On Thursday afternoon, Jauary 24, 2013, Apple reported financial results for its fiscal first quarter ended December 31, 2012 that simply demolished Street expectations.
The company posted revenue of $46.33 billion and profits of $13.87 a share. Street consensus for the quarter had been for $39.1 billion in revenue and profits of $10.16 a share; guidance was $37 billion in revenue and profits of $9.30 a share.
Apple beat expectations in every major project category.
- iPads - 15.43 million iPads sold in the quarter.
- iPhones - 37.04 million iPhones sold in the quarter.
- Macs - 5.2 million Macs sold in the quarter.
- iPods - 15.4 million iPods sold in the quarter.
The Street had expected the following shipments:
- iPads - 13.6 million (+1.83 million or +13.46%)
- iPhones - 30.2 milion (+6.84 million or +22.65%)
- Macs - 5.16 million (+.04 million or +00.76%)
- iPods - 13.6 million (+1.8 million or +13.24%)
Gross margin in the quarter was a mammoth 44.7%, up from 38.5% a year ago. Analysts had expected gross margins of 40.7%, a bit ahead of the guidance at 40%.
Guidance was also impressive, especially given the company’s tendency to take a cautious approach when predicting the future. For FY Q2, Apple sees revenue of $32.5 billion, and profits of $8.50 a share. The Street has been projecting revenue of $32.1 billion and profits of $7.99 a share.
Street shipments forecasts for FY Q2 had been as follows:
- iPads - 10.4 million.
- iPhones - 26.2 million.
- Macs - 4.5 million.
- iPods - 6.75 million.
You can expect all of those to ratchet higher after the astonishing FY Q1 performance. StreetAccount notes that over the last five years, March quarter revenue has been down on average 18% from the December quarter. The guidance suggests a sequential drop of almost 30%.
Apple generated over $17.5 billion in cash flow from operations in the quarter. The company now has cash and marketable securities worth $97.6 billion, up from $81.5 billion one quarter earlier.
Apple CEO Tim Cook said in a statement.
“We’re thrilled with our outstanding results and record-breaking sales of iPhones, iPads and Macs. Apple’s momentum is incredibly strong, and we have some amazing new products in the pipeline.”
Below are the minutes of Apple's conference call with the analysts:
Here are some key points from the post-earnings conference call:
- CFO Peter Oppenheimer says the company was thrilled to report a tremendous quarter. They set quarterly records for iPhones, iPads and Macs.
- Revenue was up 73% from a year ago.
- Mac sales were up 26% year over year. Average weekly Mac sales were up strongly. Asia/Pacific Mac sales were up 58%.
- They had 3-4 weeks of Mac channel inventory.
- Mac App store: more than 100 million apps downloads in less than a year.
- iPod Touch was more than half of all iPods sold. They still have over 70% of the MP3 market.
- They were in target range on iPod inventory.
- iTunes Store had $1.7 billion in revenue in the quarter. They have over 20 million songs now.
- Over 140 million apps and content downloads on December 25.
- iPhone sales were up 128% year-over-year. They had strong growth in all segments.
- Oppenheimer says customers are “captivated” by Siri.
- Channel inventory was up 200K in the quarter, and remains below target levels, at a little under 6 million units.
- iPad sales were up 111% from a year ago. Revenue from iPad and iPad accessories was up 99%. Sell-through was about 200,000 ahead of sell in. Inventory is in line with target levels.
- 1.5 million iPads in use in educational institutions.
- Over 3 million copies of iTunes U have been downloaded.
- Now over 315 million iOS units sold.
- More than 85 million iCloud users to date.
- Over 550,000 apps in the app store; 175,000 for the iPad.
- Developers earnings will top $4 billion by the end of this month.
- Apple retail stores had $6.1 billion revenue, up 59% from a year ago.
- They opened four stores in the quarter, including Grand Central, now 361 stores total.
- Average $17.1 million revenue per store in the quarter.
- The company averaged 22,000 visitors per store per week.
- The company said it is actively discussing what to do with its cash, but has nothing to announce today. He says it is not burning a hole in their pocket.
- CEO Tim Cook noted particularly strong sales of the iPhone in the U.S., Japan and Greater China. He says they bet high on demand for the iPhone, and could have bet even higher, given short supply of the phone in some markets.
- China demand for the iPhone is “off the charts.”
- Cook says the component environment is favorable, which helped them over-achieve on gross margin; he thinks that will remain the case, with the exception of hard drives due to the floods in Thailand. He says they will have to pay more for drives in the quarter, but adds that he does not expect them to have short supply of drives.
- He says NAND flash, DRAM and displays were in a situation of supply exceeding demand in the quarter, and will continue to be the case in the March quarter.
- The company sees gross margin falling 270 basis points in the March quarter from December; there were some one-time items that will go away; they also benefited from a better mix, mostly in iPhone sales in the latest quarter.
- On competition from other tablets for the iPad: Cook says they are really happy with their iPad sales in the quarter. He says their long-term belief remains that this is a huge opportunity for Apple. He says they really believe that eventually the market in units will be bigger than the PC market. He says tablets have already exceeded the desktop PC market in the U.S. in the fourth quarter. On competitiveness, he notes that the ecosystem for the iPad is in a class by itself.
- On his comments about the cash position, Oppenheimer elaborated that they have always discussed the cash position. He says that their discussions on what to do with the cash is “active.” When we have something to announce, he added, they will announce it.
- In response to a question on the company’s position in the living room, Cook said that the Apple TV product is doing well. But he noted that they still classify it as a hobby. But he has nothing new to say about TV products.
- On his time as CEO so far, he says he loves Apple, and that he feels “lucky.”
- Oppeneheimer says they are looking at all uses of cash, what they might do in the supply chain, or acquisitions, or dividends, or buybacks. (Analysts keep trying to pry some information out of them on this subject to no avail.)
- Cook notes that they now have 130,000 points of sale throughout the world, up 35% from a year ago.
- Cook says that China Unicom is a good partner, and adds that they are always looking for ways to expand their presence in China, but he had nothing to say on new carrier relationships.
- Oppenheimer says iPhone sales will be up year-over-year, but down sequentially, same with iPad.
- Why the big percentage drop forecast: An extra week in the December quarter; last year, they increased iPhone channel inventory by 1.7 million units; December quarter benefited from iPhone 4S launch, the fastest launch ever. And the dollar has strengthened against the Euro, which will affect the sequential compare.
- Cook says the Apple and Android competition is not like Mac and Windows. The Mac is still single digit percentage of worldwide market. Cook says that NPD data shows that in the U.S., looking at October and November, that iPhone had 43% of the market with Android at 47%. Nielsen data shows iPhone 45%, Android 47%. ComScore shows iPhone 42%, Android 41%. He concludes that it is a very close race on iPhone vs. Android. In tablets, iPad is way ahead. Cook says he would not say it is a two-horse race, given the horse in Redmond, and other players. He says they will continue to keep innovating and ignore how many horses there are.
- On 4G and the potential for larger screen sizes for phones, Cook said he won’t talk about the future road map. He says a lot of people out there love what they’re doing.
Trading in Apple shares has resumed; the stock is up $31.60, or 7.5%, to $451.91; that boosts the company’s market cap to a highest-ever $415.4 million, just a hair below that of Exxon Mobil, the largest U.S. company by market cap, at $418 billion.
COMMENTARY: On Wednesday, January 23, 2013, Apple Inc announced that for the FY 2013 Q2, it expects revenue between $41 billion and $43 billion. According to I/B/E/S Estimates, analysts on an average are expecting the Company to report revenue of $45 billion for the second quarter of 2013. This may account as to why Apple's share price did not spike that much the day after the earnings call. Apple has also lost its lead to Android in smartphones, and its lawsuits against Samsung have not failed to stop that juggernaut from taking the lead in smartphones. As a consequence, many analysts now believe that the era of Apple total dominance, including the death of founder Steve Jobs, has left a void that may never be filled by Tim Cook, Apple's new CEO. I never took much credence in Apple's stock after Jobs passed on, and when Apple stock price hit a high of 702.10 on September 19, 2012, this marked a high that may never be matched by Apple ever again. A lot of that frenzy was driven by sales of the iPhone and iPad and speculation in the stock by hedge funds, many who have since cashed their shares.
Apple can no longer depend on the iPhone or iPad to carry its share prices to new highs. The competition is getting better by each day, and Apple under Tim Cook has lost its cache and luster as the king of innovation. It needs a new blockbuster product that can separate and differentiate the company from the rest of the pack. Tim Cook is not the product picker that Steve Jobs was, and that fact alone, leaves investors with their arms crossed and full of doubt as to Apple's future to return to the heydays under Jobs.
Courtesy of an article dated January 24, 2013 appearing in Forbes and an article dated January 23, 2013 appearing in MorningStar
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