Apple Q4 2008 by the Numbers

[Editor's Note: This post was a live document, starting at 4:56 p.m. EDT until about 7:05 p.m. EDT.]

After market close today, Apple announced results for its 2008 fiscal fourth quarter. Quarterly revenue reached $7.895 billion, up from $6.22 billion a year earlier. Net profit jumped from $904 million a year earlier to $1.14 billion, or 1.01 cents and $1.26 earnings per share, respectively.

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In July, Apple forecast fiscal fourth-quarter revenue of $7.8 billion, or 25 percent year-over-year growth, with $1 earnings per share. Apple's earnings per share came in about 15 cents above consensus. Gross margins rose to 34.7 percent, from 33.6 percent in the year-ago quarter. Forty-one percent of sales were outside the United States.

In a conference call this afternoon, Apple Chief Financial Officer Peter Oppenheimer described the quarter as "record breaking," with respect to iPhone, iPod and Mac shipments. In a surprise appearance, Apple CEO Steve Jobs joined the conference call. He said that some remarkable things are happening at Apple, but they are "set against the backdrop of this global economic slowdown."

Starting with this quarter, Apple has changed how it reports results because of subscription revenue. Apple defers some iPhone and Apple TV revenue because it's subscription-based. During the conference call, Steve explained that in previous quarters the subscription revenue was a minor blip on the balance sheet. But with iPhone's strong sales—$4.6 billion—Apple has adjusted its reporting to more clearly identify deferred revenue. Steve said that if not deferred, iPhone revenue would have accounted for 39 percent of the quarter's revenue.

In a surprising move, Apple also is reporting revenue in non-GAAP (Generally Accepted Accounting Principles) manner. Apple said that non-GAAP adjusted revenue was $11.68 billion and adjusted net income $2.44 billion. I've covered Microsoft for a decade, and I've never seen this kind of accounting before. Microsoft has huge amounts of deferred revenue because of annuity licensing contracts. Deferred, or unearned, revenue is just that.

iPhone Tops 10 Million Lifetime Sales Goal
Apple sold 6.892 million iPhones during the quarter, generating $806 million in sales. Year-over-year unit growth: 516 percent.

Given that Apple shipped 6.1 million first-generation iPhones, the company exceeded its year-end 10 million goal by about 3 million units.

Steve observed that "Apple outsold [Research In Motion] last quarter." He also asserted that measured by revenue, Apple is now the "third-largest mobile phone supplier," behind Nokia and Samsung and ahead of Sony Ericsson. The RIM claim is overstated. RIM sold 6.1 million units during its fiscal second quarter. But RIM's quarter doesn't coincide with the calendar quarter. RIM announced earnings on Sept. 25. So, it's a bit premature to say that Apple beat RIM, although based on my estimates Steve is probably right. RIM was second place in shipments for the second calendar quarter, behind Nokia, according to Gartner.

"Customers will download the 200 millionth app [from the iPhone App Store] tomorrow," Steve said. "Competitors are scrambling to copy our App Store."

Apple exited the quarter with about 2 million iPhones in inventory, which executives said was about right. Distribution moved from six to 51 countries during the quarter, with the iPhone still projected to be available in more than 70 countries this year.

Mac Sales Shipments Reach New High
The slowing U.S. economy has had no dramatic impact on Mac shipments, at least through the end of September. Apple shipped 2.611 million Macs during the quarter, with units up 21 percent year over year and revenue up 17 percent. Last week, Gartner estimated that Apple had shipped 1.64 million Macs in the United States, for 29.4 percent year-over-year growth. Mac shipments grew at nearly six times the U.S. PC market, and Apple placed second to HP and Dell in market share.

During Apple's fiscal 2008 fourth quarter, portables once again accounted for the largest portion—$2.257 billion—of the $7.895 billion in revenue. The company shipped 1.67 million notebooks, compared with 936,000 desktops, the latter of which generated $1.363 billion in sales.

Apple saw no perceptible sales impact by the macroeconomy, although rumors of the new notebooks had "customers delaying purchases," said Apple Chief Operating Officer Tim Cook. He noted that there was a "considerable rebound in sales" following the launch of new notebooks last week.

There was one dark spot: education. The third calendar quarter is usually strongest for education sales, but Tim said that lower state and local government budgets hurt spending. During Apple's first three fiscal quarters, education sales grew 29 percent year over year. But sales declined 7 percent during the quarter—29 percent in California.

iPods and Retail Exceed Expectations
Apple shipped more than 11 million iPods during the quarter, for the best non-holiday quarterly sales ever. Unit growth was 8 percent year over year, but flat sequentially.

Apple ended the quarter with four to six weeks of iPod inventory. However, there were signs of sales softness right at the end of quarter, which could be from economic forces or the end of Apple's big back-to-school promotion. The iTunes Store has over 65 million accounts and a catalog of 8.5 million songs.

Apple Stores had another great quarter, generating $1.2 billion in revenue, up 37 percent year over year. Apple opened 31 new stores during the quarter, for a total of 247. Revenue per store was $7.6 million, up 15 percent, from $6.6 million a year earlier.

Apple Stores had 42.7 million visitors during the quarter, or 14,500 per store per week. Apple sold 596,000 Macs through its retail stores during fiscal fourth quarter.

Will the Economy Sap Sales?
Wall Street will be closely watching Apple's future guidance. Last week, Gartner and IDC indicated that already in third calendar quarter consumer PC sales receded. Because Apple sells mostly to consumers, its exposure is greater should U.S. economic fears sap holiday sales.

Perhaps because of holiday uncertainty, Apple forecast for the 2009 fiscal first quarter: $9-$10 billion in revenue and between $1.06 and $1.35 earnings per share. Apple expects gross margins to decline to 30 to 31 percent, in part because of new iPods and notebooks.

"We remain very confident in our business," Peter asserted.

"We are not economists," Steve said. He joked that your next-door neighbor likely could forecast better than Apple. He gave reasons why Apple should do well. Some of them:

• Customers are loyal and more likely to delay than switch.
• Apple has its best product lineup in its history.
• Apple has $25 billion in the bank and zero debt.

Steve indicated that the $25 billion is an important security blanket, asserting that an economic slowdown could provide "some extraordinary opportunities for companies with cash."

As for the future, "We may get buffeted by the waves a bit, but we'll be fine," Steve asserted.

In a surprise move, Apple launched new MacBook and MacBook Pro models last week, but not with the widely rumored price cuts. In fact, the entry-level price for the new MacBook is about $200 higher than its predecessor. Apple actually raised MacBook prices, while keeping MacBook Pro priced the same. Given notebooks' huge contribution to revenue, the pricing strategy seemed to concern Wall Street analysts on today's conference call.

Steve expressed confidence about Apple's pricing. He said that low-cost computers are not a result of the economic downturn. Low-cost PCs already were there. The question: Would Mac customers switch to lower-cost PCs? Steve expressed confidence they would not. He also made clear that there are pricing categories that Apple chooses not to compete in.

"We don't know how to make a $500 computer that's not a piece of junk," Steve asserted.

[Please send your tips or rumors to watchtips at gmail.com.]

Related Posts:

• Apple's Mystery Product Revealed, Apple Watch, Oct. 15, 2008
• Apple Stays the Course in Rough Economic Seas, Apple Watch, Oct. 15, 2008
• How Apple Raised MacBook Prices, Apple Watch, Oct. 14, 2008
• Live from Apple's Notebook Launch, Apple Watch, Oct. 14, 2008
• Apple Crashed Before—and Survived, Apple Watch, Sept. 30, 2008
• 48 Days Later: Apple's Valuation Drops 37%, Apple Watch, Sept. 30, 2008
• Mac Laptop Retail Share: 35% Measured in Dollars, Apple Watch, Sept. 27, 2008
• Apple Demands a High Price to Be Cool, Apple Watch, Sept. 26, 2008

Posted by Joe Wilcox on October 21, 2008 4:56 PM