Apple shares up after remarkable quarter
Posted
Oct 22 2008, 02:06 PM
by
Kim Peterson
Rating:
The tech world is still incredulous at the strength of Apple's numbers Tuesday. Now we see why, amidst many calls for cheaper Macbooks, the company went in the opposite direction earlier this month. The economy may be sinking, but Apple isn't feeling the pain.
A lot of its momentum is due to the iPhone, of which Apple sold 6.9 million in the quarter ended Sept. 30. (That brings total iPhone sales, including the first version, to 13 million). Apple uses a subscription-based accounting method that doesn't immediately recognize all iPhone revenue on its books. If it did, the iPhone would have contributed nearly 39% of the total quarterly revenue. Mac computers accounted for 30%.
And that's causing people to rethink Apple. The iPhone has, quite suddenly, become Apple's most important product. And it has momentum like nothing else in Apple's portfolio. That's going to be huge this holiday season, because even though spending on gadgets will likely decrease, demand for cell phones remains very strong.
Apple says it's now the third-biggest cell phone maker, going on revenue figures, after Nokia and Samsung. And, as CEO Steve Jobs took great pains to point out, it sold more phones in the quarter than BlackBerry maker Research in Motion.
That's not to say Apple is becoming a phone company. Indeed, Apple execs view the iPhone as a powerful mini computer, and its new line of notebooks out this month shows the company isn't shifting its focus. Still, Mac sales weren't as high as analysts expected in the quarter. Apple shipped 2.6 million Macs, and analysts were expecting 2.8 million. Part of that slowdown might have been because everybody and their brother were waiting for new Macs to be announced in October.
Which brings us to the holiday quarter -- a crucial sales period for Apple. Jobs sat in on an analyst earnings call for the first time in eight years, probably to drive home the point that Apple would make it through this turbulent economy. "We may get buffeted by the waves a bit, but we'll be fine," he said.
Yet at the same time, Apple delivered a pretty disappointing forecast for the current quarter. The company expects sales of $9 billion to $10 billion -- half a billion dollars less than the Street was looking for. And quarterly profit was some 30 cents below analyst estimates, at $1.06 to $1.35. CFO Peter Oppenheimer said Apple was being "prudent" in the economic turmoil. But everyone else wondered if Apple was pulling its usual lowball-then-beat-the-numbers hijinks.
And so it's no surprise that analysts are all over the place on Apple. UBS cut its rating to neutral, citing concerns about Mac sales, while Calyon Securities raised its rating to buy. Still others say that while Apple's guidance was disappointing, its low market value signals a definite buy.
It's naive to think that Apple won't be affected by the economic downturn, but its numbers yesterday show that -- at least through September -- the company was remarkably resilient even as the market began to crumble. For investors, the news was a cheery respite from the ongoing chaos in the market. And they're rewarding Apple for it today, pushing the stock up nearly 7% to $97.62.
Here's what others are saying about Apple:
Cnet News: "Apple has completed its transformation from a computer company into a consumer electronics company, the only computer company of its generation to successfully pull off that transition. They all tried, but no traditional PC company has managed to shift the bulk of its business from low-margin PCs to high-margin consumer electronics."
The New York Times: "Going over what Apple said in its earnings release and conference call Tuesday, it’s clear that the dimensions of its cellphone business — its sales, profits and market share — deserve the strongest words of praise that can be summoned."
John Gruber: "The entire iPhone platform is only 15 months old. The cheapest model still costs $199. The room for growth in this market is unlike anything Apple has ever seen. So the question is: Despite continuing strong iPod sales and record-breaking Mac sales, how long until the iPhone is undeniably the primary product and platform made by Apple? My answer: Not long."
Kevin Maney: "The real slingshot comes when the economy turns up again. If Apple can do what Jobs suggests, when the economy emerges at the other end of the tunnel, competitors could be caught flat while Apple has aligned the products, talent and branding to take off like never before."
ZDNet: "Still, for the moment, [Jobs] was able to calm the nerves of Wall Street and remind them that Apple is planted on a solid foundation of popular, high-quality products and services that continue to see growth and shatter records quarter after quarter. The economy may smack the company around a bit over the next few quarters but, rest assured, Apple will still be standing when the storm has passed."
Related reading:
Apple has not yet seen its 52-week low
Apple profit up on hot iPhone sales
Why Apple is the best stock in the world
Sales trouble for BlackBerry maker
Apple notebooks still pricey
