Apple - Strong Q1, but can't keep up with analyst predictions

With profits up by a massive 57% on the year-ago quarter, Apple posted the best quarterly revenue and earnings in the history of the company, but the predictions for the future weren't enough to satisfy analysts.

With profits up by a massive 57% on the year-ago quarter, Apple posted the best quarterly revenue and earnings in the history of the company, but the predictions for the future weren't enough to satisfy analysts.

Apple - Strong Q1, but canÂ’t keep up with analyst predictions

Let's take a look at the numbers.

Revenue of $9.6 billion and net quarterly profit of $1.58 billion, or $1.76 per diluted share (compare this to a revenue of $7.1 billion and net quarterly profit of $1 billion, or $1.14 per diluted share, in the year-ago quarter).

Thoughts: Apple is getting close to that magic $10 billion revenue mark, a number which it had been rumored that Apple would hit in Q1.  While these numbers are in themselves incredible for Apple, I think that this was a disappointment for many analysts.

Gross margin was 34.7 percent, up from 31.2 percent in the year-ago quarter.

Thoughts: Good news here.  This means that on a $1,500 Mac, Apple makes about $520, while on a $399 iPod touch the company makes $138 (assuming an equal gross margin for both).

International sales accounted for 45 percent of the quarter's revenue.

Thoughts: So the company has a buffer if consumer confidence in the US takes a hit.

Apple shipped 2,319,000 Macintosh computers, representing 44 percent unit growth and 47 percent revenue growth over the year-ago quarter.

Thoughts: These numbers are huge.  But what's better for Apple is that about 50% of these Macs are sold to people who are new to Apple and the Mac OS.  Since people who own a Mac are likely to buy more Apple products - iPods, iPhones, Apple TV - this is good news indeed for Apple.  Selling a Mac to a Mac newbie is a pretty tough sell, and with that sale behind them, Apple has an easier time selling other products to these consumers.

The Company sold 22,121,000 iPods during the quarter, representing five percent unit growth and 17 percent revenue growth over the year-ago quarter.

Thoughts: What's interesting here is that while the number of iPod sales were about 2 - 3 million lower than expected, revenues are right on the mark.  This means that the shortfall in sales is most probably due to weaker sales of the cheaper, lower revenue units like the shuffle.

Quarterly iPhone sales were 2,315,000.

Thoughts: Strong sales there too.

"We're thrilled to report our best quarter ever, with the highest revenue and earnings in Apple's history," said Steve Jobs, Apple's CEO.

Thoughts: And there's the tagline that Apple wants attached to this earnings report!

"We have an incredibly strong new product pipeline for 2008, starting with MacBook Air, Mac Pro and iTunes Movie Rentals in the first two weeks."

Thoughts: Hmmm, no early order numbers for either the MacBook Air or the new Apple TV?  Sometimes Apple does give us a sneak peek.

"Apple's revenue grew 35 percent year-over-year to $9.6 billion, an increase of almost $2.5 billion over the previous December quarter's record-breaking results," said Peter Oppenheimer, Apple's CFO.

Thoughts: Again, incredibly strong numbers here ... but wait for it ...

Looking ahead to the second quarter of fiscal 2008, we expect revenue of about $6.8 billion and earnings per diluted share of about $.94."

Thoughts: Now that's not what analysts wanted to hear.  This falls short of the $6.99 billion revenue that was expected that Apple would predict.  Maybe Apple stock isn't the safe haven it was once thought to be?

Closing thoughts: Looking at these numbers it's hard to see why analysts are disappointed.  In the weird fairytale land that most analysts seem to inhabit the idea of rolling growth is one that now expected of a company such as Apple.  But in the real world it's hard for Apple, or any other company for that matter, to come out with hit products such as the iPhone all the time. 

I think that one question which was hovering in the mind of most analysts looking at these latest figures was this one - Is Apple recession-proof?  My non-analyst take on it is that yes, Apple is pretty recession-proof.  While iPod sales might suffer, Macs sell to a market that isn't as price-sensitive.  The market segment buying $200 PCs doesn't have much wriggle room, but for people thinking of buying a $2,000 MacBook Pro, then tightening their belts might mean getting a MacBook Air or a MacBook instead.

Thoughts?

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