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Apple CEO Steve P. Jobs holding the elusive white iPhone 4  (Source: The Star)
Company continues to put analyst estimates to shame

Another quarter has rolled around, so did a bullish Apple embarrass the Wall Street analysts yet again?  Such an event has seemingly been a quarterly tradition by now.  But this quarter's earnings reports, while sticking true to tradition in revenue and several other areas, actually fell short of analyst's typically overly conservative expectations in two areas. 

This quarter's earnings will likely be over-scrutinized in the face of much bigger questions facing the trendy gadget maker.  While there'd been a bit of optimism surround the upcoming iPad 2 and availability of a CDMA (3G) iPhone on Verizon, most Apple-related financial chatter over the past two days had centered around the company's CEO, co-founder, and creative guiding hand, Steven P. Jobs taking a medical leave of absence (the CEO has battled cancer over the last decade and is recovering currently from a liver transplant).

A strong earnings report wouldn't completely silence concerns about a possible future Apple leadership crisis, but it might offer a decent distraction.

Apple's official accounting of calendar Q4 2010 earnings trickled in at around 4:30 p.m. on January 18.

Revenue was $26.74B USD, a new record, grossly surpassing the consensus expectation of $24.4B USD and the "high" expectation of $25.5B USD.  Earnings per share (EPS) similarly whipped expectations to the tune of $6.43 USD, versus a consensus estimate of $5.38, and a "high" estimate of $6.02.

IPhone and iPad shipments beat expectations, recording 16.24 million and 7.33 million, respectively, units shipped, versus respective expectations of 15.5 million and 6.2 million.  

If there was one trouble spot in the earnings report, it was the shipments of Mac computers and iPods, which fell short of expectations.  Apple only shipped 4.1 million Macs vs. a consensus of 4.3 million, and only shipped 19.45 million iPods vs. a consensus expectation of 20.3 million.  

The iPod shortfall is perhaps expected -- sales of the portable music player have slumped as tablets and smartphones have boomed, filling many of the niches once filled by the portable music player.  The lower than expected Mac shipments are a bit more troublesome and a sign perhaps that Apple is slowing in its quest to gain ground on industry leaders Dell and HP.  The Mac shipments, while lower than expected, represented a 23 percent increase from shipments a year ago.  The iPod shipments, on the other hand, represented a 7 percent drop.

Despite the couple of weak metrics, the record revenue, strong iPad/iPhone sales, and higher than expected revenue/EPS guidance for Q1 2011 all culminated to a generally positive reception of the report.  While it is early to fully characterize the net impact, Apple stock in resumed after hours trading has swung upwards $7.23 USD/share, a 2.12 percent gain that almost erases a 2.25 percent Tuesday drop, which was driven by the aforementioned leadership concerns.

Apple CEO Steve Jobs, put in a good word, enthusing, "We had a phenomenal holiday quarter with record Mac, iPhone and iPad sales. We are firing on all cylinders and we’ve got some exciting things in the pipeline for this year including iPhone 4 on Verizon which customers can’t wait to get their hands on."

Note: We originally overstated the revenue as $27B USD.  It is actually slightly lower ($26.74B USD).  Some have questioned the analyst consensus surrounding Macs.  We have consulted several different publications, and the figure 4.3 million is consistent across them and appears correct.  Apple also fell short of its own Mac sales predictions.

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RE: Nice
By KoolAidMan1 on 1/19/2011 1:58:00 AM , Rating: 2
It is simple. Microsoft is in the software business. Their net profit margins are higher than Apple's because selling Windows, Office, and backend business software carries profit margins higher than any piece of hardware can hope to achieve. Software that is sold in such massive quantities generates enough excess cash to fund Microsoft's numerous loss leaders and experiments in the consumer space.

This is why Apple, despite having higher gross revenue than Microsoft, makes lower net revenue. A phone or laptop or tablet can't possibly make as much percentage per unit sold as a piece of software. It seems inevitable that this will change as there doesn't seem to be any end in the near term to Apple's growth. They double gross revenue on an annual basis while maintaining good (for hardware) profit margins. If Foxconn's iPad sales estimates are accurate (100 million sold by 2013) they should quickly have the highest net revenue in the tech sector as well as the highest gross.

RE: Nice
By Alexstarfire on 1/19/2011 3:14:28 AM , Rating: 2
I'm not exactly sure what your counter-argument is, if there even is one. Surely you can see that since Apple designs the hardware and makes the software that comparing them to HP, Dell, Gateway, etc. just doesn't make sense since they are only hardware companies. The only logical conclusion would be to include Windows OS sales in there as well. It's not like this information would change anything, it would just provide a clearer picture of Windows/PC vs Mac OS/Apple.

RE: Nice
By Azethoth on 1/19/2011 8:25:17 AM , Rating: 2
You do not understand. This has nothing to do with Microsoft or OS sales. Apple sells at premium prices compared to the other hardware manufacturers. They have cherry picked the high end and left the zero-profit low end to the others to bleed over. I do not recall the exact figures but last year some analyst estimated that despite their low overall share of the total shipments pie (10%?), their share of the revenue pie was crazy high, as in 50% or 70% or something.

RE: Nice
By Alexstarfire on 1/19/2011 5:06:31 PM , Rating: 2
I think it's you who doesn't understand because that's not the way I see it. I suppose it probably does make more sense to look at it this way though, since Apple doesn't sell the OS by itself. It really doesn't matter either way. I just thought it'd be interesting information to look at. HP obviously cares about its profit more than the combined PC v Apple/UNIX/etc.

RE: Nice
By KoolAidMan1 on 1/19/2011 8:09:47 PM , Rating: 2
Apple doesn't sell operating systems, they sell hardware bundled with operating systems. Their profit margins are dictated by the fact that they sell hardware, which by nature carry far lower profit margins than software, which happens to comprise almost all of Microsoft's profits.

The only companies you can compare Apple to are other hardware companies Dell, HP, Gateway, Sony, etc etc.

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