Apple’s Best Quarter Ever, But the Sky is Falling
January 22nd, 2008I know Wall Street dwells on negatives these days, particularly because of economic troubles in the U.S. Indeed, Apple’s stock tanked in after-hours trading after its quarterly financials were released Tuesday afternoon. But there are an awful lot of good things to talk about, even if investors don’t see it that way.
First and foremost, some 2,319,000 Macs were sold, a record number. Indeed, this is one huge increase over last year, with the numbers coming in at 44% unit growth and 47% revenue growth. What’s more, the iMac showed surprising strength, so it wasn’t all note-books. In saying that Apple reports that sales for the MacBook Air “are very strong.”
In fact, Apple’s total sales for the quarter totaled $9.6 billion, or $1.76 per diluted share, which represents a 58% increase over last year. It’s also a record for Apple, but maybe analysts got so overwrought in their projections that Apple couldn’t possibly meet their expectations however the figures turned out.
Now we all know iPhones are moving at a great clip, with 2,315,000 million recorded over the period. What I’m wondering, though, is how this hot-selling gadget is impacting the iPod, since Apple sold 22,121,000 of them the last quarter. That was an increase of a mere five percent over the year ago quarter, although revenue growth came in at 17%, meaning that the higher priced models were preferred.
So what does this all mean? Has the iPod’s stellar growth ceased for good, or is this just a temporary aberration? Since Apple sits way at the top of the heap in this market space, is it possible sales of all digital music players have reached the saturation point? Maybe it’s true the great majority of people who want these gadgets have already purchased them, and now the iPhone will come into its own as the iPod’s ultimate successor.
During its conference call with financial analysts, Apple did its best to put a positive spin on what seems to be somewhat negative news. The iPod touch, for example, has come to be regarded as “a mainstream Wi-Fi mobile platform.” That takes it way beyond playing music and videos, which is why the newest versions will incorporate Mail, Google Maps and widgets. So you have a pocket-sized wireless computing device that will differ from the iPhone only in its lack of telephone features.
But is that just market speak, or does it somehow represent the future direction of the iPod in relation to the iPhone? Certainly adding more capabilities to this device would seem to make sense, if it can be done affordably and in a way that sells product.
Then again, isn’t that what the analysts were suggesting a few years ago, that music players would largely fade away and that mobile phones with music playback features would ultimately take over? I mean, why would someone want to carry two pocket-sized gadgets of this sort, when one can do it all? At least, that was the argument the tech pundits have frequently voiced.
Of course, the previous efforts, such as the LG Chocolate touted by Verizon Wireless, have been pathetic. They end up being bad music players and mediocre phones. When Apple delivered the iPhone, they turned the entire market upside down. Now we have some imitators, but Apple has set a possible future trend. And if you don’t want to pay extra for an integrated phone, there’s always the iPod touch.
So just how do you rate iPod sales from a realistic standpoint? Do you merge the results for the iPhone, since it incorporates an iPod? Would that make Wall Street happy?
Or are they just so jaded by the state of the economy that there’s nothing Apple could possibly do to keep its stock price out of the toilet, at least for now. It is possible, of course, that Apple’s lower-than-expected guidance for the current quarter — with expected sales of $6.8 billion and earnings of 94 cents per share — was the straw that broke the camel’s back. You see that was also below the Street’s estimates.
I guess it might take another quarter to see how it all shakes out, and allow the financial community to come back down to earth. It’ll also be interesting to see how this new Wi-Fi mobile platform fares in the marketplace, particularly if Apple adds some additional configurations to the iPod touch line.
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The simple MP3 player is already obsolescent. It is becoming outmoded by multi-purpose devices that combine a MP3 with a telephone, a personal information/communication device, etc. etc. (the iPhone is only the best and most versatile of a growing number of such products already on the market and we’re going to see a lot more). So, sure, iPod sales are slacking off (and I’ve got no confidence in the iPod Touch, I think most consumers will say what the heck, put out another hundred, and go for an iPhone instead). The simple MP3 player is going to go the way of the 8-track tape deck. That’s called progress.
It was astounding to learn from the quarterly report that Apple has a cash reserve of 18.5 billion. That’s an amazing amount of money to have just lying around. Sure, you want to keep a couple of billion to fend off unfriendly takeover bids and so forth. But 18.5 b. is something else entirely. Given that reserve, the amount of dividend AAPL pays out must strike shareholders as absurdly low (and this, I suspect, is one reason why some folks regard AAPL as highly overvalued). Alternatively with, say, 15 billion to sling around, Apple is an a position to do something huge and dramatic that would catapult it to another level as a major corporation. I don’t see how it can continue sitting on this nest egg forever without doing something with it, and I don’t mean picayune buyouts of a handful of small companies nobody has ever heard of in order to acquire their patent rights. Like what? One idea that’s been kicked around is Apple acquiring Adobe. Any other ideas about what you’d do if you were Steve with all that money in your jeans?
Apple is doomed!
Just kidding.
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The key factoids for me: great Mac sales; many more places to buy Macs; global presence (47% sales overseas. That sounds like a healthy number to me–it’s similar to Intel’s ratio); iPhone not killing BlackBerry yet, but likely to hit 10 M by Dec. 31st, as predicted (note: Lotus Notes for iPhone coming).
MAYBE iPod sales are saturating– don’t know and don’t care. I doubt the Zune is getting closer in the rear-view mirror! And the core product is the Mac, anyway. A few points of added market share will mean a lot to Apple.
Dana Sutton: I like the “touch” iPod concept because my wife keeps me on Verizon (against my will; I detest Verizon….).
“Any other ideas about what you’d do if you were Steve with all that money in your jeans?”
First off, I think having cash actually makes you MORE vulnerable to take overs. Winner take all, you know. I think they should buy Bungie. Bungie is free from MSFT now and you know they WANT to come back to the Mac, anyway. Cringely suggests buying Adobe. I say, “why bother”, given that Apple has the resources to put Adobe out of business if they choose. Final Cut Pro is great. Preview is already better than Adobe Acrobat is some respects. Photoshop is vulnerable to company with Apple’s skills. The 700 MHz spectrum? Let Google or ATT spend the dough and collaborate with them.