Apple Q2 2008 by the Numbers
News Analysis. Apple continued to deliver strong results, posting its strongest fiscal second-quarter revenue and earnings ever. How's 43 percent revenue growth? |
If there is a U.S. economic crisis, Apple isn't yet feeling it. Fiscal second-quarter revenue reached $7.51 billion, up from $5.26 billion a year earlier. Net profit jumped from $770 million a year earlier to $1.05 billion, or 87 cents and $1.16 earnings per share, respectively.
Looking ahead, Apple predicted fiscal third-quarter revenue of $7.2 billion, up 33 percent year over year, and $1.00 earnings per share.
During the second quarter, Mac sales grew 51 percent year over year, the strongest Apple has seen in two decades. Apple sold 2.289 million Macs, with 1.43 million being portables. Mac revenue grew 54 percent year over year—61 percent for portables. Mac inventory increased about 60,000 units during the quarter, in part because of MacBook Air.
As expected, iPod units marginally gained year over year (1 percent) and declined sequentially (52 percent). Apple shipped 10.64 million iPods during the quarter. Shuffle sales declined, but bumped up following price cuts. Based on analyst numbers, Apple claims 73 percent of the U.S. MP3 market share. The company ended the quarter with four to six weeks of iPod inventory. Related: Apple ended the quarter with about 50 million iTunes customers.
Apple shipped 1.73 million iPhones during the quarter, but didn't realize all the revenue. Apple won't realize revenue or product cost on iPhones sold after March 6 until the release of iPhone 2.0 software, which is now expected at the end of June. The decision is one of those accounting things, related to Apple offering the software update for free. Apple announced iPhone 2.0 on March 6.
Apple claims that more than 200,000 developers have signed up for the iPhone SDK. One-third of Fortune 500 companies and 400 educational institutions have signed up for the iPhone Enterprise Beta program. Clearly somebody is interested in connecting the iPhone to Microsoft Exchange Server.
While iPhone sales declined 26 percent sequentially, Apple couldn't meet demand, particularly among its company stores. "We expected iPhone to decline more sequentially than it did," said Apple Chief Operating Officer Tim Cook on Apple's earnings conference call. He acknowledged inventory as being "low" in Europe and the United States. Despite the shortages, Apple executives expressed confidence that the company would sell 10 million iPhones by the end of the calendar year.
People have been buying phones from Apple stores with the intention of activating them later, Cook said. He described the shortages as a "proxy for the worldwide demand of the phone." That could be construed to mean that phones bought in the United States are ending up elsewhere, even unlocked. Cook wouldn't quantify the number of unlocked phones but acknowledged that it is "significant."
Apple retail stores posted a shockingly strong quarter. Direct sales, whether in-store or online, were 53 percent, up from 49 percent a year earlier. Retail store revenue rose 74 percent. Apple stores sold 458,000 Macs, a 67 percent year-over-year increase. Average in-store sales increased 48 percent. Apple stores had 33.7 million visitors during the quarter, up 57 percent year over year. The company claimed that 50 percent of customers were new to Mac. Be careful: That doesn't mean all those customers bought Macs.
Apple ended the quarter with 208 stores, 27 outside the United States. Apple plans to have opened 45 new stores during fiscal 2008. New stores are coming to Australia and China, among other countries.
Overseas Apple retail stores appeared to have little impact on broader international sales, which sequentially declined slightly to 44 percent of the quarter's revenue. That said, sales were strong in all Apple's geographies, in unit shipments up 45 percent or more year over year in every region.
Apple's Best Buy expansion briskly continued to 400 stores at quarter's end. Apple expects to be in 600 of Best Buy's nearly 1,300 stores by summer.
Education sales were up by 35 percent year over year in the United States, the strongest growth Apple has seen in eight years. Cook observed that the growth results come well ahead of the traditional educational buying cycle.
Apple's gross margins for the quarter were better than expected, 32.9 percent, but still down from 35.1 percent a year earlier. Apple generated $1 billion in cash during its fiscal second quarter, ending the quarter with $19.4 billion.
Comments (2)
One quick point, Oppenheimer did not guide to "$1.00", he said, "about one dollar".
Why am I making a distinction? Because he guided two other numers, revs of $7.2B and GM of 33%. There was one question he answered an analyst where he got a bit snippy and said, here's this number, this number and this number, now you do the math.
I think Oppenheimer did the same with the guidance. Note, he did not say there was anything unusual about Q2 earnings guidance relative to Q1, other than the delayed revenue recognition of iPhones due to the SDK. But, think about it, if the GM is the same as Q1, which was 32.9%, and if revs are 96% of Q1 of $7.5B, then we should be able to apply that same 96% and get a good proxy on eps. If you do, you get $1.11. That's NOT "$1.00".
And, if you also think about the deferred iPhone revs due to the SDK, then that probably adds another penny difference between what Oppenheimer really guided and analysts estimates which did not include the delay. The analysts estimated $1.10, while Oppenheimer's real guidance was around $1.12, but for some reason, no one seems to have paid close attention to what Oppenheimer really said. Honestly, how does Oppenheimer get to $1.00 after guiding $7.2B and 33% GM? He doesn't. The analysts didn't pay attention.
Posted by KenC | May 17, 2008 12:40 AM
I've done the math, as I have been doing for the past 4 years, and I'm getting Q3 earnings of $1.27. This is with essentially no iPhone revenue growth (due to the SDK delay).
Posted by Gregg Thurman | May 19, 2008 11:25 AM