Wow!Apple’s just missed earnings estimates for the first time in a really long time.
The reason? Lighter than expected iPhone sales dragged the whole sucker down. iPhone unit sales were 17.1 million for the quarter, versus 22 million expected.
On the earnings call, CEO Tim Cook and CFO Peter Oppenheimer repeatedly blamed rumours about a new iPhone for the relatively tepid iPhone sales.
It’s an usual move on their part. Apple has always dealt with new iPhone rumours and always crushed earnings.
The stock tanked on the news, falling 7% after hours.
That snap reaction from the markets could easily be reversed. CEO Tim Cook said he expects the iPad and iPhone set all time sales records for the last three months of 2011. Apple also set very strong guidance for sales and EPS. Considering it has a tendency to sandbag guidance, we could be looking a monstrous holiday quarter for Apple.
Therefore, we’d say this was a blip, not a trend for Apple. With the iPhone 4S in stock, Apple should be fine.
However, this earnings miss highlights what BGC said earlier this week: If Apple doesn’t clobber insane expectations, the stock is going to take a hit.
Below are the key numbers followed by what Street expectations (via Piper Jaffray):
- Revenue: $28.3 billion vs. $29.41 billion expected
- EPS: $7.05 vs. $7.26 expected
- iPhone units: 17.1 million vs. 22 million expected
- iPad units: 11.1 million vs. 10 million expected
- Mac units: 4.89 vs. 4.5 million expected
- iPod: 6.62 million vs. 6.9 million
- Gross Margin: 40.3% vs. 39.6% expected
- December quarter revenue: $37 billion vs. $36.63 billion expected
- December quarter EPS: $9.30 vs. $8.96 expected
- Apple’s cash, short term, and long term marketable securities is now $81.6 billion.
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We’ll have a live blog of the earnings call starting at 5 PM eastern.
5:01: We’re listening to the call now. (Oddly, it looks like Apple’s CFO has already blamed iPhone 5 rumours for the tepid sales.)
5:03: Tim Cook takes over … First earnings call since the passing of Steve Jobs. The world has lost a visionary, a genius. His spirit will forever be the foundation of Apple.
Only Apple brings together software, hardware in an integrated experience for consumers.
Expresses thanks for all the condolences.
5:04: Peter Oppenheimer takes over … talks about record iPad and Mac sales. Mac sales beating PC market. Updated MacBook Airs with next-gen processors. We also generated record desktop sales thanks to iMac. Launched Lion this quarter. 3-4 weeks of Mac inventory.
5:06: iPod sales ahead of our expectations. iPod Touch half of sales. Per NPD, iPod is 75% of the market. Pleased with 180 million iBook downloads.
5:07: 17.1 million v. 14.1 million previous quarter, new September quarter record. Pleased with iPhone sales growth as we transitioned into the new iPhone.
(But he blamed weaker than expected sales on rumours about a new iPhone after the WWDC event.)
Ended quarter 5.75 million in channel. $11 billion in revenue for handset and accessories.
5:09: iPhone ranked highest in customer satisfaction.
5:10: We think customers will love the iPhone 4S. Looking to roll it out in 22 more countries by end of this month.
5:11: iPad, we’re thrilled with the momentum. Said from beginning, tablet is huge optty for Apple. Launched iPad 2 in 28 countries. Total dist is 98 countries. $6.9 billion in recognised revenue for the quarter. 2.5 million iPads in channel.
Adoption is unbelievable.92% of Fortune 500 companies are using it.
5:12: Continental putting iPads in every cockpit. Sonic using iPad for customer check in and analytics for regional managers. Aflac has developed an internal app. Siemens is bringing apps for work on turbines.
5:13: 250 million iOS device sales.
5:14: Apple retail stores: $3.6 billion. (He mentioned the iPhone rumours again. Said weaker than expected sales were “compounded by speculation about a new iPhone.”)
77.5 million visitors in the September quarter to Apple stores.
5:15: Expanding stores in the US for stores that are too constrained.
5:16: Cash was 81.6 billion, up $5.4 billion on a q/q basis. Cash flow from operations was $10+ billion, up 80%+.
5:17: Guidance: December quarter to see revenue of 37 billion, GM of 40%, opex $3.25 billion, EPS $9.30
5:18: Revenue over the year was $108 billion. Sold 72 million iPhones, 32 million iPads in fiscal 2011. Generated $26 billion in net income, faster than revenue growth. Thrilled to be selling iPhone 4S.
5:19: Bill Shope of Goldman, given iPhone 4S close to holiday, production? No shortages?
Tim: Off to a great start, sold over 4 million, we’re thrilled with the start that we have. Confident we’ll have a large supply. Don’t want to predict when demand and supply balance. But, I’m confident we’re going to sell an all time record this quarter.
5:20: Cook talking about the speculation at the end of the last quarter hurting sales of the iPhone 4S. reiterates record sales expectation.
5:22: Why the relatively weak GM for next Q?
Peter: GM to be flat. We expect offset of higher cost structures and price points and the stronger US dollar.
5:23: What’s going in China? Could it be as big as U.S.?
5:24; Tim: China progress amazing. It was 2% revenue in FY09, this year, it’s 12%, if you look at Q, it’s 16%, fastest growing major region. $4.5 billion for quarter. Over $13 billion for full FY11. Growing at a feverish pace. 200 mono-branded stores. Up to over 7,000 point of sales on the IPhone in Greater China. How far can it go? Never seen a country with so many people rising into the middle class aspiring to buy products Apple makes. Number 2 on our list of top revenue countries. Placing additional investment, doing quite a ew other things there.
Brazil up 118% y/y. Russia beginning to look more and more promising. The middle east has sig. oppty. iPhone opened up and introduced us into new markets. Certainly, iPad will do the same. China, the sky is the limit there. Wouldn’t discount other places.
5:28: Now Tim’s talking about deals for components and manufacturing … Our approach is to do business with as few as we can so we can be as deep as we can. Can’t do that when you tend to go out with many many people.
5:29: We had a great quarter with iPads, at the same time set a Mac record. We’ve seen competitors come to market. Diff form factors, diff price points. None have gained traction. As competitors came to market, our share went up. We’re responsible for 3 out of 4 tablets sold, says IDC. When you look this thing, the ecosystem, the bookstore, iTunes, 140,000 apps. I feel very very confident about our ability to compete and extremely confident in our product pipeline.
5:31: Deferral for carriers?
Peter: We deferred for some carriers, know we’d launch later. Bigger problem was the rumours that were very pervasive. It was just the rumour of the day.
5:32: Internally, how big can tablet market be?
Tim: We thought it would be a huge day. It’s even bigger than we thought. We’ve now sold 40 million on a cumulative basis. I still think tablet market will be bigger than the PC market. That’s not guidance, that’s just what I believe. huge optty for Apple across time.
5:33: How many iPhone units pushed out and deferred? How should we think about iPhone 4S launch?
Tim: I think the number, you can’t run the experiment twice. Cant tell you how many we would have sold if there weren’t rumours. I believe it was substantial. I think anyone monitoring the press would agree. You could ask a consumer, they’d agree.
As for iPhone 4S, it’s huge. Mother of all uplifts. We’re thrilled with feedback.
5:36: Peter: New company records for iPad and iPhone in the quarter. For Macs, expect to outgrow the market.
Question about Siri…
Tim: Number of people using it already is amazing. Its personality is amazing. We see it as a profound innovation. Many many people will use in a substantial way. Our guts have been since beginning it’s substantial and great innovation.
5:37: Thoughts on supply chain considering what happened in Thailand.
Tim: Our thoughts go out to the people who have lost homes and life in the monsoon. There are many factories that are not operable. The weather hasn’t allowed an ability to assess those. Primary exposure is on the Mac. Number of drive/drive components, sig portion is in Thailand. Can’t give you precise accting. Certain overall industry shortage of disc drives, not sure how it affects Apple.
5:40: Tim: We don’t like when someone takes our innovation. So we have to go to courts (talking about patents here …)
5:41: Can you talk about price reductions on iPhones? Potential elasticity? New consumers? Resonate with prepaid or postpaid?
Tim: We did it because we wanted to make iPhone more accessible to a broader market. Took 3GS to free. Lowered price of iPhone. Done both because as we looked at it, these are still fantastic products. We think we cna do reasonably well selling those in post paid market. Did it for post paid and prepaid. Both are important. Has been our thinking for a while.
5:43: Tim, more general view of component supply into Q4, particularly unibody casings, sig impact on MBPro?
Tim: We treat every concern seriously, we’re investigating, factored that into numbers already given. In terms of general market. NAND and DRAM and LCD, all are in a generally positive supply situation. Most other components at or above historical trends. Very positive market from a supply point of view, but with asterisk of disaster in Thailand. Believe risk is on the Mac portion of product line.
5:45: Q: iPad distribution and country roll out? What do you need to unlock potential of other countries?
Tim: We are in 90 countries on iPad. About 40k points of sale. 50K on iPod. And 120K on iPhone. You can get a feel for roll out there. Still countries to do. We are in the main countries. Was there a slow down on iPad? In iPhone, crystal clear there was a slow down, that is not the case on iPad. Somewhere during the quarter, entered a supply demand balance. On last call, I said coming in balance in a few countries. Sometime after that we had balance around the world.
5:50 Tim: We wouldn’t have done 109 million in Brazil with no effort if there wasn’t interest. Some countries have protectionist policies.
5:52: Question about cannibalization of PC market ..
Tim: Some people electing to buy an iPad instead of a Mac. However, a materially larger number picking an iPad over a windows based PC. Despite that Mac had its best quarter ever. Cannibalization like this, I hope it continues.
As for cash, we would like to maintain flexibility. Look at Gary and his team, don’t a great job in a tough market. Done stuff with money in Apple’s best interest. Acquired some companies, some IP, some supply chain, some stores. I believe what we’re doing with cash, we’re doing an extremely good job.
I’m not religious about holding cash or not holding it. We will continually ask ourselves, what is in Apple’s best interest. It’s a question for the board.
5:55: Peter: $55 bill of the $80+ bill is offshore.
5:55; Is buying back shares waving a white flag?
Tim: Anyone looking at us would know we’re not waving a white flag on innovation. We have a pipeline that is unbelievable…
I view share buybacks to be separate. Cash is always a topic and we will always do what in Apple’s best interest. Where we spent it, I think you would agree.
5:57: Q about iPhone … can you get more phone market?
Tim: We want iPhone to be in as many customers hands as possible. We think it’s greatest phone by far. Yes, we aspire to larger volumes. We think smartphone market will absorb handset market. Big win is to eat into the 1.5 … focused on doing that.
5:58: Is extra week for quarter linear? trying to think how it affects March quarter.
Peter: Quarter will end on New Year’s day. More details on January call of what we saw. For expenses, variable expense, but some fixed costs are fixed, a benefit there.
5:59: Q on Japan, speak to changes … revenue performance in Japan bigger disparity
Tim: A huge percentage of Japan’s total revenue year ago quarter was the iPhone 4, if you do a y/y compare that adversely impacts it.
6:02: Tim: Let me just go back to tablet market, we see it as a huge market. We have some fantastic things in the pipeline. 40 million in 18 months which is more than our wildest dreams were.
That’s it, we’re all done. Thanks for reading!
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