Apple clears Mac, iPhone shipment hurdles; Earnings shine; Outlook strong

Apple capped a strong fiscal fourth quarter and 2007 amid strong Mac shipments. The company reported Monday fourth quarter earnings of $904 million, or $1.
Written by Larry Dignan, Contributor

Apple clears Mac, iPhone, earnings estimatesApple capped a strong fiscal fourth quarter and 2007 amid strong Mac shipments. The company reported Monday fourth quarter earnings of $904 million, or $1.01 a share, on revenue of $6.22 billion. That sum easily topped estimates.

Wall Street was expecting earnings of 86 cents a share for the fourth quarter and revenue of $6.07 billion, according to Thomson Financial. However, expectations were much higher with some so-called "whisper numbers" as high as 95 cents a share according to various reports. Apple cleared those aforementioned hurdles handily.

Here's a look at the big points in Apple's statement:

  • Apple (all resources) shipped 2,164,000 Macs. Consensus: 2 million, but some analysts were in the 2.15 million range.
  • Apple sold 1,119,000 iPhones in the quarter. Consensus: 900,000.
  • Apple moved 10.2 million iPods. Consensus: 10.9 million. Executives noted that iPod sales accelerated "dramatically" once Apple unveiled its new lineup.

In the year ago quarter, Apple reported earnings of $542 million, or 62 cents a share, on revenue of $4.84 billion. Apple's closely watched gross margin was 33.6 percent, up from 29.2 percent. That tally also topped estimates. For instance, BMO Capital Markets analyst Keith Bachman was projecting 31.7 percent gross margins.

As for the outlook, Apple projected first quarter earnings of $1.42 a share on revenue of about $9.2 billion. That projection is also above estimates. Wall Street was expecting first quarter earnings of $1.39 a share on revenue of $8.58 billion. Earnings estimates are likely to be viewed as conservative. If not, Apple might be seeing component prices increasing.

CFO Peter Oppenheimer was asked about why Apple was so optimistic with its outlook. Apple is usually conservative. Oppenheimer said that Apple is shipping its best product lineup ever. As for concerns about the economy, Oppenheimer said he'll leave the forecasts to the economists.

Apple ended its September quarter with $15.4 billion and no debt. Don't be surprised if folks start asking what Apple will do with all that dough.

For the fiscal year, Apple reported net income of $3.5 billion on revenue of $24 billion. That's up from earnings of $1.99 billion on revenue of $19.3 billion in fiscal 2006.

Other odds and ends worth noting:

Apple's deferred revenue line is getting interesting. Deferred revenue wasn't an item a year ago, but the launch of the iPhone and subscription revenue has changed the equation.

  • Apple's "iPhone and Apple TV" deferred revenue for the September quarter was $346 million, up from $92 million in the June quarter. It's safe to assume that line is all iPhone and very little Apple TV.
  • AppleCare deferred revenue was $430 million, up from $333 million in the same quarter a year ago.
  • Apple is still a U.S brand, but is gaining international exposure. Overall 40 percent of Apple's revenue comes from abroad. For instance, Apple's Mac revenue--the engine of the company for now--was $2.9 billion in the Americas, up from $2.35 billion a year ago, with Europe accounting for $1.34 billion, up from $998 million a year ago. Japan Mac revenue was $255 million in the quarter, down from $286 million a year ago. Apple called Japan its "most challenging market," but the iMac has been well received.
  • Notebooks accounted for $1.91 billion in Apple's Mac revenue with desktops reeling in $1.2 billion in revenue.
  • iPod revenue was $1.62 billion with music-related products and services sales (think iTunes) accounting for $601 million. What's notable is that music-related revenue is down from $608 million in Apple's June quarter, but still up a healthy margin from a year ago.
  • iPhone-related product and services had $118 million in revenue in the fourth quarter.
  • Fourth quarter software revenue was $430 million, up from $316 million a year ago.

Oppenheimer was optimistic about Apple's prospects. A few notes from the earnings conference call:

  • Apple CFO Peter Oppenheimer said the company was "extremely pleased" with its record Mac shipments. The iMac led to a 31 percent year over year jump in desktop units shipped. Apple ended the quarter with "slightly less" than three weeks of inventory.
  • On iPod sales, Oppenheimer said inventory was in the four to six week range that the company was targeting. On iTunes, Oppenheimer said the early results from the Wi-Fi iTunes store and partnership with Starbucks were promising.
  • Regarding the iPhone credit, Oppenheimer said most credits will be redeemed by the end of the December quarter.
  • Apple ended with 197 retail stores. Fifty-six percent of customers buying the Mac in Apple's retail stores were new to the platform. Oppenheimer said 40 stores are scheduled to open in the upcoming year.
  • Gross margins benefited from better average selling prices, a weak dollar and better-than-expected commodity costs. Tax rates were lower than expected at 27 percent instead of the 32 percent expected.
  • Oppenheimer said gross margins will fall in the upcoming quarter due to higher component costs, higher mix of indirect sales and overall product mix.
  • Fourth quarter Direct sales were 57 percent of revenue, up from 53 percent. Last year 44 percent of total company revenue.
  • Apple was asked about the SMB market. Oppenheimer said the company is doing well and growing based on its store sales. However, he acknowledged that tracking SMB sales are difficult.
  • Chief Operating Officer Tim Cook declined to give an iPhone shipment target for the next quarter. However, Cook did note that Apple is comfortable with its goal to ship 10 million iPhones in calendar 2008.

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