World of Apple

Apple Financial Results Conference call notes for Q1-2007.

• Apple shipped 21,066,000 iPods in the quarter, 50% growth YOY
• Apple shipped 1,606,000 Macs in the quarter, 28% growth YOY
• International sales accounted for 42 percent of the quarter’s revenue.
• Gross margin was 31.2 percent, up from 27.2 percent in the year-ago quarter.
• Mac products and services represented 43% of total revenue
• Apple Retails Stores: 170 stores. Retail stores sold 308,000 Macs during quarter
• 31% tax rate during quarter, expect 32% for remaining quarters of the fiscal year.
• Looking ahead to the second fiscal quarter of 2007, we expect revenue of $4.8 to $4.9 billion and earnings per diluted share of $.54 to $.56.
• iPod demand in Q1 was extraordinary; supply and demand in balance.
• Apple board has confidence in current management in reference to stock options backdating
• In reference to iPhone Apple wishes to be where the technology is and explains that 3G is not as wide spread as the current 2.5G EDGE networks
• Apple Macs delivering substantially above overall PC market growth
• Mac unit growth in Europe was 28%
• 31% gross margin was well above where Apple had been operating. Do not get used to 18% operating margins. 12% operating margin guidance for Q2
• In regards to stock split, “nothing to share today”
• No pause in Mac sales ahead of Leopard shipment
• Apple has 7500 Mac outlets now worldwide
• iPod has 40,000 retails outlets worldwide
• View Apple TV as the “DVD player of the 21st century”
• iPod Halo exists according to Apple as evidenced by Mac sales outpacing industry
• iPhone cannibalization of iPod? “Too soon to tell. Hard to predict. Perhaps we’ll have more on this in future quarters.”
• Apple Mac Pro market met Apple’s internal expectations. Tempered by wait for Adobe CS universal - due second calendar quarter
• 1.5 million Boot Camp downloads
• Apple: “Cisco iPhone trademark lawsuit is silly.” US. trademark by Cisco is “tenuous at best.” Several companies use iPhone already.
• Apple confident that it will prevail with the trademark, due to the fact that the Apple iPhone is a mobile phone not a VoIP phone.
• In regard to a question about iLife generally being a January release product, Peter Oppenheimer said “stay tuned”
• Apple has started “Get a Mac” ads in Japan
• 6,600 Apple Store Retail employees; 21,500 employess for Apple overall
• Apple plans to open 35-40 new stores in fiscal 2007

Apple Inc. announced today its results for fiscal 2007 first quarter ended December 30, 2006.

The company posted revenue of $7.1 billion and a record net quarterly profit of $1.0 billion, or $1.14 per diluted share. These results compare to revenue of $5.7 billion and net quarterly profit of $565 million, or $.65 per diluted share, in the year-ago quarter. Gross margin was 31.2 percent, up from 27.2 percent in the year-ago quarter. International sales accounted for 42 percent of the quarter’s revenue.

In the quarter Apple shipped 1,606,000 Macs and 21,066,000 iPods representing 28 percent growth in Macs and 50 percent growth in iPods over the year-ago quarter.

“We are incredibly pleased to report record quarterly revenue of over $7 billion and record earnings of $1 billion,” said Steve Jobs, Apple’s CEO. “We’ve just kicked off what is going to be a very strong new product year for Apple by launching Apple TV and the revolutionary iPhone.”

“We generated over $1.75 billion in cash during the quarter to end with $11.9 billion,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the second fiscal quarter of 2007, we expect revenue of $4.8 to $4.9 billion and earnings per diluted share of $.54 to $.56.”

After last weeks iPhone announcement at Macworld Apple’s share price has been been slowly rising, is it time that the stock was split?

In just 4 hours (22.00 GMT, 14.00 PST) the company will report its fiscal first quarter results which are expected to stun wall street once again.

Shaw Wu of American Technology Research expects Apple to report $6.4 billion in revenue and profits of 78 cents a share.Wu believes that the company has shipped 1.8 million Macs and 15.5 million iPods in the quarter.

AAPL over 2 year period

Tonight’s financial results are expected to push Apple’s price even further towards three digits, the last time Apple’s stock grew to such a number it was announced that the company would split all stock two-for-one.

Apple is set to reveal it’s financial year 2007 first quarter results at a conference call on Wednesday 17 at 2:00 p.m. PST/5:00 p.m. EST.

The results will reveal the companies earnings as well as sales figures of Macs and iPods over the holiday period.

A live audio webcast will be available here.

AppleInsider has posted an insightful article into the current state of Apple Retail with facts gained from Apple’s recent SEC filing.

The report states that Apple is fast approaching $1 billion of total store lease commitments and intends to use $360 million in capital during 2007 to facilitate new stores.

During 2006 Apple spent $200 million to open 41 Apple retail stores, and during the year Apples lease price totals rose from $609 million to $887 million.

By the end of the 2006 fiscal year which ended September 30, Apple operated in:-

• 165 locations,
• 147 stores in the United States,
• 18 stores across international locations, including the UK, Canada and Japan,
• totalling up 1.2 million square feet of retail space

During fiscal 2006 Apples net sales increased by 43-percent to $3.4 billion compared to the previous year and Macintosh unit sales increased by 45-percent to nearly 900,000.

The current year increase was primarily due to strong sales of Macintosh portable and desktop products, iPods, and other music related products and services. Sales of iPods increased primarily due to the introduction of the updated iPod with video-playing capabilities in October 2005 and the iPod nano during September 2005. The increase in other music related products and services was due to increased sales of Apple-branded and third-party iPod accessories. Macintosh portable and desktop sales increased due to strong sales of the Intel-based MacBook, MacBook Pro, and iMac. Wrote Apple in its yearly SEC 10-K filing.

Apple today released it’s Form 10-K which restates earnings back to 2002 to account for backdated stock-option grants.

Apple adjusted its results by $4 million for the fiscal year of 2006, $7 million for 2005, and $10 million for 2004. In the filing Apple said “Incorrect measurement dates were used for financial accounting purposes for certain stock option grants made in prior periods.”

The report comes after Apple announced in June that an investigation would take place regarding stock-option grants.

Apple stated in today’s filing that it found “no misconduct by current management.”

The options mishandling will result in a non-cash charge of $84 million to the company.

The restatement arises solely from certain stock option grants made between 1997 and 2002; the investigation found no grants after December 31, 2002 that required accounting adjustments.

“The special committee, its independent counsel and forensic accountants have performed an exhaustive investigation of Apple’s stock option granting practices,” former Vice President Al Gore, chair of the special committee, and Jerome York, chair of Apple’s Audit and Finance Committee, said in a joint statement. “The board of directors is confident that the company has corrected the problems that led to the restatement, and it has complete confidence in Steve Jobs and the senior management team.”

Apple reported to the SEC Friday that it was unable to file its Form 10-K for the 2006 fiscal year as a result of the ongoing probe into stock options irregularities.

The company reiterated to the Securities and Exchange Commission that it needs to the restate its financial history.

“The company is in the process of finalizing its conclusions regarding the amount of such charges, the resulting tax and accounting impact, and which periods require restatement,” Apple wrote in the report to the SEC.

The required filing date for the Form 10-K for year ending September 30, 2006 was December 14, Apple now anticipates that it will file the Form 10-K on or before December 29, 2006.

For the third time in just seven days, Apple’s shares closed at an all time high of $90.31, up $1.71 on a volume of 23,831,895 shares.

The steep rise in stock price appears to be associated to positive views from analysts that believe Apple will sell up to and above 14 million iPods over the Holiday Season.

Analysts have also weighed in on the constant rumours surrounding the iPhone, this is also believed to have helped Apple’s share price.

• Best Mac sales on any quarter ever
• Profit margin 12.4%
• Macs were 54% of total revenue
• Unprecedented demand for portable computers, over 60% of total Mac shipments were portable Macs
• Channel inventory of iPods was within range of 5-6 weeks
• iTunes accounts for 85% of songs downloaded in the US
• Apple Retail Stores revenue increased by $1 billion, 165 stores open
• Average revenue per store $5.9 million
• 50 percent of customers in stores were new to the Mac
• Most successful Back-To-School quarter ever
• Tax rate for Quarter 24%
• Cash balance is $10.1 billion
• 5.3 million Macs sold in the year and over 39 million iPods sold

Questions and Answers

• Very confident of future product pipeline, confident that customers will be pleased
• Expect music sales on iTunes Store to pick-up pace into the Christmas season
• Opened 41 Retail Stores in 2006
• Apple not pleased with Mac sales activities in Japan, working on improving this
• Strong iPod sales continue in Japan
• iTunes Store still run at break even level
• Expected to regain Mac inventory levels before the Christmas season, no forecasting available
• Leopard will be shipping in the Spring
• Customer reception to new iPod nano “exceptional”
• “Blow out Mac Quarter”
• iPod gross margin above 20%
• Over 1 million downloads of Boot Camp
• Apple continues to believe that “video will be big”
• iTunes Store operates in 21 countries
• 5800 employees in Retail Stores

Apple has just posted it’s Fourth Quarter financial results ending September 20 2006, but states “These preliminary results may be subject to significant adjustment as a result of a likely restatement of historical results.”

The Company posted revenue of $4.84 billion and net quarterly profit of $546 million, or $.62 per diluted share. These results compare to revenue of $3.68 billion and net profit of $430 million, or $.50 per diluted share, in the year-ago quarter. Gross margin was 29.2 percent, up from 28.1 percent in the year-ago quarter. International sales accounted for 40 percent of the quarter’s revenue.

Apple shipped 1,610,000 Macintosh computers and 8,729,000 iPods during the quarter, representing 30 percent growth in Macs and 35 percent growth in iPods over the year-ago quarter.

“This strong quarter caps an extraordinary year for Apple. Selling more than 39 million iPods and 5.3 million Macs while performing an incredibly complex architecture transition is something we are all very proud of,” said Steve Jobs, Apple’s CEO. “Looking forward, 2007 is likely to be one of the most exciting new product years in Apple’s history.”

“We are pleased to have finished the year with over $10 billion in cash and to have increased annual revenue by $11 billion in the last two years,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the first fiscal quarter of 2007, we expect revenue of $6.0 to $6.2 billion and earnings per diluted share of $.70 to $.73.”

Apple has also released further information concerning the Stock Options Probe, Apple reminds us that the investigation of Apples practises highlighted areas which required review. Apple has written in a statement;

The investigation determined, among other things, that stock option grants made on 15 dates between 1997 and 2002 appear to have grant dates that precede the approval of those grants for accounting purposes. As a result, management continues to believe, and the audit committee agrees, that Apple will likely need to restate its historical financial statements to record non-cash charges for compensation expense and related cash and non-cash tax adjustments relating to past stock option grants. The Company and its independent auditors are reviewing accounting guidance regarding stock option grants recently published by the SEC, and have not yet determined the amount of such charges, the resulting tax and accounting impact, or which periods may require restatement.