Apple (AAPL) guided for Armageddon this afternoon but investors aren't having it: Shares are up 13% in after-hours trading despite Apple's "prudent" outlook for their holiday quarter.
Why the excitement? Despite whatever economic downturn is going on, Apple's businesses seem to be doing well. iPod sales were above expectations. Mac sales were a bit weaker than expected, but Apple's explanation seems convincing: While education sales were weak, a lot of people were waiting for new MacBooks to come out -- which they finally did last week. Since then, the company says it's seen a considerable rebound in laptop sales.
But perhaps most impressive: Apple's iPhone sales, which reached 6.9 million units last quarter. About 2 million of those shipments were to fill Apple's channel -- 30,000 points of sale worldwide -- but it's still a huge sales number when most analysts expected Apple to announce shipments of 5-6 million units. If Apple didn't account for its phone sales using a subscription accounting method, its iPhone business would have accounted for 39% of its sales during the quarter.
Also helpful: A rare appearance by Steve Jobs, who was as sharp as ever answering analysts' questions and cracking jokes -- and boasting that Apple outsold BlackBerry maker Research In Motion (RIMM) last quarter by some 800,000 smartphones.
Key Stats:
- Q4 Revenue: $7.9 billion vs. $8.05 billion consensus, $7.8 billion guidance, $8.3-8.4 billion whispers
- Q4 EPS: $1.26 vs. $1.11 consensus, $1.00 guidance, $1.22-1.25 whispers
- Q4 Mac Sales: 2.6 million vs. 2.7 million consensus, whispers up to 3.0 million
- Q4 iPod Sales: 11.1 million vs. 10.8 million consensus, whispers up to 11 million
- Q4 iPhone Sales: 6.9 million vs. 4.5 million consensus, whispers up to 7.5 million
Guidance:
- Q1 Revenue: $9.0-$10.0 billion vs. $10.57 billion consensus, whispers down to around $10.1 billion
- Q1 EPS: $1.06-$1.35 vs. $1.65 consensus, whispers down to around $1.41
Earlier:
Apple Q4 (AAPL) sales missed consensus, and the company lowballed its guidance on purpose yet again. But the good news is winning this time: Things could have been worse, the company looks pretty strong in an otherwise crappy economy, and hell, Apple sold 6.9 million iPhones last quarter, blowing away most estimates.
But Q1 guidance is well below consensus, and even more conservative than some had feared: Apple expects $9.0 to $10.0 billion in sales -- $1.57 billion below consensus -- and a huge range in EPS possibilities, between $1.06 and $1.35 -- versus the Street's $1.65 consensus.
"Looking ahead, visibility is low and forecasting is challenging, and as a result we are going to be prudent in predicting the December quarter. We are providing a wide range for our guidance..." said Apple CFO Peter Oppenheimer in a statement.
Unusual: After-hours trading is halted until 5:10 p.m. ET. We'll begin live blogging the call here at 5:00; refresh this page for the latest.
LIVE Conference call notes; refresh for the latest.
5:00 Classical music. Waiting for call to begin. Live notes here; live chat here.
5:02 Call begins. Standard disclaimers.
5:03 Peter Oppenheimer: Pleased to report results. Sold more Macs than we have in any other quarter in Apple's history. Sold more iPhones than in all previous quarters combined. And more iPods than in any prior non-holiday quarter.
5:03 Operating margin better than expected due to higher than expected GM. Reminder: Because we may provide new features to iPhone and Apple TV customers in the future free of charge, using subscription accounting. Deferral of almost all revenue and cost of sales during quarter sold.
5:04 As reported, iPhone unit sales grew significantly, resulting in material increase in iPhone revenue and product cost deferred for future periods. Deferred rev grew to $5.8 billion at end of quarter, huge increase. If iPhone rev. not deferred, iPhone would have represented 39% of revenue during quarter. Now going to be supplying non-GAAP measures too.
5:07 Going over lots of adjusted numbers, too. Assume these are in release. If not, can pick up later. Adjusted net income: $2.4 billion; $1.3 billion higher than net income. Added transparency to business.
5:08 Detailed results. iPhone sold nearly 6.9 million units, exceeding 6.1 million shipped over entire lifeline of G1 iPhone. Already surpassed goal of selling 10 million iPhones in calendar 2008 with three months left. Dramatically expanded iPhone distribution.
5:09 Over 3100 points of iPhone distro in US, over 30,000 points around the world.
5:09 2.6 million Macs 21% y/y growth, higher than PC sales growth than IDC. Believe Mac growth was delayed by people waiting for new portables, and budget delays from higher ed. Unsure how economy may have affected sales during the quarter. Began and ended quarter with between 3-4 weeks of Mac channel inventory.
5:11 11 million iPods. New iPods last quarter.
5:11 Trading is back. Flattish.
5:12 65 million iTunes accounts.
5:12 $1.72 billion in Apple store. Over half Macs sold in retail stores were to customers who have never owned a Mac before. 247 stores. With avg 226 stores, avg rev per store was $7.6 million, up 15%.
5:13 Talking about new sorta-at-home iPhone activation. 1 minute longer than buying an iPod.
5:14 34.7% total company GM, better due primarily from favorable commodity pricing, carrier kickback from first-gen iPhone, lower costs from iPod transition, and higher software sales.
5:15 Do not expect any material losses from investments.
5:15 AAPL now up 4-5% after hours.
5:16 Very confident in business. Visibility is low and forecasting is challenging. Prudent in predicting Dec. quarter. Targeting revs 9-10 billion. 30-31% GMs, down from 34.7% in Sept qtr. Targeting EPS between $1.06 and $1.35.
5:17 Very excited about expanded geographic reach with iPhone 3G. Before Q&A, special guest who would like to say a few words. Steve Jobs!
5:18 Some remarkable things are happening but set on background of economic slowdown. Introducing non-GAAP financials to show what results are like without subscription accounting.
5:19 Can make it more difficult to evaluate overall performance. As long as iPhone was small, didn't matter much. But now iPhone business is 39% of total business, clearly too big to ignore. Non-GAAP financial results are truly stunning. $11.68 billion adjusted revs, 48% higher than reported revs.
5:20 Adjusted net income more than double net income. If this isn't stunning, I don't know what is!
5:20 Jobs: APPLE BEAT RIM! RIM is a good company that makes good products. More remarkable: Measured by revs, Apple has become the world's third largest mobile phone supplier. Amazing feats. Who knows what future will be. But actually outsold RIM last quarter.
5:22 App store: Customers will download the 200 millionth app tomorrow. Only 102 days since its launch on July 11.
5:23 Cool apps --> more iPhone sales --> larger market. Clear that customers are not only attracted to iPhone because of functionality, UI, but also unique ability to purchase, download, use apps.
5:23 AAPL now up 5.7% to $96.75.
5:24 New notebooks are greenest products Apple has ever offered. More and more about that in the future.
5:24 Let's turn to the economy. We are not economists. Your next door neighbor can likely predict what will happen as accurately as we can. We have the best customers in the world. While they may delay, we don't think they'll switch. Huge retail presence, best products in history. Most talented and creative employees in the world.
5:26 AAPL now up 7.4%. Zero debt, lots of money in the bank. Money to invest ourselves through the downturn.
5:27 May get buffeted about by the waves, but we'll be fine.
5:27 Q&A to begin.
5:28 Results and guidance show very different world. Any trends or just prudence? Jobs: "There's a lot of prudence in there." But it's also October, which has always been a bit of a foggy month for us. Biting nails, wondering if ordered too many iPods for holidays. Oct and April slowest, think we know what results may be. October and April are foggy months for us. We're not economists and we read the same newspapers you do.
5:29 Repurchase? Downturn may present some extraordinary opportunities to companies that have cash.
5:30 How much more expensive are aluminum unibodies? Guidance -- sequential decline -- driven from introductions from notebooks and iPods, which we couldn't be more excited about. Many new technologies in them besides unibodies, but that contributed. But going to work to get down cost curve over time.
5:31 Seen huge aluminum decline -- down 35% -- how quickly through P&L. Would certainly sell MacBooks cheaper if they were just a block of aluminum. Machining them costs some, not dominant cost.
5:32 Pricing of Mac line right now? How positioned going into economy? New netbook category getting a lot of hype? Where playing out? This particular downturn is not creating a market of cheaper computers; that has existed. There are parts of that market we choose not to play in. We're actually quite competitive... we choose to be in certain segments, and choose not to be in certain segments. Will downturn send people to lesser products? I'll be surprised if that happens in large numbers.
5:33 Netbooks - as far as we can tell, not a lot of them getting sold. One of our entrants into that category is the iPhone - using internet, email, via cellular network. We'll wait and see how that nascent category evolves, and have some pretty interesting ideas if it does evolve.
5:34 Channel inventory: Feel it's about right.
5:36 Why Mac sales weak? State and local budgets = lousy edu spending. 7% contractions significant change from first 3 quarters of the year. Purchases of 1,000 units or more were down both sequentially and y/y. Also think lots of people delaying purchases because of speculation about a new machine. Since announcing last week, considerable rebound in laptop sales.
5:38 "Not likely" Jobs will be back often. "I don't think I can add much."
5:39 How do you think about roadmap for 2009 for the phone? "I think we have to be the best," Jobs says. "Not leave a price umbrella underneath us." (Gene wants to know about iPhone family, which is part of his 45 million phones in 2009 prediction.)
5:41 Did you see decel. toward end of Sept. or is guidance trying to be as conservative as possible? iPod was up 8% on full quarter; final weeks of Sept. and Oct. running flat y/y on worldwide perspective. Very difficult to predict whether usual seasonal holiday lift will occur as it has before. On Mac, saw purchasing delays due to purchasing transition.
5:42 Performance of iPhone was astonishing, but probably moreso in this respect that most of the phones sold were probably net adds were probably upgrades from first gen. Any idea? Confidential information to carrier partners, but would point out that we expanded countries from 6 to 51; extraordinary number of iPhones being sold to people for first time.
5:44 Steve on RIM: "We're just happy to beat them on a number to number comparison."
5:44 iPhone prediction? We don't predict unit sales at a product level; did begin shipping in many more countries last quarter. 2 million units channel build; something you would have to take into account predicting fiscal Q1 sales. Will expand.
5:48 Steve, could probably hire every engineer in Silicon Valley and not really dent cash horde. Think there are opportunities for Apple outside of apple? Like acquisitions? Think there's going to be some signficant opportunities. "But hiring every engineer in Silicon Valley's a good idea. Thank you." Laughter.
5:49 Should we expect more affordable price points? Jobs: Want to deliver an increasing level of value. There are some customers that we choose not to serve. We do not know how to make a $500 computer that's not a piece of junk, and our DNA will not allow us to ship that.
5:51 How are you thinking about Apple TV? I think the whole category is still a hobby right now. I don't think anyone has succeeded at it, and the experimentation has slowed down. Given the economic conditions, given VC outlook, continue to think it'll be a hobby in 2009.
5:53 Can't talk about future products at this time. Really!
5:53 Treasury team has done amazing job with cash. Mark to market unrealized only $80 million on over $24 billion of cash. On receivable side, historically been very good in that area. Good people; stay on top of collection. Tough environment out there, being as careful as we can. Hopefully we won't have issues in the future.
5:54 iPod still filling channel at end of last quarter. At iPhone, thought we ended with right level of channel inventory. Today know of no issues filling supply. Working hard to fill back log on new products. Will see what trajectory of demand is, but think we can produce a lot.
5:56 Only one SKU in phone market; what are more opptys? Wasn't alive then, but Babe Ruth had only one home run. Just kept hitting it over and over again. Say wha? Traditional game in phone market has been to produce a voice phone in 100 different varieties. But as software becomes differentiating technology, I think people are going to find that 100 different options not compelling. Most people in phone business do not have much experience in software platform business. See phone business from a software platform company.
5:58 Mac area: How much was purchasing delay vs. economy? Will take a little while longer to know, meet demand.
5:59 That's it. Q&A wrapping up. More analysis to come, and join our live chat here.
Preview: Apple reports earnings after the close. The stock has been beaten up enough that it will likely take really bad news to pound the shares even lower. The big question is how conservative the company's Q1 guidance will be.
Apple's (AAPL) Sept. quarter Mac, iPod, and iPhone sales will give a solid indicator of the company's ability to power through a falloff in consumer spending. But investors will be paying the most attention to the forecast for the current quarter -- when the crappy economy meets the holiday shopping season. Get ready for some drama.
We'll cover Apple's earnings LIVE today, starting with live analysis of earnings and the conference call, which begins at 5 p.m. ET. Refresh this page or our homepage later today for a link to live coverage.
The Big Issue: Guidance
As has now been well-discussed, Apple's tendency is to lowball its guidance and then blow away those numbers. That's worked to some extent in the past, but backfired last quarter: In July, after Apple announced that it sold a record 2.5 million Macs in its third quarter, shares fell 11% because of the company's disappointing sales and gross margin forecast for the next quarter.
Investors have been through this enough times in Apple's current boom to now know to expect conservative guidance. But now there's a new variable: A cratering economy and the idea that consumers will spend less this holiday season. While iPhones, iPods, and new MacBooks are sexy in pretty much any economic climate, it's hard to tell what kind of predictions Apple will make.
Yesterday, Piper Jaffray analyst Gene Munster noted that over the last two years, Apple typically guides EPS 9% below Street consensus, and typically guides revenue 4% below expectations. (Yet the company's actual results have beaten the Street's EPS estimates by an average 27%, and revenue estimates by an average 4%.)
This quarter, Munster -- an Apple bull -- thinks the company will guide even more conservatively: revenue 15% below consensus to $10.1 billion and EPS 5% below consensus to about $1.41. Meanwhile, RBC's Mike Abramsky, also an Apple bull, expects the company to guide to $10.6-10.7 billion in sales -- above the Street's $10.57 billion published consensus -- and $1.55-1.65 in EPS -- below the current $1.65 published consensus.
Any guidance near, at, or (obviously) above consensus will likely drive shares skyward, and any sign of a consumer slowdown -- guidance below Munster's guesstimates, especially -- will spook investors.
See Also:
Apple Sept. Quarter Sales Point To Mac, iPod Upside
Apple Fans Predict Blowout Quarter...But All That Matters Is Guidance
Why Apple Won't Get Crushed By The Recession
