World of Apple

On Wednesday January 21st at 2:00 p.m. PST/5:00 p.m. EST/ 10.00 p.m. GMT Apple will unveil it’s first quarter financial results for the fiscal year 2009.

Apple will provide live audio streaming of its FY 09 First Quarter Results Conference Call utilising Apple’s QuickTime. The live webcast will begin at 2:00 p.m. PST on January 21, 2009 at www.apple.com/quicktime/qtv/earningsq109/ and will also be available for replay for approximately two weeks thereafter.

Last quarter Apple offered a guidance for the Q109 quarter of $1.06 – $1.35 profit on $9.0 – $10.0 billion of revenue. Compare this to Q108 when Apple reported net earnings of $1.76 per share on revenue of $9.6 billion.

The market analysts have weighed in on what they believe Apple will report with expectations of $9.76 billion in revenue and earnings per share of $1.38.

Last week IDG reported that Mac shipments through the quarter had slowed after the strong pace earlier in 2008. Analysts expect Mac shipments of around 2.5 million units, iPod sales of 18.6 million units and iPhone shipments of 6.4 million with some estimates as low as 3.5 million.

The expectation of slowed iPod sales is accompanied with a silver lining as Apple is said to have shipped far more higher end iPod touch units allowing the company to offset volume with increased revenue.

An SEC filing made today shows that Apple and LG have entered into a five year agreement in which LG will supply LCD panels to Apple. The deal also includes a prepayment from Apple to LG of $500 million.

“Although LG Display already had a relationship with Apple, the deal’s duration and the size of the advance show that the two companies are involved in a long-term, strategic alliance,” said Son Young-jun, a spokesman for LG Display.

LG already supplies displays for 70% of Apple’s desktop and notebook computers.

Apple has announced that its 2009 proxy materials are now available on the web under the US Securities and Exchange Commission’s Notice and Access rule and can be found at www.apple.com/investor.

In line with recent green efforts by Apple the company has decided to not send out paper hard copies to every shareholder instead they can view it online at www.apple.com/investor or in the Notice of Internet Availability of Proxy Materials that will be mailed to Apple’s shareholders as of December 29, 2008. Apple’s 2008 Form 10-K was filed on November 5, 2008 and may also be viewed at www.apple.com/investor.

Piper Jaffray analyst Gene Munster has posted the results of his teams 10-hour research which saw them counting Mac and iPhone sales in five Apple Stores in the United States on Black Friday.

In his research Munster noted that Apple was offering discounts on seven products and those discounts averaged 8%. Mac Sales averaged 13 sales per hour, up from 2 per hour earlier in November. iPhone sales averaged 3.4 per hour up from 1.3 earlier in the month.

Munster concluded that Macs are selling better than expected and iPhones are in line with expectations.

Also in his report Munster explains how he can maintain a target on AAPL of $250 a share. Munster writes that his target is based on 20 times earnings and is using Apple’s non-GAAP earnings which included revenue from the iPhone.

Amateur analyst Andy Zaky who has been notoriously accurate in his earnings estimates for Apple is predicting “the mother of all earnings blowouts” when Apple announces it’s Christmas quarter results in January 2009.

In a report published earlier this week Zaky estimates that Apple will announce fiscal Q1 2009 results of $1.96 per share on sales of $11.29 billion, significantly above the current street estimates of $1.44 EPS on $10.08 billion.

Zaky writes that this would represent “the largest revenue beat by any company I’ve ever seen”.

When it comes to sales Zaky appears to be ignoring concerns of slowing consumer spending predicting growth in all of Apple’s product lines:

• iPods: 22 million units (up from 11.05 million in Q4)
• Macs: 2.8 million (up from 2.61 million)
• iPhones: 8 million (up from 6.89 million)

On Wednesday Apple filed its form 10-K for the fiscal year 2008 as mandated by the SEC. As is required in the form 10-K Apple listed many of the risks that could effect the company.

Amongst some of these topics includes (as listed by Fortune Apple 2.0 blog):

• The effects of a global financial meltdown
• New lawsuits stemming from the Apple stock option investigation
• Price cutting, piracy and Mac OS clones
• Badly managed product transitions in a particularly volatile environment
• Rapid product obsolescence and unexpected inventory write-downs
• Shortages of NAND flash memory, DRAM and LCDs, and associated price increases
• Disruptions in foreign contracts for manufacturing and logistics
• Deal-breaking demands by digital film and music suppliers
• Getting caught infringing on other people’s patents
• Third-party software developers deciding to abandon ship
• The discovery of serious bugs and manufacturing defects in Apple products
• Late-in-the-quarter events that disrupt the usual seasonal fluctuations in sales and revenue
• Failure of overseas mobile phone carriers to properly support the iPhone
• Changing laws and regulations in overseas mobile phone markets
• System failures, network disruptions, breaches in data security
• Extreme fluctuations in the company’s stock price
• Political events, war, terrorism, natural disasters and public health emergencies
• Difficulty attracting and retaining key personnel given the new option regulations
• Ongoing lawsuits decided against Apple
• Fluctuating foreign currency rates and changes in international tax laws, labor conditions etc.
• Declining sales in stores that have long leases and are particularly expensive to maintain
• Acquisitions and business strategies that go sour
• Distributors, resellers, wholesalers and catalog companies getting squeezed or going bankrupt
• Material losses in the company’s $24.5 billion investment portfolio
• The effect of worsening economic conditions on unsecured non-trade receivables
• New laws and regulations related to health, safety and environmental protection
• Changes in the company’s tax rates
• Insurance problems. “For certain risks, the Company does not maintain insurance coverage because of cost and/or availability”

All Things Digital is also noting that the form 10-K reveals that recently departed senior vice president of the iPod division Tony Fadell will collect an annual salary of $300,000 until March 2010 in his position as an advisor to CEO Steve Jobs.

In addition the filing states that Fadell will also receive health benefits and be expected to keep a distance from Apple competitors. If he doesn’t he will lose 77,500 restricted Apple stocks that will vest in March 2010.

Download Apple’s 2008 form 10-K.

When Apple released its quarterly results for the 2008 fiscal it was overlooked by many that Apple has now adopted to supply two sets of quarterly results.

Apple will continue giving out GAAP (Generally Accepted Accounting Principles) results, these will include subscription based accounting for iPhones and the Apple TV. In addition Apple will offer a new set of numbers in the form of non-GAAP results which show Apple’s fiscal figures if they weren’t using subscription based accounting.

In the press release on Tuesday Apple wrote the following:

During fiscal 2007, the Company began selling the iPhone and Apple TV. Because the Company may provide unspecified features and additional software products to iPhone and Apple TV customers in the future free of charge, in accordance with GAAP the Company recognizes revenue and cost of goods sold for these products on a straight-line basis over their economic lives, with any loss recognized at the time of sale. Currently, the economic lives of these products are estimated to be 24 months. This accounting treatment, referred to as subscription accounting, results in the deferral of almost all of the revenue and cost of goods during the quarter in which the products are sold to the customer. Other costs related to these products, including costs for engineering, sales, marketing and warranty, are expensed as incurred. Further, the costs to develop any future unspecified features and additional software products that may eventually be provided to customers also are expensed as incurred. In contrast, the Company generally recognizes revenue and cost of goods sold for its other products, such as Macs and iPods, at the time of sale, as the Company does not provide future unspecified features or additional software products to those customers free of charge.

The biggest issue with subscription accounting is that investors, analysts and shareholders struggle to determine just how much revenue and profit is being generated by the sale of a particular unit until long after that unit has been sold.

Apple is now effectively looking at the iPhone in the same way it looks at the Mac, in that respect the iPhone would have recorded an additional $3.8 billion in revenue and an additional $1.3 billion in net income during the company’s fourth fiscal quarter.

Total iPhone revenue of $4.6 billion would have represented 39 percent of Apple’s adjusted overall revenue of $11.7 billion.

On Tuesday Apple held its fiscal fourth quarter conference call to discuss its financial results for the past quarter. The call which featured a rare and surprise appearance from company CEO Steve Jobs.

Macs

• Sold 2.61 million Macs, best quarter ever.
• Of those sales 936,000 were desktops and 1,675,000 were notebooks.
• Macs accounted for less than half of Apple’s total revenue at 45.9 percent.
• 90-percent of Apple notebooks feature LED-backlit displays, they’re also the companies greenest products. “You’ll hear more about this in the future,” Jobs said.
• Unibody enclosures are responsible for the low-margin guidance but this will improve.
• Netbooks remain a “nascent category.”
• Apple considers the iPhone a form of netbook. The company has “interesting ideas” if the netbook field evolves.
• 3-4 weeks of channel inventory for Macs.

Apple TV and iPhone

• Sold 6,892,000 iPhones during the quarter and earned about $806M; this is more than all previous quarters combined.
• The iPhone would have represented 39 percent of all of Apple’s revenue, if revenue wasn’t deferred over 24 months.
• A “significant” proportion of iPhone sales were international. Many of these were to first-time iPhone owners.
• iPhone business is too large to ignore, thus the company will reveal its pre-GAAP revenue.
• Apple beat RIM’s BlackBerry shipments last quarter; they shipped 6.1 million handsets.
• Apple is now the third-largest mobile phone supplier in terms of revenue. Nokia and Samsung are first and second respectively while LG and Motorola are fourth and fifth.
• iPhone inventory was less than 6 weeks for the 44 countries launched before August. There are 2 million iPhones listed in inventory around the world.
• Apple TV is still just a “hobby” and will remain that way in 2009.

iPod and iTunes

• Customers will download the 200 millionth app from the App Store tomorrow, with the figure being reached in just 102 days. There are over 5,500 apps in 62 countries. “Competitors are scrambling to copy the App Store, but it’s not easy,” Jobs said.
• Appel sold the most iPods it has ever managed in a non-holiday quarter.
• NPD reports that Apple has 70-percent of MP3 player market in the US.
• 4-6 weeks of iPod channel inventory.

Retail Stores

• Apple retail stores managed to sell 596,000 Mac units and generate $1.718B in revenue.
• Over half of all retail Macs are sold to new customers.
• 31 new stores in the quarter for a total of 247.
• Working on an average of 226 stores open during the quarter, about $7.6M was earned per store.
• 42.7 million visitors to retail stores.

Apple today announced financial results for its fiscal 2008 fourth quarter ended September 27, 2008. The Company posted revenue of $7.9 billion and net quarterly profit of $1.14 billion, or $1.26 per diluted share. These results compare to revenue of $6.22 billion and net quarterly profit of $904 million, or $1.01 per diluted share, in the year-ago quarter. Gross margin was 34.7 percent, up from 33.6 percent in the year-ago quarter. International sales accounted for 41 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 $11.68 billion of “Adjusted Sales” and $2.44 billion of “Adjusted Net Income.”

Apple shipped 2,611,000 Macintosh computers during the quarter, representing 21 percent unit growth and 17 percent revenue growth over the year-ago quarter. The Company sold 11,052,000 iPods during the quarter, representing eight percent unit growth and three percent revenue growth over the year-ago quarter. Quarterly iPhone units sold were 6,892,000 compared to 1,119,000 in the year-ago-quarter.

“Apple just reported one of the best quarters in its history, with a spectacular performance by the iPhone — we sold more phones than RIM,” said Steve Jobs, Apple’s CEO. “We don’t yet know how this economic downturn will affect Apple. But we’re armed with the strongest product line in our history, the most talented employees and the best customers in our industry. And $25 billion of cash safely in the bank with zero debt.”

“We’re very pleased to have grown revenue 35 percent and to have generated $9.1 billion in cash in fiscal 2008,” said Peter Oppenheimer, Apple’s CFO. “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, targeting revenue of $9.0 to $10.0 billion and earnings per diluted share between $1.06 and $1.35.”

Later on today Apple will be holding its fourth fiscal quarter conference call to discuss the companies performance during the September quarter. The conference will begin at 2pm PT/5pm ET/10pm BST.

A QuickTime stream of the conference call can be listened to at the following link.

Analysts across Wall Street have been throwing in there predictions ranging from the company selling somewhere between 3.8 and 6 million iPhones on revenue of anywhere between $7.865b to $8.37b.

Andy Zaky from Bullish Cross is notoriously accurate in his numbers and has published his results earlier today. Last quarter Zaky was incredibly accurate with his predictions, out trumping all of the paid analysts.

Zaky has his money on Apple reporting $8.343 billion in revenue on EPS of $1.25. Gross margin is predicted to be 33.5%. When it comes to sales figures Zaky has Apple down for 7.25 million iPhones, 11 million iPods and 2.9 million Macs.

Zaky has also kindly put together a table (pictured left) of his predictions compared to Apple’s guidance and other analysts predictions.