World of Apple

On Tuesday Apple announced that at its annual meeting with shareholders a proposal was passed “in favor of an annual advisory vote by shareholders on executive compensation,”

The proposal had been opposed by the board of directors. It urged the board to put up to shareholders a nonbinding resolution each year regarding pay of top executives. Reports Reuters.

Apple’s Chief Operating Office Tim Cook delivered a 45-minute question and answer session yesterday at the Goldman Sachs Investment Symposium. The Apple COO touched on many interesting subjects during the Q&A.

Apple Chief Operating Officer Tim Cook

The session is available for listening on Apple’s website.

The first interesting piece of information that Cook exposed was Apple’s reasoning behind a locked iPhone. The COO explained that it was difficult to please all users on all networks from the outset, conditions in the US make it impractical due to having to release a CDMA and GSM version of the device to suit all carriers.

He went on to say that the model could change with time but the plan is to provide the best possible experience, the partnership with Apple and AT&T allows for a large amount of coverage and a simple experience for consumers.

“We’re not married to any business model,” Cook stated. “What we’re married to is shipping the best phones in the world.”

Cook also reiterated that Apple is committed to hitting the 10 million iPhones shipped in 2008 target.

On the subject of unlocked iPhones the COO stated that the large number of hacked iPhones around the world was a good problem. The officer stated that he “look[s] at this ‘problem’ with a little bit of a smile. Having people stepping over each other for the phone isn’t a bad thing.”

Cook also touched on the following…

• Apple TV remains a “nichey” product but has “enormous opportunity.”
• The iPod shuffle saw a price cut due to sales dropping 17% globally last quarter.
• The iPhone price cut was to grow the user base and attract developers.
• The upcoming iPhone SDK would let programmers “only be limited by [their] imagination.”
• No further details on the SDK were offered to keep “the element of surprise” for next weeks event.

AppleInsider has published a “private communication” from last week in which Steve Jobs “acknowledged the beating his company’s shares have taken during this time of economic uncertainty, but remained confident that investors would inevitably recoup their losses and then some.”

Steve Jobs attached this stock performance chart onto his private internal email

“Wow… what a remarkable last few days,” he wrote in an email to employees. “Our stock is being buffeted around by factors a lot larger than ourselves.”

“As you can see, we have outperformed many other blue-chip tech companies, including Google,” he wrote, attaching a stock performance comparison chart for illustration. “I continue to believe that our fundamentals - our remarkable people, our clear and focused strategy, our new product pipeline, our 200+ retail stores, our $18 billion of cash in the bank with no debt, etc., will serve us well in the coming months and years.”

At the end of the email Jobs expressed his confidence that those who remain loyal to their positions in Apple would reap the benefits in the long run.

“I believe that investors who stay with us will be rewarded as the market’s confidence is restored over time,” he wrote. “Hang in there.”

Apple’s stock which hovered around $200 towards the end of 2007 has dropped as low as $130 recently.

Yesterday Apple filed a 14A (PDF download) with the SEC, the details of the 14A document show the compensation given to company executives during 2007.

Steve Jobs continues to be paid a $1 salary and received no stock options during 2007. The CEO does however own 5.5 million shares in AAPL and is yet to sell any since rejoining Apple in 2007.

Chief Operation Office Tim Cook was paid $700,014 in salary, earned a $700,000 bonus and received $6.943 million in stock awards. With other compensation (a $13,750 401K contribution and $250 iPhone credit), Cook earned $8,357,190 in 2007.

Chief Financial Officer Peter Oppenheimer was paid $600,012 in salary, earned a $600,000 bonus and received $4.946 million in stock awards. With other compensation (a $13,750 401K contribution, $250 iPhone credit, and $584,973 reimbursement for tax liabitity), Opppenheimer earned $6,745,345 in 2007.

Senior Vice President of Retail Ron Johnson was paid $600,012 in salary, earned a $600,000 bonus and received $4.946 million in stock awards. With other compensation ($379 iPhone credit), Johnson earned $6,147,001 in 2007.

The final executive officer to be detailed in the report is Tony Fadell, Senior Vice President of the iPod Division who earned $500,009 in salary, received a $500,000 bonus and was awarded $3.706 million in stock. With other compensation ($6,750 in patent bonus, $13,500 in 401K, $379 iPhone credit, $73 iPod credit), Fadell earned $5,355,171 in 2007

Apple has posted revenue of $9.6 billion and net quarterly profit of $1.58 billion, or $1.76 per diluted share during the 1Q 2008 (ending December 29th). Comparing to revenue of $7.1 billion and net quarterly profit of $1 billion, or $1.14 per diluted share, in the year-ago quarter.

Gross margin was 34.7 percent, up from 31.2 percent in the year-ago quarter. International sales accounted for 45 percent of the quarter’s revenue.

Apple shipped 2,319,000 Macs, representing 44 percent unit growth and 47 percent revenue growth over the year-ago quarter. Apple also sold 22,121,000 iPods during the quarter, representing five percent unit growth and 17 percent revenue growth over the year-ago quarter. Quarterly iPhone sales were 2,315,000.

“We’re thrilled to report our best quarter ever, with the highest revenue and earnings in Apple’s history,” said Steve Jobs, Apple’s CEO. “We have an incredibly strong new product pipeline for 2008, starting with MacBook Air, Mac Pro and iTunes Movie Rentals in the first two weeks.”

“Apple’s revenue grew 35 percent year-over-year to $9.6 billion, an increase of almost $2.5 billion over the previous December quarter’s record-breaking results,” said Peter Oppenheimer, Apple’s CFO. “Our strong results produced cash flow from operations of over $2.7 billion during the quarter, yielding an ending cash balance of over $18.4 billion. Looking ahead to the second quarter of fiscal 2008, we expect revenue of about $6.8 billion and earnings per diluted share of about $.94.”

On January 22nd Apple will announce its first fiscal quarter of 2008 financial results, the company will hold a webcast for investors.

The webcast will begin at 2:00pm PT/5:00pm ET/10.00pm GMT.

Apple is expected to outperform its guidance of iMac and iPod sales for the quarter.

The street is widely expecting Apple to deliver sales of 23.2 million iPods, 2.2 million Macs and earnings of $1.53 per share on $9.3 billion. Apple offered guidance earnings of $1.42 in per share earnings on sales of $9.2 billion.

O2 CEO, Matthew Key was reportedly in California last week briefing Apple CEO, Steve Jobs on the iPhones impact on the UK market, reports Andrew Parker for The Financial Times.

“Mr Key says 200,000 iPhones should have be sold in Britain by early January - in line with his expectations since its November 9 launch, although some analysts claim his target is conservative. Gartner, the research firm, says sales of up to 400,000 should be possible,” Parker reports.

The FT.com reporter wrote that “A 3G version of the iPhone will be launched by Apple next year; Mr Key is confident that O 2 will also have an exclusive deal for the mark two device.”

“O2 has signed a multi-year deal with Apple for the iPhone, and Mr Key insists Vodafone, for example, could not muscle in and take the 3G iPhone in the UK.”

“About 60 per cent of iPhone customers are sending or receiving more than 25 megabytes of data per month, which is the equivalent of sending 7,500 e-mails. By comparison, only 1.8 per cent of O2 ’s other mobile customers on monthly contracts are consuming more than 25MB per month,” Parker reports. “The O2 research suggests that, after years of dashed hopes for the operators, customers are on the verge of surfing the web on their mobiles in significant numbers.”

Apple has recently published its annual report for the 2007 financial year (PDF) to the end of September.

The report reveals the company’s concerns over new suppliers, component supply concerns, major retail expansion and rising rewards for executives.

The report goes into detail about Apple’s record-breaking year as well as warning that CEO Steve Jobs may see his annual compensation rise.

“Because Mr Jobs’s continued leadership is critical to Apple, the Compensation Committee is considering additional compensation arrangements for him,” the filing states.

Jobs’ private jet worth $46 million

Jobs is famously paid a $1 salary but Apple also pays for the maintenance and running costs of his private Gulfstream Jet which was gifted to him in 1999. Apple paid out $776,000 in maintenance on the jet in the financial year, up from $202,000 in 2006 and down on the $1.1 million spent in 2005.

Also of note, Steve Jobs did not received a free iPhone from the company unlike every other Apple employee, the chief did receive an iPod but it is unknown whether it was a gift or reward.

Steve Jobs remains Apple’s second largest share holder with 5.5 million shares, the report states that Jobs has never sold any of them.

Jobs took advantage of a 30,000 share grant provided to him shortly after his return in 1997, but appeared to only do so as the grant expiry date was approaching. The surge in Apple’s share numbers and stock value since the options were granted a decade ago gave the executive 120,000 new shares worth more than $14.6 million.

At the end of Apple’s fiscal 2007 year it had opened a total of 197 Apple Retail Stores across the US, UK, Canada, Japan and Italy.

Apple’s employee base also shot up by around 4,000 employees; jumping from 17,787 to 21,600, most of the new hires in the retail operation.

The company’s hold on the flash memory market remains strong, the report reveals. Apple paid its flash suppliers a $1.25bn advance in 2006, but as of 29 September 2007, just $208m of the advance had been spent - despite the growing demand for flash.

Apple generated $24b in revenue for 2007, returning $3.5bn in net profit. It generated $19.3bn in revenue and $2bn in profit in 2006.

The report also confirms the company invested $782 million in research and development and $467 million on advertising during the 2007 financial year.

Talking to the The Times Online today, Peter Erskine, chief executive of Telefonica’s 02 Europe said that the iPhone “has been the fastest-selling device we have ever seen.”

“The phone had sold ‘in the tens of thousands’ since its launch on Friday,” he said in an interview with the paper.

When speaking to Thomson Financial Erskine declined to reveal how many iPhones it has sold, as the exclusive mobile network for the handset.

“He said early sales had been in line with its original expectations and customers had found the new handsets easy to use,” Thomson Financial reports.

Apple’s senior vice president of retail operations, Ron Johnson has very recently exercised options and then sold 700,000 shares worth around $130 million.

According to files made at the Securities and Exchange Commission the retail chief exercised the 700,000 options at $23.72 apiece on Friday, October 26 and then turned around sold the shares on the open market from $185 to $185.21 each.

Just over 606,000 of the shares which were acquired under Apple’s 1997 Employee Stock Option Plan were sold for $185, the remaining were sold at various intervals with Apple’s share price ranging from $185.01 to $185.21.

Johnson’s estimated net profit on the options is approximately $113 million before taxes.