Behind the AAPL results - not much good news
Apple announced earnings as follows:
Sales: $4.37B vs expectations of $4.4B
Earnings: $0.54 vs expectations of $0.44
Margins increased slightly
iPods sold: 8.1M units vs expectations of 8.6M and 6.1M units same quarter last year (a 33% Y/Y increase in iPod units sold - the lowest growth in years)
Macs sold: 1.3M units vs expectations of 1.32M and 1.18M units last year (a 12% Y/Y unit growth)
As I predicted, it was basically a sales wash: the drop in iPods balanced the uptick in Macs. (Actually, they had a slight sales miss).
The earnings win is key: $85M in upside on higher margin. I'm much less impressed. I think it comes from a reduction in FLASH memory prices. FLASH COGs dropped ~$10+ over the quarter - that's a generous $50M in extra earnings. And it won't happen again.
Bottom line - this is mixed at best.
* Missed sales in $ and in units
* iPod unit sales are dropping, dropping faster than expected, and Y/Y sales growth is slowing
* Mac sales grew but less than expected
I think AAPL should be incredibly pleased with finding a way to boost Mac sales. They are keeping above 1M units per quarter and have pushed it up a few 100K units. I think the back-to-school market will give them a solid morale boost.
But Apple unit sales growth is not that special: it's inline with global sales growth of 11%.
IN SUMMARY - APPLE IS NOT SITTING PRETTY
As I predicted, iPod sales growth is falling faster than expected. This will continue.
The Mac is keeping APPL in contention because it really does stand out. But it continues to be a niche product. Meanwhile, global PC sales are slowing down just as AAPL is getting back into the game.
THINGS TO CONSIDER
Apple's suppliers did not get good news today IMHO. These companies depend on unit sales growth and Apple delivered decelerating sales growth. The moderate iPod sales growth is not good for STX and SNDK. It's less of a hit on STX because 1M units in the face of 100M annual unit sales is not a make-or-break scenario.
The mild Mac sales don't give anyone cause for celebration.
Sales: $4.37B vs expectations of $4.4B
Earnings: $0.54 vs expectations of $0.44
Margins increased slightly
iPods sold: 8.1M units vs expectations of 8.6M and 6.1M units same quarter last year (a 33% Y/Y increase in iPod units sold - the lowest growth in years)
Macs sold: 1.3M units vs expectations of 1.32M and 1.18M units last year (a 12% Y/Y unit growth)
As I predicted, it was basically a sales wash: the drop in iPods balanced the uptick in Macs. (Actually, they had a slight sales miss).
The earnings win is key: $85M in upside on higher margin. I'm much less impressed. I think it comes from a reduction in FLASH memory prices. FLASH COGs dropped ~$10+ over the quarter - that's a generous $50M in extra earnings. And it won't happen again.
Bottom line - this is mixed at best.
* Missed sales in $ and in units
* iPod unit sales are dropping, dropping faster than expected, and Y/Y sales growth is slowing
* Mac sales grew but less than expected
I think AAPL should be incredibly pleased with finding a way to boost Mac sales. They are keeping above 1M units per quarter and have pushed it up a few 100K units. I think the back-to-school market will give them a solid morale boost.
But Apple unit sales growth is not that special: it's inline with global sales growth of 11%.
IN SUMMARY - APPLE IS NOT SITTING PRETTY
As I predicted, iPod sales growth is falling faster than expected. This will continue.
The Mac is keeping APPL in contention because it really does stand out. But it continues to be a niche product. Meanwhile, global PC sales are slowing down just as AAPL is getting back into the game.
THINGS TO CONSIDER
Apple's suppliers did not get good news today IMHO. These companies depend on unit sales growth and Apple delivered decelerating sales growth. The moderate iPod sales growth is not good for STX and SNDK. It's less of a hit on STX because 1M units in the face of 100M annual unit sales is not a make-or-break scenario.
The mild Mac sales don't give anyone cause for celebration.
posted by Andrew at
2:40 PM
5 Comments:
1. You are comparing Mac sales QoQ 1 year ago. But Mac sales are up 19% since the last quarter. (1.112 vs 1.327mil). If they continue with this quarterly growth, their yearly numbers will be explosive. And keep in mind Pro Mac desktops aren't out yet.
2. Laptop marketshare has doubled since Janurary.
3.I agree with Apple that component prices will continue to decline this year from price wars, resulting in even higher margins.
4.Cash reserves up to $9.2b, discounting their latest flash memory purchase and $500mil new campus.
Apple is sitting nicely, considering that they haven't had a new iPod in 10 months. When their mp3 player line refreshes and the pro Mac models are out by xmas, we will see massive growth.
This comment has been removed by a blog administrator.
Thanks for your comments. My response is
1) Seasonality in sales dictates that you look at things Y/Y. In 2005, AAPL shipped 1M Macs in the first three months and 1.18M units the next quarter. Almost identical results as this recent sequential growth this year.
2) Shipping 300K more units doubles marketshare? With 100M PCs sold during that time? I don't think so....Link pls.
3) The only way these price drops will boost Apple margins is if they are able to maintain their prices. All other PC companies will be dropping theirs. The ultimate question is: how price sensitive are consumers? As Apple moves into a me-too scenario (I'm just like a PC!) the growing price premium may be a problem.
4. No, cash and equivalents are up. In any event, so what? Profits always lead to more cash.
Apple has leveraged the iPod to gain traction. The Mac is setting the tone for PC design.
The iPod momentum is slowing and it has nothing to do with new products. The sales growth has been slowing for 15 months. It's the problem of big numbers - the 100% growth that was experienced simply can't be realized and is slowing. For example, in the Xmas quarter last year, Apple sold 14M iPods. A 30% growth this year will be 19M units and a 50% growth is 21M units. With the much hyped new iPods, expectations are for the 50% range. If you believe that 21M units will ship, buy Apple. I don't.
So far I have been 100% correct about the iPod growth direction. Until the battery life improves to 3 hours for video, the iPod market will stay flattish.
The focus has shifted to the Mac momentum. As I have pointed out - the numbers for the Mac do not show momentum. They show the exact same growth pre-Intel chip. They show the exact same growth as global PC growth.
The proof will not be after one quarter of Bootcamp. Because the next 2 quarters are what counts.
Next quarter expectations are for 20% sequential growth in earnings. The back-to-school quarter started and still no new iPod. That puts 100% of the growth expectations on the Mac. Which is a problem if the earnings growth came from iPod FLASH memory gains.
Last year, the rate of sequential growth in Mac units was 5% - from 1.18M units to 1.24M units. With 1.33M units just sold, Apple must sell ~1.5M units. And keep that same level for the holiday quarter. I think it's doable. But as an investment, Apple is not going to get the 40 P/E it was getting because the market recognizes that the growth heydey is over and Apple deserves a PC company's P/E.
Obviously, compared to where Apple was, to even be talking about this level of sales is a phenomenal testimony to Steve Jobs.
Apple must prove that it is more than a niche product. It must find that consumer base that is willing to pay an additional $1000 for Apple's software.
I think Apple stock will begin to slide back to a 26~28 P/E. Or $56.
Here is a link to a similar discussion on Herb Greenberg's blog on Marketwatch:
http://blogs.marketwatch.com/greenberg/2006/07/apple_reality_c.html
AAPL sure does stir up some passions - it's the underdog with a better product.
AAPL is good. It isn't great. And as I said when it hit $85 and had a 40 P/E - NO WAY.
I am not here to beat up on stocks. I am here to find companies that look to have the right combination of positives for investment. I am sometimes willing to point out companies that have the right kind of negatives for shorting.
Over the past 6 months, I have suggested going negative on several stocks:
AAPL - it dropped ~$30 after I said overvalued
CRM - it dropped $20 or 50%
MOT - it dropped $6 or 25%
BMHC - it dropped $12 or 30%
and so on
I wish the market agreed with my positive judgements just as much.
I don't have vendettas. If I am wrong, I certainly want to know why and where, so that I can correct my course.
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