Apple Profits Boosted By Mac and iPhone Sales

EnterpriseFinancial MarketsMacWorkspace

Apple reports strong fiscal fourth-quarter results based on increased Mac and iPhone sales, although its iPod sales declined from the same quarter in 2008

Apple announced on 19 Oct fiscal fourth-quarter results that trumped Wall Street expectations, with revenue of $9.87 billion and a net quarterly profit of $1.67 billion ($1bn). During the quarter, Apple sold about 3.05 million Macs, a 17 percent year-over-year rise, and 7.4 million iPhones, a 7 percent increase over the same quarter in 2008.

Despite those rising sales, Apple faced a decline in its total number of iPods shipped. The 10.2 million portable media units moved during the quarter represented an 8 percent decline over the same quarter in 2008.

Apple CEO Steve Jobs issued a brief statement ahead of Apple’s earnings call: “We are thrilled to have sold more Macs and iPhones than in any previous quarter,” Jobs wrote. “We’ve got a very strong lineup for the holiday season and some really great new products in the pipeline for 2010.”

Jobs, however, was not present during the earnings call. Apple Chief Financial Officer Peter Oppenheimer, speaking on the call, declined to cite sales numbers for the “Snow Leopard” operating system, but said it had generated box sales at a rate twice that of its predecessor, “Leopard.” He also announced that the iPhone would begin selling in China on 30 Oct, initially from 1,000 different points of sale.

“Mac is showing fantastic momentum,” Oppenheimer said, adding that the rise in computer sales could be at least partially attributed to Apple’s “innovation.”

During the analyst question-and-answer session following the earnings announcement, Oppenheimer suggested that, in the event of the iPhone breaking out of its AT&T exclusivity in the United States, pricing for the device may not change substantially.

“Generally speaking, for markets where we’re already selling, I’m not expecting to see a wholesale price different as we bring on different carriers,” Oppenheimer said. “The end-user price is set by carriers, so you might not see a street-price difference.”

Apple Chief Operating Officer Tim Cook suggested that, for the Mac market, “last quarter was the quarter of the portable, up 35 percent year over year.” The level of 3 million sales, he said, was above the company’s internal targets.

With regard to a rising amount of competition in the smartphone market, Cook said, “[With] the ecosystem we [have] with iTunes and the App Store … plus the very strong public pipeline that we have, we feel very, very good about competing against anyone.”

Adding a bit of bravado to an otherwise dry call, Cook said, “I think people are really just trying to catch up with the first iPhone that was put out two years ago.”

Cook also described enterprise adoption of the iPhone as “strong,” adding, “We feel good about the progress that we’ve made.”

Analysts had predicted that Apple would post strong numbers, with estimates of $1.42 per share on $9.2 billion in revenue for the quarter, a substantial increase over the $7.9 billion earned during the same quarter in 2008.

Apple’s own tradition of conservative reporting led it to estimate quarterly revenue in the neighborhood of $8.7 billion to $8.9 billion, even as strong sales of the iPhone 3GS—which sold over a million units in the three days following its June release—and publicity surrounding the return of Steve Jobs from medical leave and the downloading of the 2 billionth iPhone App virtually guaranteed strong overall cash flow.

With regard to Mac sales, Apple could find itself challenged by the 22 Oct.  release of Windows 7, which has earned relatively positive reviews for Microsoft and which is seen by many analysts as the catalyst for a massive tech refresh to come. Aware of the need to reverse a declining revenue trend in 2009, Microsoft is putting considerable financial resources into the Windows 7 marketing campaign, which could lead to substantial early sales.

According to Oppenheimer, Apple also expects a decline in its gross margins in the next quarter, caused partially by a combination of lowered Snow Leopard sales, rising air freight costs and lower margins on new products. He predicted that earnings for the next quarter would be $11.3 billion