Apple Blasts Past the Forecasts
The iPod, iPhone, and especially the Mac fueled a record-breaking quarter. And Apple expects to beat the consensus again next quarter
by Arik Hesseldahl ( BUSINESS WEEK)
Superlatives were in short supply for anyone looking for perspective on Apple's financial results released Oct. 22. The consumer electronics company shattered records in its fiscal fourth quarter, and its forecast for the current period blew past Wall Street's most optimistic predictions. One of the only questions left for analysts in the aftermath concerns what Apple will do for an encore.
For the most recent quarter, Apple (AAPL) reported $6.2 billion in sales, a fourth-quarter record, and finished the fiscal year with sales of $24 billion, beating by $4.5 billion its previous best for annual sales. Apple also reported profit of $904 million, or $1.01 a share. In extended trading, investors propelled the stock $11.99, or 6.9%. That left Apple's share price north of $186 and brought it within spitting distance of the $200 price target set by many analysts.
Then Apple executives let loose with an even bigger surprise: Rather than give conservative guidance for this quarter—the period that includes the all-important holiday season—they reported expectations that were well ahead of the Wall Street consensus. Apple forecast fiscal first-quarter sales of $9.2 billion, compared with analysts' forecasts for sales of $8.58 billion. Apple also said it expects per-share earnings of $1.42—3¢ higher than the consensus analyst estimate.
On a conference call, analysts repeatedly probed Apple Chief Operating Officer Timothy Cook and Chief Financial Officer Peter Oppenheimer about what it meant, and despite all the good news, some were left scratching their heads at the stick-to-the-script answers they received. "I can't remember the last time they guided above the consensus," says Shaw Wu, an analyst at American Technology Research in San Francisco. "Are they being aggressive or is this another conservative forecast?" Shannon Cross of Cross Research wondered whether "they're just getting better at predicting their numbers or what, but they're certainly setting the stage for an extremely strong quarter."
The Mac Leads the Way
The quarter just ended was notable for many other things: Mac sales were in record territory. Driven by yet another record-breaking performance in higher-education sales, Apple moved nearly 2.2 million Macintosh computers to generate $3.1 billion, or almost 50% of the quarterly total. Mac sales were up by more than a half-million units from a year earlier. For the year, Apple sold more than 7 million Macs, a surge of more than 3 million units over 2006. "To me this quarter was more about the Mac than anything else," including the iPhone, introduced on the eve of the fourth period, says Charles Wolf, head of Wolf Insights in New York. He said Mac sales are benefiting from rising interest in the iPod and Apple's decision to make it easier for Macs to run Microsoft's (MSFT) Windows operating system. "Forget the phone," he says. "The iPod is still providing the halo for the Mac, and the retail stores are still bringing in 100 million people a year—60 to 70 million of which are Windows users. Now that Macs can run Windows, the biggest barrier to switching is gone."
Sales of the iPod didn't break a record, for once, but came in at 10.2 million units—up 17% from a year earlier, for $1.6 billion in sales, or 26% of revenue. And the gadget no one can seem to stop talking about—the iPhone—did its part for Apple's results as well. Apple sold 1,119,000 iPhones during the quarter, bringing its cumulative total to 1.4 million units sold in 92 days on the market.
Apple also broke records through its retail stores, selling 473,000 Macs, a 46% increase. With 197 stores operating during the quarter, Apple said it expects to open 40 more this year, including one in Shanghai.
What to Do With All That Cash?
Even record-shattering quarters can leave questions unanswered for investors. Apple is finishing the year with more than $15 billion in cash and short-term investments, or more than $17 per share. That's going to cause some to wonder whether Apple ought to pay a dividend or buy back more stock. And the high share price may spark rumors of a split. "Sure, the pressure is going to continue to build for a dividend, but then, management has been taking money out and investing it in the business," Cross says.
That pile of cash will also make for a powerful hedge against supply constraints on the crucial components used in devices including the iPod, says AmTech's Wu. With flash-memory chips used so widely in iPods and the iPhone family and the likelihood that they'll soon be in mainstream personal computers, Apple could use its cash pile, as it has in the past, to negotiate supply contracts with companies like Samsung, Hynix, Micron Technology (MU), Toshiba, and others. "We don't exactly know what their next big component need is going to be," he says. "I think that's one reason they keep so much cash on hand. But it's also a very fiscally conservative company. Management remembers the bad times, when there wasn't enough cash around."
Hesseldahl is a reporter for BusinessWeek.com .
The iPod, iPhone, and especially the Mac fueled a record-breaking quarter. And Apple expects to beat the consensus again next quarter
by Arik Hesseldahl ( BUSINESS WEEK)
Superlatives were in short supply for anyone looking for perspective on Apple's financial results released Oct. 22. The consumer electronics company shattered records in its fiscal fourth quarter, and its forecast for the current period blew past Wall Street's most optimistic predictions. One of the only questions left for analysts in the aftermath concerns what Apple will do for an encore.
For the most recent quarter, Apple (AAPL) reported $6.2 billion in sales, a fourth-quarter record, and finished the fiscal year with sales of $24 billion, beating by $4.5 billion its previous best for annual sales. Apple also reported profit of $904 million, or $1.01 a share. In extended trading, investors propelled the stock $11.99, or 6.9%. That left Apple's share price north of $186 and brought it within spitting distance of the $200 price target set by many analysts.
Then Apple executives let loose with an even bigger surprise: Rather than give conservative guidance for this quarter—the period that includes the all-important holiday season—they reported expectations that were well ahead of the Wall Street consensus. Apple forecast fiscal first-quarter sales of $9.2 billion, compared with analysts' forecasts for sales of $8.58 billion. Apple also said it expects per-share earnings of $1.42—3¢ higher than the consensus analyst estimate.
On a conference call, analysts repeatedly probed Apple Chief Operating Officer Timothy Cook and Chief Financial Officer Peter Oppenheimer about what it meant, and despite all the good news, some were left scratching their heads at the stick-to-the-script answers they received. "I can't remember the last time they guided above the consensus," says Shaw Wu, an analyst at American Technology Research in San Francisco. "Are they being aggressive or is this another conservative forecast?" Shannon Cross of Cross Research wondered whether "they're just getting better at predicting their numbers or what, but they're certainly setting the stage for an extremely strong quarter."
The Mac Leads the Way
The quarter just ended was notable for many other things: Mac sales were in record territory. Driven by yet another record-breaking performance in higher-education sales, Apple moved nearly 2.2 million Macintosh computers to generate $3.1 billion, or almost 50% of the quarterly total. Mac sales were up by more than a half-million units from a year earlier. For the year, Apple sold more than 7 million Macs, a surge of more than 3 million units over 2006. "To me this quarter was more about the Mac than anything else," including the iPhone, introduced on the eve of the fourth period, says Charles Wolf, head of Wolf Insights in New York. He said Mac sales are benefiting from rising interest in the iPod and Apple's decision to make it easier for Macs to run Microsoft's (MSFT) Windows operating system. "Forget the phone," he says. "The iPod is still providing the halo for the Mac, and the retail stores are still bringing in 100 million people a year—60 to 70 million of which are Windows users. Now that Macs can run Windows, the biggest barrier to switching is gone."
Sales of the iPod didn't break a record, for once, but came in at 10.2 million units—up 17% from a year earlier, for $1.6 billion in sales, or 26% of revenue. And the gadget no one can seem to stop talking about—the iPhone—did its part for Apple's results as well. Apple sold 1,119,000 iPhones during the quarter, bringing its cumulative total to 1.4 million units sold in 92 days on the market.
Apple also broke records through its retail stores, selling 473,000 Macs, a 46% increase. With 197 stores operating during the quarter, Apple said it expects to open 40 more this year, including one in Shanghai.
What to Do With All That Cash?
Even record-shattering quarters can leave questions unanswered for investors. Apple is finishing the year with more than $15 billion in cash and short-term investments, or more than $17 per share. That's going to cause some to wonder whether Apple ought to pay a dividend or buy back more stock. And the high share price may spark rumors of a split. "Sure, the pressure is going to continue to build for a dividend, but then, management has been taking money out and investing it in the business," Cross says.
That pile of cash will also make for a powerful hedge against supply constraints on the crucial components used in devices including the iPod, says AmTech's Wu. With flash-memory chips used so widely in iPods and the iPhone family and the likelihood that they'll soon be in mainstream personal computers, Apple could use its cash pile, as it has in the past, to negotiate supply contracts with companies like Samsung, Hynix, Micron Technology (MU), Toshiba, and others. "We don't exactly know what their next big component need is going to be," he says. "I think that's one reason they keep so much cash on hand. But it's also a very fiscally conservative company. Management remembers the bad times, when there wasn't enough cash around."
Hesseldahl is a reporter for BusinessWeek.com .
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