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Earnings: Apple: Income Up 57 Percent On 35 Percent Revenue Jump; Stock Slammed On Outlook

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Apple (NSDQ: AAPL) reported revenue of $9.6 billion for the quarter ending Dec. 29, up 35 percent from last year’s $7.1 billion and ahead of analyst estimates of $9.2 billion. Earnings soared 57 percent to $1.58 billion ($1.76 per share) from the previous year’s $1 billion ($1.14 per share). Results were helped by 44 percent Macintosh computer unit growth and 5 percent unit growth in iPod sales to 22.1 million; that number, though, is shy of the 24-plus million iPods that analysts had expected the company to sell. In the quarter, the company sold 2.3 million iPhones, well up from the 1.1 million it had sold in the previous quarter. After falling over 3.5 percent during the day, company shares are fell over 11 percent after hours, as its forecast for the coming quarter — $6.8 billion revenue and earnings of $.94 per share — are both on the light side of analyst estimates. The company has a reputation for being conservative on guidance, but the snap market consensus is that this is worse than its typical message.
Release | Webcast | Transcript (via SeekingAlpha)

Conference Call: Not surprisingly, guidance dominated the conversation during Apple’s conference call. Analysts tried their hardest to get CFO Peter Oppenheimer to say whether the company’s forecast is just the company’s typical conservatism or if there’s actually something different here. The market still thinks the latter, judging by the after-hours fall. But Oppenheimer didn’t take the bait. Several times he repeated the unsatisfying: “We provide guidance that we have reasonable confidence in achieving.” But there were some clues. One pertinent question regarded the ‘linearity’ of iPod sales within the quarter. Oppenheimer admitted that while the monthly distribution of iPod sales on a global basis resembled that of last year, in the US, there was a difference observed during the gift-buying period at the end of the quarter, suggesting some weakness. Several times, however, the company mentioned the iPod Touch as making up for slower iPod sales due to its higher price point. It was also suggested that iPhone sales might have cannibalized iPod sales to some extent.

iPod saturation: “We view the iPod market as bigger than a market for just simple music players” (hence the iPod Touch). In the meantime, iPod revenue growth was 17 percent, so “not characteristic of a saturated market.”

AppleTV and rentals: “Many companies have tried in this space and missed… We think we have it right this time.” As for movie rentals, it fits with the broader iTunes store of using the platform to sell more iPods and Macs.

iPhone: Apple remains confident of hitting its 10 million units sold forecast number during 2008. The number of iPhones sold in the quarter for unlocking was described as “significant”, but the company won’t give out a numerical estimate of this, in part because it doesn’t know what percentage of iPhones bought as gifts have yet to be activated. Other iPhone comments: the company still plans an Asia launch for the year, but it has nothing to update right now and no new information on a China launch. It also plans to be in more European countries by the end of the year. Forty-six percent of the iPhones sold were direct sales.