Apple’s Continued Success Despite Tough Economic Times

Apple blew away Wall Street expectations, again, when it announced its quarterly earnings last week. The financial results posted by the company revealed record breaking quarterly revenue and net profit. For more details and analysis of what was reported, read on….

Apple posted its best ever record quarterly revenue of $10.17 billion and record quarterly net profit of $1.61 billion or $1.78 per diluted share.

In comparison to the year ago quarter of $9.6 billion revenue and $1.58 billion net revenue or $1.76 per diluted share. Gross margin was 34.7 percent, no change from same quarter a year ago. 46 percent of quarterly revenue was attributed to international sales.

“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. 

A new quarterly iPod sales record was achieved with 22.7 million iPods sold. There was a three percent growth from the same quarter last year, attributed to international sales within the final week of this quarter.

This quirk was attributed to the effect of the “macroeconomic environment,”  or the ailing global economic factors on consumers behavior.

The iTunes Store had a record quarter as well thanks to strong music, video and application sales. The App Store currently has over 15,000 apps available and has seen over half a billion downloads since its inception 6 months ago.

2.52 million Macs were sold in this quarter, a 9 percent year over year growth. The previous quarter was the only time that Mac unit sales surpassed (by 3%) the present quarterly results.

This was attributed to better economic conditions in that quarter.  Apple sold more notebooks this quarter, with a 34 percent year over year increase and 71 percent of portables in the market sold overall.

The desktop showed a 25 percent decline from last year, however, desktop sales last year grew 53 percent year over year.

The decline was caused by the new notebook introductions that occurred in this quarter, the fact that the new iMac desktop was introduced last year and a shift in consumer buying trends that favored notebooks over desktops.

The iPhone and AppleTV receive regular free software updates and, as such, Apple has decided to account for their sales over a 2-year deferment period or a subscription-based accounting method, in accordance with Generally Accepted Accounting Principles (GAAP).

It is difficult to appreciate the true magnitude of what the sale of each iPhone and AppleTV unit adds to the company’s bottom line when it is reported over a 2-year period. For easier digestion and appreciation of the truly remarkable numbers that these two devices generate, non-GAAP data was also made available for the iPhone and Apple TV. 

Using non-GAAP data for iPhone and AppleTV sales, Apple would have reported a staggering $11.8 billion revenue and $2.3 billion net profit overall results for the quarter.

4.4 million iPhone 3Gs were sold in 2008, bringing the total number of iPhones sold in 2008 to 13.7 million. This figure exceeds the self-imposed goal of 10 million units by a solid margin.  The iPhone generated over $2.6 billion in sales value this quarter based on non-GAAP measurements.

While no specific numbers emerged from AppleTV sales, Tim Cook mentioned that its sales did increase to almost three times year over year.

Some headway with this product has been made thanks in part to the added capability of ordering and watching movie rentals directly from the device.

Though it will still treat it as a hobby, Apple believes it may have a sleeper hit on its hands. I say that this is the device to watch because entertainment often becomes exceedingly important during harsh economic times to help cope with reality.

Apple’s retail stores racked up 46.7 million visitors this quarter and generated revenues of $1.74 billion. This generated 2% growth year over year, another new record. Apple plans to open 25 more stores in 2009 with about half to be situated internationally.

A number of other highlights during the conference call include:

  • No release date announcement for the next update of Mac OS X 10.6, Snow Leopard
  • 17 million iPhone units sold to date, very high customer satisfaction
  • Apple approaches the iPhone from a software platform perspective and not from a hardware standpoint. Fundamentally different then their competition therefore providing a better experience for consumers and developers
  • Competition is good, however, if iPhone intellectual property is “ripped off”, offenders will be aggressively pursued

Tim Cook and his thoughts on Apple:

“We believe that we are on the face of the earth to make great products and that’s not changing. We are constantly focusing on innovating. We believe in the simple not the complex. We believe that we need to own and control the primary technologies behind the products that we make, and participate only in markets where we can make a significant contribution. We believe in saying no to thousands of projects, so that we can really focus on the few that are truly important and meaningful to us. We believe in deep collaboration and cross-pollination of our groups, which allow us to innovate in a way that others cannot. And frankly, we don’t settle for anything less than excellence in every group in the company, and we have the self-honesty to admit when we’re wrong and the courage to change. And I think regardless of who is in what job those values are so embedded in this company that Apple will do extremely well.”

To put Apple’s ongoing success into perspective, look at the current state of some of its competitors like Microsoft, Sony and Nokia.

As evidenced by stellar financial results, high quality products and services and the “don’t settle for anything short of spectacular” attitude of top level executives and employees, Apple will continue to be very successful, with or without Steve Jobs.

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