World of Apple

Key stats

• Q209 revenue: $8.16 billion vs. $7.69 billion market consensus (6% y/y growth)
• Q209 EPS: $1.33 vs. $1.09 consensus
• Q209 Mac shipments: 2.2 million vs. 2.1 million consensus (3% y/y decline)
• Q209 iPod shipments: 11.0 million vs. 10.0 million consensus
• Q209 iPhone shipments: 3.79 million vs. 3.3 million consensus (most later adjusted to 3.7 million)

Apple today announced financial results for its fiscal 2009 second quarter ended March 28, 2009. The Company posted revenue of $8.16 billion and a net quarterly profit of $1.21 billion, or $1.33 per diluted share. These results compare to revenue of $7.51 billion and net quarterly profit of $1.05 billion, or $1.16 per diluted share, in the year-ago quarter. Gross margin was 36.4 percent, up from 32.9 percent in the year-ago quarter. International sales accounted for 46 percent of the quarter’s revenue.

In accordance with the subscription accounting treatment required by GAAP, the Company recognizes revenue and cost of goods sold for iPhone and Apple TV over their estimated economic lives. Adjusting GAAP sales and product costs to eliminate the impact of subscription accounting, the corresponding non-GAAP measures* for the quarter are $9.06 billion of “Adjusted Sales” and $1.66 billion of “Adjusted Net Income.”

Apple sold 2.22 million Macintosh computers during the quarter, representing a three percent unit decline from the year-ago quarter. The Company sold 11.01 million iPods during the quarter, representing three percent unit growth over the year-ago quarter. Quarterly iPhone units sold were 3.79 million representing 123 percent unit growth over the year-ago quarter.

“We are extremely pleased to report the best non-holiday quarter revenue and earnings in our history,” said Peter Oppenheimer, Apple’s CFO. “Apple’s financial condition remains very robust, with almost $29 billion in cash and marketable securities on our balance sheet. Looking ahead to the third fiscal quarter of 2009, we expect revenue in the range of about $7.7 billion to $7.9 billion and we expect diluted earnings per share in the range of about $.95 to $1.00.”

Apple has today reminded members of the media and financial industry that it will announce it’s fiscal Q209 results on Wednesday, April 22, 2009, 2:00 p.m. PDT/5:00 p.m. EDT.

The conference call can be streamed online live at www.apple.com/quicktime/qtv/earningsq209/ and will also be available for replay for approximately two weeks.

Ever accurate “amateur analyst” Andy Zaky has given his usual breakdown of what he believes Apple will reveal for the past financial quarter.

During the Q109 conference call Apple announced that looking forward to the second fiscal quarter results the company would expect “revenue in the range of about $7.6 billion to $8 billion and we expect diluted earnings per share in the range of about $.90 to $1.00.”

Apple is usually very conservative in its predictions but Zaky predicts that Apple will announce “$1.19 in EPS on $8.318 billion in revenue on a GAAP basis” and “On a non-GAAP basis, I expect Apple to earn $1.59 in EPS on $8.798 billion in revenue.”

Zaky also predicts that Apple could have sold about 10.5 million iPods, 2.45 million Macs and 3 million iPhones during the second fiscal quarter of 2009.

Analyst Shaw Wu for Kaufman Brothers has increased his price target on Apple from $120 to $152 on Monday.

In Wu’s report the analyst argues that Apple is bucking the trend, up 45% since November compared to the NASDAQ at 20% and S&P500 up 7%. Additionally Wu gave some reasons for further Apple growth; WWDC is coming up in June where Apple is expected to release iPhone OS 3.0 and unveil new iPhone hardware, Mac sales are improving due to refreshes across the board and finally Wu describes “The potential for a new form factor, perhaps Apple’s answer to the netbook, with a large screen iPod touch-Mac hybrid.”

Apple is set to reveal fiscal Q2 results on Wednesday April 22 and seems to be causing a flurry of changes across analysts. Last week Barclays analyst Ben Reitzes raised his price target for Apple to $143 from $113.

Monday also saw Caris & Co.’s Robert Cihra raise his target to $150 from $120.

As journalists are not officially allowed to enter the shareholders meeting and attendees are not permitted to have communication devices details of the meeting often trickle through several hours after the close of the meeting.

According to a detailed account by Prince McLean both a shareholder and blogger for AppleInsider the meeting was dominated by politics but also gave way to a happy birthday rendition and some questions for the executive team.

Both McLean and the Associated Press are reporting that Tim Cook fielded a question on Steve Jobs’ plans in which Cook assured investors, and shareholders that Steve Jobs plans to return to the company in June.

The investor had pressed for details about when the board of directors knew Jobs planned to step away from his daily duties. Apple director Arthur Levinson responded only by saying that since Jobs announced Jan. 14 that he needed to go on leave, “nothing has changed.”

Also despite the ban on communication devices some members of the Investor Village’s AAPL Sanity board posted a live blog from the event.

Here’s what they filed (all times EST):

12:04 Cheddarmuff: Just waiting to go in to the meeting. Hanging out with idannyb in the hall. Another solid apple shareholder.

No sign of Goldman yet… more to come later.

12:21 idannyb: Cheddarmuff and I are in the meeting now … Music playing and shareholders filing in. Reuters cornered us to ask a few questions. Apple rep tried to give the reporter the bums rush.

12:46 Cheddarmuff: They separated the media from the shareholders. Not sure who we will and won’t see at this point.

Agenda

1 welcome and intro’s
2 admin (quorum, etc)
3 present board nominees
4 stmts to shareholders and presentation of shareholder proposals
5 other
6 vote
7 q and a

Mgmt team just came in. Phil, johnny, tim

Gore is here.

12:51 Cheddarmuff: Andrea Jung from Avon is here

Looks like most of the mgmt team is here (no Steve of course).

About to begin.

12:54 idannyb: The BOD have taken seats
Gore and Andre Jung (Avon) + full Apple ex mgmt team (sans SJ) -TC, PO, jonny Ive, Ron J., Phil S.
TC….
Starting intros

12:54 Cheddarmuff: Tim talking

Dan cooperman general counsel.

Whole board is here. Tim said no jobs due to medical leave.

1:05 Cheddarmuff: “I am not a crook ” Shelton is not a fan of al gore. Already some drama and comedy (cracking jokes about this being like the academy awards…board election)

1:08 idannyb: Environmental activist now railing about Apple environmental sustainability. Calling out Gore

1:10 Cheddarmuff: Talking about political spending proposal. UAW rep talking

Hp, dell are better than apple at disclosing information.

1:21 Cheddarmuff: Starting to interesting…I like Sheldon, keeps it interesting. Just called the people proposing socialists.

Now talking about climate change.

There was one attempt to talk about jobs health that was shot down quick. Bet there will be more in the Q&A

1:23 idannyb: AFLCIO made a speech on universal health care … Tried to bring up SJ health. Cooperman cut him off
Another shareholder railed over “socialist” AFLCIO… Used profanity and then left the mtg.

Another environment activist took tv mike blasted Gore… Wants AAPL to get greener

1:32 Cheddarmuff: About to move toward q and a. Should be interesting.

1:40 idannyb: Proxy stuff over
TC PO and DC now on stage
Apple has increase rev 4xs in 4 yrs
$8 billio to $32 billion… Income growth even better
Mac and iPod share growing
iPhone 13.7 million iphone’s in 2008
Macbooks very green
iTunes team sold more of something than Walmart
iPhone in 70 countries
App Store success is staggering
Retail opened a store per week
Best experience
Top notebook provider to education in US
T Cook is on a roll!

1:44 idannyb: AFLCIO hitting hard on SJ health
Art Levenson responding.. Nothing new disclosed
We have met all disclosure

1:46 Cheddarmuff: First question about disclosure of Jobs health quoting 10b-5 rules. Saying company should correct bad data

Arthur levinsom responding…jobs still involved. Succession plan has regularly discussed. No disclosure about health or plan.

Next person is complimenting company for beautiful products. Wishes Steve well. Singing happy birthhday to Steve..EVERYONE singing.

[1:51 Reuters is reporting that the shareholders voted to re-elect the company's slate of directors and voted down several shareholder-sponsored resolutions regarding executive pay, sustainability and healthcare reform. (link)]

1:52 Cheddarmuff: Next person asking why there isn’t more diversity in exec team.

Tim- we take diversity very seriously.

Next person… Long preamble and complaining that apple is getting out of macworld.

Tim- I have very fond memories of Macworld. Where we are now with retail investment blows macworld out of the water. Also we can announce press conferences whenever we want now which is better for the company.

1:57 idannyb: TC responding to “keep macworld” speech… Spoke eloquently about Apple stores, Apple reaching so many customer and platform build of iphone and app store

1:59 idannyb: Far more responses being delivered by BOD members

2:04 idannyb: Too many soap box agenda driven questions this year…
No core shareholder vaule Qs
Tempted to grab a mic but mtg winding down

2:22 Cheddarmuff: Meeting over. I got to talk with Tim Cook after the meeting…a very nice guy. We overheard a discussion with Peter as well.

Got to talk with Jim Goldman on the way out. Nice guy.

# # #

At today’s annual shareholders meeting the entire eight member board was re-elected despite concerns over the way it handled Steve Jobs’ health issues and four proposals were voted down.

The eight board members include; Al Gore Jr. (chair of Alliance for Climate Protection, Generation Investment Management, and Current TV), Steve Jobs (Apple’s CEO), Andrea Jung (CEO of Avon), Arthur Levinson (CEO of Genentech), Eric Schmidt (CEO of Google), Jerome York (CEO of Harwinton Capital), Bill Campbell (CEO of software maker Intuit), and Millard “Mickey” Drexler (CEO of retailer J. Crew).

In addition shareholders also voted down four proposals put forward by investors who have a large enough share in Apple to suggest major changes in company operation.

The proposals can be seen in the proxy documents starting on page 39 (document page 41).

On Wednesday February 25th 2009 Apple will hold its annual shareholders meeting and CEO Steve Jobs will not be attending for the first time in more than ten years.

As Bloomberg reports the meeting will give shareholders a chance to question Apple executives and directors on the state of Apple and most likely Steve Jobs’ health.

Steve Jobs has been on medical leave from Apple since mid-January and is set to return to the company in June.

Earlier this week AT&T reported its fourth quarter fiscal results for 2008, in the announcement Apple’s official iPhone carrier in the United States said that it had activated 1.9 million iPhones during the quarter. The numbers are down from 2.4 million activations in AT&Ts third quarter but the activations as a while have played a key role in AT&Ts growth.

AT&Ts CEO Randall Stephenson attributed iPhone sales as reason why AT&T fought the economy to report revenues up 2.4% (to $31.1 billion).

“The success of our iPhone 3G launch has driven wireless growth and helped redefine the wireless data space.”

Fortune offers some analysis of Apple’s deal with AT&T and in particular what has caused such growth for AT&T in 2008.

AT&T has activated 4.3 million iPhone 3Gs since its launch, 1.9 million in Q4 alone — more than double its iPhone activations one year earlier.
The average revenue from Phone users is 60% higher than the typical AT&T customer — thanks to that $30 per month data fee. Their heavy use of Web services helped drive AT&T wireless data use up 51.2% year to year, which as reader Jon in Brentwood, Calif., points out is not necessarily a good thing.
About 40% of the iPhone activations this quarter were new AT&T customers, either buying their first cellphone or switching from another carrier.
The churn rate — the percentage of customers who drop AT&T’s service — among iPhone owners is significantly lower than the rest of the network, sharply reducing marketing costs.

Analyst Shaw Wu for Kaufman Brothers has stated in a report to clients some potential reason why Apple’s iMac desktop computer has yet to be updated.

“We wanted to give an update on the Mac business from what we are picking up from our latest supply chain checks,” writes Wu in the note released Monday. “While new the iMac appears to be almost ready for primetime, what is holding it up appears to be business reasons and a potential small technical hurdle.”

According to Wu’s supply chain checks Apple is:

• Undecided on whether to use a quad-core processor or new higher powered dual-core processors. Wu noted that “While quad-core would provide a material improvement in performance and potentially jump start sales,” adding, “it could cannibalize the Mac Pro, its high-end tower.”
• Looking into whether the iMac’s cooling systems require redesigning “to deal with higher heat dissipation.”
• Delaying the release of the iMac due to the time of Snow Leopard. “While Leopard would take advantage of multiple cores, Snow Leopard takes it to the next level with better support for multi-core, multi-processors, and OpenCL, with enhanced graphics capability,” Wu wrote.

Wu retain his AAPL price target of $120.

After announcing record breaking revenue in the first fiscal quarter of 2009, Peter Oppeinheimer and Tim Cook held a conference call with analysts and members of the media to answer any queries.

During the call which will be available for replay shortly the two senior executives fielded questions on most subjects.

Netbooks

When asked about a netbook priced at around $500, Cook answered, “We’re watching that space, but right now from our point of view, the products in there are principally based on hardware that’s much less powerful than we think customers want, software technology that is not good, cramped keyboards, small displays.”

Adding, “We don’t think people will be pleased with those products. It’s a category we watch, we’ve got some ideas here, but right now we think the products are inferior and will not provide an experience to customers they’re happy with.”

Apple TV

During the call and in it’s results Apple declined to give specific numbers of how many Apple TV units it had shipped but Tim Cook did disclose that sales were up 300% year-over-year. Apple still considers Apple TV a hobby but Cook said, “We will continue to invest in it because we fundamentally believe there’s something there in the future.”

Steve Jobs

The question was inevitable and Barclays Capital analyst Ben Reitzes couldn’t help himself and asked straight up how Jobs was doing. Naturally Oppenheimer repeated the current Apple mantra, “Steve is the CEO of Apple and intends to be involved in major strategic decisions”.

Cook added that Apple has a strong executive team in charge of 35,000 employees who he described as “wicked smart”. Cook went onto explain that the values of Apple are “extremely well-entrenched,”

“And frankly, we don’t settle for anything less than excellence in every group in the company, and the self-honesty to admit where we’re wrong. And I think regardless of who is in what job, those values are so embedded in this company that Apple will do extremely well. I would just reiterate that Apple is doing the best work in its history,” said Cook.

iPhone nano

In response to a question on iPhone pricing Apple COO Tim Cook replied, “We are now in over 70 countries with the iPhone and you’re correct, some of them are non-subsidized markets. Examples are, the largest is in terms of size of the market, our sales are clearly materially less in those markets than they are in the subsidized markets with contracts. We are constantly evaluating the best way to play in these markets. We know there’s a huge opportunity here, and we will make adjustments in the future there to play in a better way.”

Cook went onto talk about speculation around the iPhone nano saying, “You know us, we’re not going to play in the low-end voice phone business. That’s not who we are. That’s not why we’re here. We’ll let somebody do that, our goal is not to be the unit share leader in the phone industry. It is to build the best phone.”

Apple today announced financial results for its fiscal 2009 first quarter ended December 27, 2008. The Company posted record revenue of $10.17 billion and record net quarterly profit of $1.61 billion, or $1.78 per diluted share. These results compare to revenue of $9.6 billion and net quarterly profit of $1.58 billion, or $1.76 per diluted share, in the year-ago quarter. Gross margin was 34.7 percent, equal to the year-ago quarter.

International sales accounted for 46 percent of the quarter’s revenue.

In accordance with the subscription accounting treatment required by GAAP, the Company recognizes revenue and cost of goods sold for iPhone and Apple TV over their economic lives. Adjusting GAAP sales and product costs to eliminate the impact of subscription accounting, the corresponding non-GAAP measures for the quarter are $11.8 billion of “Adjusted Sales” and $2.3 billion of “Adjusted Net Income.”

Apple sold 2,524,000 Macintosh computers during the quarter, representing nine percent unit growth over the year-ago quarter. The Company sold a record 22,727,000 iPods during the quarter, representing three percent unit growth over the year-ago quarter. Quarterly iPhone units sold were 4,363,000, representing 88 percent unit growth over the year-ago quarter.

“Even in these economically challenging times, we are incredibly pleased to report our best quarterly revenue and earnings in Apple history—surpassing $10 billion in quarterly revenue for the first time ever,” said Steve Jobs, Apple’s CEO.

“Our outstanding results generated over $3.6 billion in cash during the quarter,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the second fiscal quarter of 2009, we expect revenue in the range of about $7.6 billion to $8 billion and we expect diluted earnings per share in the range of about $.90 to $1.00.”