Apple Inc. steamrolled through growing competition from smartphones and tablets running on Google Inc.'s Android operating system, as the company more than doubled its quarterly earnings and posted surging revenues on strong sales of its iPhone and iPad.
Key Financial Hightlights
- Revenues - $28.57 billion - up 82% from a year ago.
- Profits - $7.31 billion - up from $3.25 billion a year earlier
- Gross Margins - 41.7% compared to 39.1% a year ago.
The results fueled a spike in Apple's (NASDAQ:AAPL) shares in after-hours trading, with the stock up 4.8% to $395.34, after ending in 4 p.m. trading at $376.85 on the Nasdaq Stock Market.
Behind Apple's blowout earnings report is a story of exceptionally strong sales of the iPhone. MarketWatch technology editor Dan Gallagher delves into what powered those sales, and he comments about Apple's CEO succession planning. Interview by Stacey Delo in San Francisco. Image courtesy of Reuters
Apple's results come even as its wide berth in markets that it has dominated—smartphones and tablet computers—has diminished. The company has seen increasing competition from rivals like Samsung Electronics Co., Motorola Mobility Holdings Inc. and HTC Corp., prompting several intellectual product disputes. Many rival devices run on Google's Android.
In an interview, Apple's finance chief, Peter Oppenheimer, called the results "staggering," adding that the company recorded its strongest iPhone and iPad sales in history. Apple's chief executive, Steve Jobs, is on medical leave.
Apple issued a conservative financial forecast for its current quarter, which ends in late September, but analysts said they were unconcerned since the company is entering a strong selling season.
Apple is planning to release new products—such as a new version of its Macintosh operating system, called Lion, on Wednesday, and the new Internet-based iCloud service in the fall—and it is expected to benefit from back-to-school and holiday sales.
Apple's results over its fiscal third quarter were boosted by unexpectedly strong demand for the iPhone 4. Analysts had anticipated demand to slow as consumers wait for a new iPhone version in coming months.
Product Sales Highlights
- iPhone - Apple sold 20.3 million iPhones in the quarter, compared with Wall Street's expectations for 17 to 18 million, as it added 42 new carriers and 15 new countries during the quarter. A year ago, Apple sold 8.4 million iPhones. In a conference call, Apple said it is planning a "future product transition" during the fourth quarter that will impact its September quarter. In addition to a new iPhone that is expected to be released, Apple also typically unveils a new laptop computer lineup in the fall.
- iPad - Apple also reported a near tripling of iPad sales to 9.25 million, up from 3.3 million a year ago. Mr. Oppenheimer said the company sold "every iPad we could make." Geographically, sales were fueled by Asia Pacific, of which China makes up the biggest portion, with revenues there more than doubling to $6.3 billion in the third quarter. Though Apple doesn't break out results by country, Chief Operating Officer Tim Cook said revenues from Greater China, including Hong Kong and Taiwan, increased by more than six times to about $3.8 billion. Mr. Cook said.
"I firmly believe that we are just scratching the surface. There is an incredible opportunity for Apple there."
- Computers - Macintosh computer sales, however, totaled 3.95 million units over the quarter, in line with analysts' expectations. Mac sales likely were slowed because consumers are waiting for the Lion operating system to be released, among other factors, Apple said. Gene Munster, an analyst with Piper Jaffray & Co., said he expected demand to recover in the current quarter. Mr. Cook added that Mac sales still outgrew the overall personal-computer industry.
"We believe that some customers chose to purchase an iPad instead of a new Mac during the quarter, but we also believe that even more customers chose to purchase an iPad over a Windows PC.
- iPod - IPod music player sales declined 20% to 7.54 million from a year earlier, though Apple said that was ahead of its expectations.
COMMENTARY: Those are impressive numbers, and if I may say so, magical, but not totally unexpected. No wonder Apple's (NASDAQ:AAPL) stock increased 20.75 points in after-hours trading on Monday evening. When I heard this, I tweeted it and emailed a Morgan Stanley friend.
Apple's CFO Peter Oppenheimer mentioned that Apple now has $76.2 billion in cash, short-term and marketable securities.
"Turning to cash. Our cash for short-term and long-term marketable securities totaled $76.2 billion at the end of the June quarter compared to $65.8 billion at the end of the March quarter, a sequential increase of $10.4 billion. Cash flow from operations was $11.1 billion, an increase of 131% year-over-year."
This begs the question as to what Apple intends to do with all that cash. Several security analysts have been very critical of Apple for not making better use of that cash to increase investor returns and create additional shareholder value. Pundits like myself, have predicted that Jobs is hoarding cash to make a major acquisition. I went out on a limb and that he should acquire one of the major cable TV companies because this would greatly improve and expand Google TV, a product that was re-introduced in late 2010, but not widely discussed, taking a back seat to the iPhone and iPad. In fact, there is no mention of it in the latest quarterly earnings report.
By the way, here's the transcript of Apple's conference call with the investment community discussing their Q3 2011 earnings report.
Courtesy of an article dated July 20, 2011 appearing in The Wall Street Journal Earnings
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