the results
AAPL reported earnings for its fiscal 3Q11 (the company’s fiscal year ends in September) after the close of trading in New York yesterday. Sales came in at an all-time high for the company at $28.6 billion. That’s up 82% over 3Q10. Net income of $7.3 billion ($7.79 a share) was another company record and represents 125% more than in the comparable period of last year. Analysts had been expecting eps of $5.85.
the details
All the company’s product categories showed interesting deviations from what one might have expected:
iPad …the biggest positive surprise. iPad was over 20% of AAPL’s revenue in the quarter, in which the company sold 9,246,000 of them. Sales were up 97% quarter on quarter in units and 113% in revenue. Year on year, units were up 183% and revenue 179%. The iPad continues to be capacity constrained, meaning AAPL is selling them as fast as it can make them and still can’t satisfy demand. With manufacturing capacity added in early July, the company appears to be close to supply-demand balance, however. My hunch is that there’ll be a strong seasonal uptick in the December quarter as consumers buy holiday gifts. If so, we may see shortages again in a few months.
iPhone …another big number. The company sold 20,338,000 in the June period. That’s up 9% in units and 8% in revenues qoq, and +183% in units, 179% in revenue, yoy. A continuing surge in smartphone sales, combined with the fall from grace of both NOK and RIMM, are the main reasons.
Mac Overall sales were up 5% in units qoq and 14% yoy. Portables, however, were up only 1% qoq and 13% yoy. One reason is the strength in the prior-year quarter, which saw a new MacBook Pro introduced. Another, however, is that some customers are buying iPads instead of Macs.
iPod …sales dropped sharply. This shows how far APPL has evolved in the past half decade. The product that sparked AAPL’s revival and effectively doubled the size of the company now represents less than 5% of current total revenue. Management said the 7,535,000 units AAPL sold in the quarter exceed its expectations. But qoq units were down 16% and revenue down 17%; year on year, units were down 20% and revenue minus 14%.
what caught my eye/ear
1. The company conference call seemed to me to be almost devoid of content. Maybe it’s always been this way and the fact just hasn’t struck me so forcefully.
2. Analysts did ask two interesting questions, both of which the company evaded.
–The first concerned the relative strength of Android-based phones, which appear to be growing faster than iPhones.
–The second was about whether the iPad is cannibalizing Mac sales to a greater degree than it’s cannibalizing Windows-based machine sales.
The non-answers suggest two things to me. First, the ability of Android phones to cover a wide spectrum of price points, vs. AAPL only at the high end, is a bigger competitive issue for AAPL than the consensus thinks. Second, while it’s always better to cannibalize your own sales than to allow a competitor to do so, it sounds like more potential Mac buyers than AAPL expected (maybe MacBook Air buyers) are “trading down” to an iPad instead.
3. Look at the difference between analysts’ estimates and AAPL’s actual reported eps for fiscal 2011 to date.
1Q: $5.40 estimate, $6.43 actual
2Q: $5.37 estimate, $6.40 actual
3Q: $5.85 estimate, $7.79 actual
Actuals were 19%, 19% and 33% above what analysts had projected.
Two points: analysts have been pretty awful–and unusually so–at projecting AAPL’s earnings this year. Also, despite the big positive earnings surprises, huge earnings growth, and a price earnings multiple in the mid-teens, AAPL has been no better than a market performer in 2011, until a couple of weeks ago (more about this phenomenon in a day or two).
the stock
The numbers continue to be stellar and the PE is low, so I think AAPL will continue to be at least a mild market outperformer. For the first time in many years, however, I don’t feel that I can pencil in an aggressive earnings growth number for the upcoming fiscal year and be confident the actuals will be at least what I’ve estimated…and probably substantially more. In fact, if you told me you thought AAPL’s eps would only be up by 15% in fiscal 2012, I’d have to do a bunch of spreadsheet work before I could express an opinion. (Note, too, that AAPL is making a minor accounting change that will depress near-term results slightly.)
That shouldn’t be so surprising, since the stock (I haven’t owned it for some time) is up 30x since I first bought it, and is now one of the largest-cap stocks on Wall Street. Could this maturing of AAPL’s business be what Wall Street has been discounting for a while now? In conceptual terms, probably. Myself, I think the inflection point for growth is a new thing–but it’s possible I’ve just been behind the curve.