About That Apple Quarter… (AAPL)
October 19, 2011 ·
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Apple stunned the world by delivering a quarter below expectations, which was mostly due to weaker than expected iPhone sales.
This was the first time since 2004 that Apple missed expectations, and the dramatic effect was compounded because these were Tim Cook’s first earnings as CEO.
Here are the key numbers vs Street consensus, via our own Jay Yarow and Piper Jaffray analyst Gene Munster:
- 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.
And here’s a great collection of charts via SplatF’s Dan Frommer showing a snapshot of Apple’s quarter:
What does it all mean for Apple? Is its business seriously wounded?
No. We view this as just a bump in the road.
As we said, most of the disappointment came because of weaker than expected iPhone 4 sales. On the conference call, Apple blamed the poor sales on rumors of a new iPhone. This is a poor excuse–there are crazy rumors around Apple products all the time, and they still outperform.
The explanation is likely just much simpler: Apple traditionally announces a phone in June, and this year they waited until September, either because the product wasn’t ready, or because they wanted to “reset” expectations for new product launches around the biggest quarter, which is the holiday quarter. In any case, Apple missed a product cycle, and so sales were lower than expected. It sucks. But it’s not a chronic problem.
In the super-competitive smartphone market, even Apple can’t wait more than a year without a new product and not suffer.
A few more notes:
- Expectations for Apple are now very, very high. This is a problem for Apple, because any time it comes in below outlandish expectations people are going to be severely disappointed. Call it the winner’s curse: after so many years beating expectations, now they’re at a very high bar. There are certainly worse problems to have, but it’s a problem nonetheless. This is true for products, too: the iPhone 4S is new in everything but appearance and comes with amazing new features like the virtual assistant Siri, and yet it disappointed everyone because it didn’t have a “5″ in its name and a different case design. Somehow, Apple will have to do a better job managing expectations, both around products and earnings, better.
- The fact that weak iPhone sales could dent Apple’s earnings so much is a testament to just how big the iPhone is. Remember, this is a product that didn’t exist 5 years ago. By itself, the fact that a product category that didn’t exist can now be almost half of a $50 billion company’s business is astounding. Apple’s opportunity in this market is absolutely huge, and the opportunity remains unchanged.
- Apple’s other big, future growth business, the iPad, is still a blockbuster. iPad growth was steady this quarter, and it is a business that is growing extremely fast. (See this great chart by Kleiner Perkins’ Mary Meeker, below.) Everyone focused on the iPhone miss, but continued iPad growth is just as big a story, and right now Apple thoroughly owns the tablet market. (This may change with Amazon’s Kindle Fire, but right now Apple is absolutely dominant.)
- The next quarter looks like it’s going to be a blockbuster. Apple also raised guidance for the December quarter. Apple will probably sell iPhones as fast as it can make them, with both the new iPhone 4S (whose target market is not iPhone 4 owners but iPhone 3G, BlackBerry and featurephone owners) and the disruptively-priced free-with-a-contract iPhone 3GS. The iPad and Mac businesses are as healthy as ever.
THE BOTTOM LINE:
- This quarter was likely just a bump in the road for Apple. Its opportunity in iOS devices remains unchanged and mind-bogglingly huge. Its Mac business is still very healthy.
- Apple will have to learn to manage expectations better, however.
- Next quarter will probably be huge.
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By Emma Brown
Tags: Amazon, IPod Apple