plans Cook refused to comment.

When asked whether Facebook was a friend or foe Cook responded by saying that he “always thought that the two companies could do more together.”

Another shareholder suggested that Apple invest in scholarships for science and engineering education. Cook responded by saying that “We strongly believe education is the great equaliser.” In relation to Apple’s policy of matching donations it was noted that Apple employees have been raising money for educational establishments and Apple was matching these.

Finally on a stock split Cook said, “We talk about everything we think is in the shareholders’ best interest. A stock split isn’t so clear.”

The meeting concluded after a little under 70 minutes.

Tomorrow Apple will hold its annual shareholder meeting on its Cupertino campus in California. The expectations for this meeting are greater than normal, they’re practically sky high and honestly largely improbable.

Apple’s ASM is actually a relatively under-reported event despite its importance. Last year’s meeting held during the same February was hosted by Steve Jobs and focused primarily on environmental issues and Apple’s financial situation. This year’s meeting is unlikely to be any different with a growing pressure from investors for Apple to pay a dividend and executives fielding questions on Chinese labour conditions and Apple’s green credentials.

(more…)

Yesterday we were treated to a never before heard of event. Whilst Tim Cook has spoke at Goldman Sachs’ Internet and Technology conference in past years (2007, 2008, 2009, 2010 and 2011) this year marked the first time that Apple has opted to offer a stream of the interview on its investor website.

Listening in first hand was the treat many expected it to be, that is if you went in with the understanding that this wasn’t an open interview between Bill Shope and Tim Cook, in fact it was more of a structured Q&A that offers a wide ranging State of Apple.

Much of what was discussed during the 50 minute session wasn’t terribly new, there were no big surprises and despite the customary warning about forward looking statements there were actually very few. What was of interest from hearing Tim Cook talk was his clear passion for Apple. Spending time making jokes (primarily aimed at Google) and carefully ruminating over how to structure an answer, Cook came across much less the one-dimensional character we often hear on financial conference calls and more a human leader of Apple; a true successor to Steve Jobs.

Macworld have a superb transcript (some quotes below) of the event and Apple has posted the audio of the talk.

Cook covered a number of topics ranging from employee working conditions, to the the potential iPhone market to the cannibalisation of Mac sales by the iPad.

(more…)

Apple today announced financial results for its first fiscal quarter of 2012 which ran from September 25 until December 31. The Company posted revenue of $46.33 billion and net quarterly profit of $13.06 billion, or $13.87 per diluted share. These results compare to revenue of $26.74 billion and net quarterly profit of $6 billion, or $* per diluted share, in the year-ago quarter. Gross margin was 44.7 percent compared to 38.5 percent in the year-ago quarter. International sales accounted for 58 percent of the quarter’s revenue.

During the quarter Apple also sold 5.2 million Macs representing a 26 percent unit increase over the year-ago quarter. Apple also sold 37.04 million iPhones in the quarter, representing 128 percent unit growth over the year-ago quarter as well as 15.4 million iPods during the quarter, representing a 21 percent unit decline from the year-ago quarter. Apple sold 15.43 million iPads during the quarter, a 111 percent unit increase over the year-ago quarter.

“We’re thrilled with our outstanding results and record-breaking sales of iPhones, iPads and Macs,” said Tim Cook, Apple’s CEO. “Apple’s momentum is incredibly strong, and we have some amazing new products in the pipeline.”

“We are very happy to have generated over $17.5 billion in cash flow from operations during the December quarter,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the second fiscal quarter of 2012, which will span 13 weeks, we expect revenue of about $32.5 billion and we expect diluted earnings per share of about $8.50.”

Earlier this month I wrote a short piece on Apple’s first fiscal quarter of 2012. The quarter which ran from September 25 until December 31 looks likely to be an all round record breaker for Apple. In that post I focused on Apple’s quarterly revenue and remarked on just how incredible the quarter looks on paper.

Today Apple will announce the results of Q112 and it’s not just revenue that will impress Wall Street. Apple is set to dazzle even the casual onlookers as the numbers are released.

(more…)

On the very last day of 2011 Apple’s first fiscal quarter of 2012 ended and what happened during the preceding three months will drop jaws across Wall Street. Unlike previous years the quarter ran for 14 weeks rather than 13, this is something that happens every six years to align the fiscal periods with the December calendar. Six years ago this extra week of product sales wouldn’t have been notable, this time it should be taken into account (little reminder for the analysts amongst you).

Apple will report the results of its first quarter on January 24 and expect the news to be incredibly impressive. Those with even a basic knowledge of Apple’s business will know that its first quarter is always the most profitable driven by strong sales ahead of the holiday shopping season which kicks off in early November and runs right through until the end of December. The products that Apple makes are massive holiday sellers and the iPhone and iPad were sure to have been unwrapped in there millions across the world.

(more…)

On Tuesday Apple announced the results of its fourth fiscal quarter of 2011, the results of which came as a bit of a shock to many analysts who expected Apple to continue its strong streak but weakened iPhone sales dented the outcome of the quarter.

Following the release of Apple’s quarterly financials company CEO Tim Cook and Chief Financial Officer Peter Oppenheimer chatted with analysts on its earnings call, which can be heard again here.

Whilst World of Apple would historical present notes of interest from the earnings call immediately following, this extended article will weave those notes into a bigger picture.

Tim Cook began the earnings call with the following statement:

This is our first earnings call since the passing of Steve Jobs. The world has lost a visionary, a creative genius and an amazing human being. Steve was a great leader and mentor and inspired everyone at Apple to do extraordinary things. His spirit will forever be the foundation of Apple, and we are dedicated to continuing the amazing work that he loved so much.

Only Apple brings together software, hardware and services into such a powerful and integrated experience for our customers. As we move forward, we will continue doing that with relentless focus. I’d like to take this opportunity to express our gratitude for all of the condolences and expressions of support that we have received following Steve’s passing.

Beginning with the Mac Peter Oppenheimer said that customers had downloaded more than six millions copies of OS X Lion during the quarter. OS X Lion is of course the first of Apple’s operating systems to be download only and not be available to purchase on physical media.

During Apple’s fourth quarter the Mac set an all time record for sales and revenue. Unit sales were 4.89 million spurred on by the ever popular MacBook Air and were in fact 26% higher than the same quarter in 2010. Sales of desktops also made a new record led by the iMac but portables continue to dominate making up 74% of all Mac sales.

Whilst Apple only speaks generally in terms of channel inventory it can often be a sign of product transitions in the pipeline, for the Mac this is difficult due to the number of product lines but for the likes of the iPhone this is easier. So although no indication of changes, Apple ended the quarter with between 3 and 4 weeks inventory, lower than expected as Apple usually aims for between 4 and 6 weeks.

The iPod which remains in steep decline once again saw a mediocre quarter. Apple only shifted 6.6 million iPods during the quarter compared with 9.1 million in the same quarter in the previous year, to put it more sharply the iPod now only makes up 4% of Apple’s revenue, even the iTunes Store makes more than that.

With minimal refreshes to the iPod lineup this month ahead of the holiday season and Apple openly clarifying that iPod touch sales made up more than 50 percent of iPod sales, it makes it somewhat surprising that Apple wasn’t more aggressive with an iPod touch refresh.

Despite this the iPod still remains the top selling MP3 player in most of the countries that Apple tracks through the data published by GFK and in the US market still dominates with about 70 percent market share.

Unlike previous conference calls Apple didn’t reveal as many statistics about iTunes as in the past, possibly because Tim Cook had taken to the stage only two weeks before to tout many of the impressive stats.

Notable for the quarter was iTunes Store revenue which has now topped $1.5 billion, an impressive 35% climb year-over-year. We can attribute this to just how much the App Store and iBookstore have taken hold.

There are 500,000 apps in the App Store with 18 billion downloads since the store opened in July 2008. Also by the quarter’s end the App Store was operating in some 123 countries. iBook downloads also topped 180 million and the iTunes Store itself continues to give impressive figures with 16 billion songs downloaded and 650 million TV shows.

What really dented Apple this quarter was sales of the iPhone, unlike previous fourth quarters Apple didn’t release a new iPhone model, yet iPhone unit sales came in at 17.1 million compared to 14.1 million in the previous September quarter. What was certainly surprising to wall street and analysts was that persistent rumours of an iPhone refresh evidently affected the sales of the iPhone. Sequentially iPhone sales were down from 20.3 million.

Apple even made a rare acknowledgement that rumours played their part. Peter Oppenheimer said that the company was “pleased with the iPhone sales growth as we prepared for the transition to the iPhone 4S” and that they “expected iPhone sell-through to decline sequentially from the June quarter as a result of new product rumors following the announcement at our Developers Conference in June that iOS 5 and iCloud would become available in the fall”.

Looking forward, iPhone sales are sure to be record breaking during the current December quarter. We already know that Apple has sold over four million iPhone 4S units, this doesn’t take into account those cheaper iPhone 4 models or even the heavily discounted iPhone 3GS units that are still being sold by many carriers. When we next hear of iPhone unit sales, expect a big record breaking number.

Tim Cook also spent a bit of time talking about the smartphone market as a whole. Reiterating much of what was said in his presentation at the launch of the iPhone 4S he said that he wants the iPhone in as many hands as possible. The current handset market stretches to 1.5bn with 400 million of that made up my smartphones but Cook notes that it’s growing and “the big win is to eat into the 1.5 billion and not just for us but I think for others as well, and we are very focused on doing that”.

Finally for the iPhone Tim Cook touched on some points about how the company is positioning the 3GS in the market. Primarily talking US, Apple has taken the iPhone 3GS free on a postpaid basis, as well as lowering the price of the iPhone 4 to $99. These advantages also play out in the prepaid market with considerably lower entry prices for an iPhone.

Whilst lower than previous quarters the iPhone continues to dominate Apple’s balance sheet, making up a massive 39% of the company’s revenue. Apple also said that during the fiscal year of 2011 it shipped 72 million iPhone units, a yearly record by a massive margin.

Apple’s hot product for the year has naturally been the iPad 2, whilst not yet outshining the iPhone in terms of revenue (just above the Mac with 24%), unit shipments are climbing rapidly on a sequential basis and year-over-year.

During the quarter Apple shipped 11.1 million iPads, a new record, and this is compared to just 4.2 million in the year-ago quarter. Sequentially Apple also moved an additionally two million units, a 20% unit increase.

More impressive was the reach that the iPad 2 began to make now that Apple has ironed out all the problems it initially had when ramping production towards the start of the calendar year. During the fourth quarter the iPad entered an additional 20 countries, ending the quarter in a total of 90.

Peter Oppenheimer obviously felt the need to rub in the iPad’s success a little and went on to note how 92% of Fortune 500 companies are testing or deploying the iPad and internationally 52% of the Global 500 are doing the same.

When asked on whether Apple was concerned with competitors coming to market with tablet products Tim Cook answered with a defiant no saying that he was “very, very confident about our ability to compete and extremely confident in our product pipeline.” According to June data from IDC the iPad was responsible for 3 out of every 4 tablets sold.

During the fourth quarter Apple also passed the milestone of shipping its quarter billionth iOS device.

Retail stores remain strong for Apple but revenue has begun to plateau despite continuing at a rapid pace of store openings during the quarter. Retail store revenue for the fourth quarter was $3.6 billion, representing just a 1% climb from the previous September quarter. During the quarter 30 Apple retail stores were opened, 21 of those outside of the US, ending the 2011 fiscal year with a total of 357 retail stores.

Apple blamed the slow growth in retail on sluggish iPhone sales, adding that Mac sales had increased 25% year-over-year from 874,000 to 1.1 million and once again touted the statistic that over half of all Macs sold in retail stores are to customers who have never purchased a Mac before. iPad sales are also said to be very strong.

In fiscal year 2012 there will be 40 new Apple retail stores, 75% of which will be outside of the US. The company is also embarking on a strategy where it will expand and relocate existing stores rather than crowding towns with multiple locations. This will happen to retail stores that are said to be constrained and unable to “deliver our desired customer experience.”

China remains a huge target on Apple’s radar but in just a year has also become a big number on Apple’s balance sheet. Total revenue for the fiscal year from China was $13 billion, in 2010 that figure was just $3 billion. Apple now has six retail stores in the wider China region and at the end of 2010 opened its online store.

The number of sales points in China is also amazing with the iPhone being available at 7,000 points of sale. 200 retailers also stock Apple products alongside Apple’s own retail stores. Apple expects China to become number 2 in terms of revenue very soon but also referred to growth in Brazil which was 118% year-over-year and Russia and the Middle East.

Finally Tim Cook made comment on the Thailand monsoons and flooding which have caused massive loss of life and damage to the area. Making it clear that any problems for Apple have already been factored into the forward looking guidance Cook explained that it is not currently known what the status is of some of the factories in the region.

Primary exposure is expected to be on the Mac with constraints to hard disk drive components with an industry wide shortage likely.

Looking ahead, Apple’s first fiscal quarter of 2012 will likely be very strong, with iPod, iPad and iPhone sales booming for the holiday season and with some Macs expected to receive minor refreshes it looks like Apple could smash records all round. Apple’s next fiscal results will be revealed in January following the end to the quarter on December 31.

Apple has very conservatively (as it always does) given guidance of $37 billion in revenue and a target EPS of $9.30 and gross margin of 40% for the first fiscal quarter of 2012.

Apple today announced financial results for its fiscal 2011 fourth quarter which ended in September 2011. The Company posted revenue of $28.3 billion and net quarterly profit of $6.62 billion, or $7.05 per diluted share. These results compare to revenue of $20.34 billion and net quarterly profit of $4.31 billion, or $4.64 per diluted share, in the year-ago quarter. Gross margin was 40.3 percent compared to 36.9 percent in the year-ago quarter. International sales accounted for 63 percent of the quarter’s revenue.

During the quarter Apple also sold 4.89 million Macs representing a 26 percent unit increase over the year-ago quarter. Apple also sold 17.07 million iPhones in the quarter, representing 21 percent unit growth over the year-ago quarter as well as 6.62 million iPods during the quarter, representing a 27 percent unit decline from the year-ago quarter. Apple sold 11.12 million iPads during the quarter, a 166 percent unit increase over the year-ago quarter.

“We are thrilled with the very strong finish of an outstanding fiscal 2011, growing annual revenue to $108 billion and growing earnings to $26 billion,” said Tim Cook, Apple’s CEO. “Customer response to iPhone 4S has been fantastic, we have strong momentum going into the holiday season, and we remain really enthusiastic about our product pipeline

“We are extremely pleased with our record September quarter revenue and earnings and with cash generation of $5.4 billion during the quarter,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the first fiscal quarter of 2012, which will span 14 weeks rather than 13, we expect revenue of about $37 billion and we expect diluted earnings per share of about $9.30.”

Later today Apple will announces its fiscal results for the quarter ending in late September. The fourth quarter of Apple’s 2011 financial year are those to be watched carefully, most notable this year for the back to school Mac sales and how iPhone 4 sales may have tailed off in the face of heavy refresh rumours.

Apple yesterday announced that it had sold over four million iPhone 4Ss in the first weekend of sales and that 20 million customers had signed up for iCloud with 25 million installing iOS 5 on their devices. Of course with these product and service releases occurring after the end of Apple’s fourth quarter we won’t know the full story until early next year.

The results will be announced at 4.30pm ET (9.30pm London) with an Apple webcast being held half an hour later.

Looking at the financials the estimates from the market as taken by Thomson Financial point towards Apple announcing quarterly revenue of $29.45 billion which equates to earnings per share of $7.28. Although the market is always famously inaccurate, Apple 2.0 offers estimates from the most accurate analysts as revenue of $33 billion and EPS $8.88.

Last quarter Mac sales failed to impress Wall Street with analysts at the time expecting sales of 4.2 million but Apple only achieving 3.95 million. This quarter, which encompasses the famous back to school period, the street is expecting Mac sales of 4.5 million.

The big number is of course iPad sales, during Apple’s fourth quarter last year the company sold 4.19 million. Estimates this year place that number at almost 12 million, representing an 185% climb from the year-ago quarter.

The fourth quarter of 2011 was also notably lacking an iPhone product release which it has seen in the previous three years. Questions of whether heavy rumours towards an iPhone refresh will have knocked sales have been playing on the minds of most analysts. During the year-ago quarter, in which the iPhone 4 was released, Apple sold 14.1 million iPhones. Estimates for this year predict a massive climb with some rising as high as 22 million units.

Finally iPod units are expecting to plunge again. Last year Apple announced a 11 percent unit decline in iPod sales at a smidgen over 9 million, this year, despite strong iPod touch sales, Apple is expected to only announce figures of 7 million.