Apple's Second Quarter 2007 Financial Results: $770 Million Profit

[Rocketman]

http://www.apple.com/pr/library/2007/04/25results.html

Headline numbers
EPS $0.87
Sales $5.26B
Gross margin 35.1% !!
1517000 macs
10549000 iPods


Apple Reports Second Quarter Results
Earnings Grow 88 Percent Year-over-Year
CUPERTINO, California—April 25, 2007—Apple® today announced financial results for its fiscal 2007 second quarter ended March 31, 2007. The Company posted revenue of $5.26 billion and net quarterly profit of $770 million, or $.87 per diluted share. These results compare to revenue of $4.36 billion and net quarterly profit of $410 million, or $.47 per diluted share, in the year-ago quarter. Gross margin was 35.1 percent, up from 29.8 percent in the year-ago quarter. International sales accounted for 43 percent of the quarter’s revenue.

Apple shipped 1,517,000 Macintosh® computers and 10,549,000 iPods during the quarter, representing 36 percent growth in Macs and 24 percent growth in iPods over the year-ago quarter.

“The Mac is clearly gaining market share, with sales growing 36 percent—more than three times the industry growth rate,” said Steve Jobs, Apple’s CEO. “We’re very excited about the upcoming launch of iPhone in late June, and are also hard at work on some other amazing new products in our pipeline.”

“We are very pleased to report the most profitable March quarter in Apple’s history,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the third fiscal quarter of 2007, we expect revenue of about $5.1 billion and earnings per diluted share of about $.66.”

Apple will provide live streaming of its Q2 2007 financial results conference call utilizing QuickTime®, Apple’s standards-based technology for live and on-demand audio and video streaming. The live webcast will begin at 2:00 p.m. PDT on Wednesday, April 25, 2007 at www.apple.com/quicktime/qtv/earningsq207/ and will also be available for replay. The QuickTime player is available free for Macintosh and Windows users at www.apple.com/quicktime.

This press release contains forward-looking statements about the Company’s estimated revenue and earnings per share. These statements involve risks and uncertainties, and actual results may differ. Risks and uncertainties include potential litigation and government enforcement actions that may result from the matters investigated by the special committee of the board of directors and the restatement of the Company’s consolidated financial statements; unfavorable results of legal proceedings; the effect of competitive and economic factors, and the Company’s reaction to those factors, on consumer and business buying decisions with respect to the Company’s products; war, terrorism, public health issues, and other circumstances that could disrupt supply, delivery, or demand of products; continued competitive pressures in the marketplace; the continued availability on acceptable terms of certain components and services essential to the Company’s business currently obtained by the Company from sole or limited sources; the ability of the Company to make timely delivery of new programs, products and successful technological innovations to the marketplace; the effect that product quality problems could have on the Company’s sales and operating profits; the inventory risk associated with the Company’s need to order or commit to order product components in advance of customer orders; the effect that the Company’s dependency on manufacturing and logistics services provided by third parties may have on the quality, quantity or cost of products manufactured or services rendered; the Company’s dependency on the performance of distributors and other resellers of the Company’s products; the Company’s reliance on the availability of third-party digital content; the potential impact of a finding that the Company has infringed on the intellectual property rights of others; and risks associated with the Company’s retail initiative, including significant investment cost, uncertain consumer acceptance and potential impact on existing reseller relationships. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the SEC, including the Company’s Form 10-K for the fiscal year ended September 30, 2006, its Form 10-Q for the quarter ended December 30, 2006 and its Form 10-Q for the quarter ended March 31, 2007 to be filed with the SEC. The Company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and will enter the mobile phone market this year with its revolutionary iPhone.

Rocketman

[flopticalcube]

86 cents vs estimate of 64cents

After hours trading over $100/share!

[FreeState]

86 cents vs estimate of 64cents

After hours trading over $100/share!

Is that your guess? Im guessing 72 cents with lots of talk about AppleTV (I think it has sold more than most have expected).

[MacRumors]

http://www.macrumors.com/images/macrumorsthreadlogo.gif (http://www.macrumors.com)

Apple released (http://biz.yahoo.com/prnews/070425/sfw096.html?.v=80) their second quarter 2007 financial results today.

Apple posted revenue of $5.26 billion and net quarterly profit of $770 million, or $.87 per diluted share. This compares to revenue of $4.36 billion and net profit of $410 million in the year-ago quarter (Q2 2006).

Apple shipped 1,517,000 Macs and 10,549,000 iPods this quarter, representing a 36% increase in growth in Macs and 24% increase in iPods compared to the year-ago quarter.

"The Mac is clearly gaining market share, with sales growing 36 percent -- more than three times the industry growth rate," said Steve Jobs, Apple's CEO. "We're very excited about the upcoming launch of iPhone in late June, and are also hard at work on some other amazing new products in our pipeline."

Apple will broadcast the financial results live (http://www.apple.com/quicktime/qtv/earningsq207/) at 5pm ET. We will post updates and highlights here.

[flopticalcube]

Is that your guess? Im guessing 72 cents with lots of talk about AppleTV (I think it has sold more than most have expected).

No, that is the actual. Now trading at $102.58!


Apple is warning about Q3. Pulling the guidance down a couple of cents. Leopard is being blamed for this by the analysts.

[Romanesq]

No matter what you say about Jobs, he's done a remarkable job making Apple better than ever.

[tringo]

Absolutely demolished all estimates. I'm so happy I finally bought some in january.

Now looking forward to the conference call so Steve can talk up the stock another 5%.:D

[iSee]

Profits have almost doubled!?!

It's time for some price breaks, I think...:)

[flopticalcube]

35% margins!

[kcroy]

New Products in the pipeline?:eek:

Yipeeee! Oh nooooooooo! All at the same time.

Congrats to Apple on all the success. I will be buying my new Mac as soon as Leopard comes out and I already have my money saved for my "first" iPhone. The wife wants one too. :D

[Telp]

Congratulations Apple. It makes me so happy to see how well Apple is doing.

[aswitcher]

"..and are also hard at work on some other amazing new products in our pipeline"

It's becoming a very long pipeline :(

[Apple Corps]

Stellar Performance as a company and as a big part of our investment portfolio.

CONGRATULATIONS STEVE & COMPANY !!

[runplaysleeprun]

Good to hear. Maybe since they're doing so well, they'll drop the price on the iPhone.....

hey, a guy can hope.....

[05elstonc]

Amazing results for the March quarter which is usually the slowest in tech+retail. Amazing

[Lancetx]

Yet another fabulous quarter. Just goes to show that despite the Leopard delay, and not having as many hardware updates as some around here seem to want, Apple is still doing extremely well financially and sales are still quite strong.

AAPL is now at $103.02 in after hours trading.

[Telp]

Amazing results for the March quarter which is usually the slowest in tech+retail. Amazing

If what you say is true, i can't wait to see what the other Qs show :D

[mi5moav]

STOCK SPLIT??? I don't know, I like it up here, maybe we can catch Berkshire Hathaway in a few years.

[tringo]

Even I; the Apple perma-bull, had really low expectations for this quarter. I thought that Mac and iPod sales would be verry weak because of the iPhone and Leopard being delayed until september.

Things are only going to get better from here!

[PlaceofDis]

good news. good news. i'm happy to see Apple outperform expectations.

[jholzner]

I thought that Mac and iPod sales would be verry weak because of the iPhone and Leopard being delayed until september.

Things are only going to get better from here!

This quarter ended in March. We didn't even know Leopard was going to be delayed until *October*

[IJ Reilly]

Beat consensus EPS by over 35%. Massive. Revenues came in only slightly above forecasts, but the market doesn't seem to mind. :D

[Rocketman]

good news. good news. i'm happy to see Apple outperform expectations.

They further lowered future expectations by saying:

Peter Oppenheimer, Apple’s CFO. “Looking ahead to the third fiscal quarter of 2007, we expect revenue of about $5.1 billion and earnings per diluted share of about $.66.”

This despite the expected summer sales surge, the iPhone release, which if nothing else will result in front-loaded sales as early adopters clamor for initial limited supplies.

This is classic UPOD, but might be more extreme than usual in this case.

I endorse a stock split.

Rocketman

[Pressure]

That's amazing results! :eek:

I tip my hat for :apple: on this one.

[longofest]

"...amazing products in our pipeline"

The day Apple doesn't say this line at one of these meetings, I will do... something...

[Clarence]

simply amazing.

[WildCowboy]

This despite the expected summer sales surge, the iPhone release, which if nothing else will result in front-loaded sales as early adopters clamor for initial limited supplies.

Q3 is the April-June quarter, so it's not really the big summer quarter. iPhone isn't coming out until the absolute end of the quarter, and they're not getting a Leopard launch in the quarter.

Not really a surprise that they're guiding down at this point.

[twoodcc]

great news! looks like Apple's gaining market share!

looking forward to the "new products in our pipeline"

[dashiel]

"..and are also hard at work on some other amazing new products in our pipeline"

It's becoming a very long pipeline :(

stop your doom and gloom. apple is releasing products faster and more consistently than any time in their history. so leopard is going to be a couple of months late, and ?tv shipped a few weeks after they said, big deal. they've pretty much released at least one new/significantly updated product every month since july of last year.

[Stella]

"...amazing products in our pipeline"

The day Apple doesn't say this line at one of these meetings, I will do... something...

Yep. every time they say it.

If they didn't - it would be taken negatively.

[flopticalcube]

$103 in after hours. That's 8%!

[05elstonc]

They just announced a new NYC store that will be in the Meat Packing District. WOW 3 apple stores in NYC is pretty amazing.
...
Now they are talkin about iPhone + Apple TV Strategy
...
New Software features for AppleTV.
...
New software and new features included in the iPhone. No additional charge as they become available. Will use subscription accounting. Big BIG BIG deal.

[Peace]

Good grief!!

There's so many people trying to connect to the live stream it's timing out.

[digitalbiker]

They further lowered future expectations by saying:

Peter Oppenheimer, Apple’s CFO. “Looking ahead to the third fiscal quarter of 2007, we expect revenue of about $5.1 billion and earnings per diluted share of about $.66.”

This despite the expected summer sales surge, the iPhone release, which if nothing else will result in front-loaded sales as early adopters clamor for initial limited supplies.

This is classic UPOD, but might be more extreme than usual in this case.

I endorse a stock split.

Rocketman

Apple should at least cough up a dividend.

I don't think they've made a dividend payment to shareholders in recent history. Now with profits like these and billions in cash reserves, it's about time.

[Rocketman]

Unique subscription based (accounting) recognition of iPhone sales on a straight-line basis over 24 months. Allows Apple to provide FREE software upgrades over time to existing iPhone owners.

Earnings on service fees to be recognized on an "as earned" basis.

The odd thing about this will be a "rolling recognition" of iPhone related revenues thus smoothing earnings recognition.

Rocketman

Added note they will ALSO account for AppleTV sales on a straight line basis and will be adding substantial FREE updates to that device as well.

[pilotError]

A Giant PASS on the Apple TV Shipments question...

[05elstonc]

Unique subscription based regognition of iPhone sales on a straight-line basis over 24 months. Allows Apple to provide FREE software upgrades over time to existing iPhone owners.

Earnings on service fees to be recognized on an "as earned" basis.

The odd thing about this will be a "rolling recognition" of iPhone related revenues thus smoothing earnings recognition.

Rocketman

People need to realize this is a big deal. Apple got burned with the wireless N upgrade because of the accounting issues related to issuing new functionality on products whose revenue had already been fully realized. With this subscription model, it allows Apple to add new functionality without needing to charge for them. These will be "material" updates to iPhone. New Applications and new features over the life of the phone. THIS IS SO AMAZING.

[Rocketman]

People need to realize this is a big deal. Apple got burned with the wireless N upgrade because of the accounting issues related to issuing new functionality on products whose revenue had already been fully realized. With this subscription model, it allows Apple to add new functionality without needing to charge for them. These will be "material" updates to iPhone. New Applications and new features over the life of the phone. THIS IS SO AMAZING.


Correct. Apple Tablet Nano. iPhone is merely ONE app on an otherwise revolutionary device. Warning to competitors. The 2008 wimax release will REPLACE most urban cellphones.

There's a forward looking statement :)

Rocketman

[justflie]

Can someone better explain this subscription thing I keep hearing about? I jumped into the conference call late and I keep hearing it but would like to know more. Is this a free subscription included with the phone when you buy it? etc

[05elstonc]

Can someone better explain this subscription thing I keep hearing about? I jumped into the conference call late and I keep hearing it but would like to know more. Is this a free subscription included with the phone when you buy it? etc

No. It has nothing to due with your subscription with AT&T. It has to do with Apple's Internal finnacial accounting practices. It allows apple to issue MAJOR updates to their products without getting major fines from the SEC.

[zombitronic]

Now they are talkin about iPhone + Apple TV Strategy

iPhone as a remote? Or better, Remote Desktop into my Mac from my iPhone?? Oh, man...

I'm glad to hear about those additional features at no extra charge. Like the Wii. I wonder, having an OS, it would be conceivable that they would charge for an iPhone OS update when 10.6 rolls out. But the iPod updates are free and hopefully whatever enhancements surface will be categorized as those "additional features."

[Eric5h5]

I thought Vista was supposed to be "chipping away" at OS X marketshare. At least that's what somebody on the "Leopard delayed" thread was trying to tell me. What happened to that? ;)

--Eric

[justflie]

No. It has nothing to due with your subscription with AT&T. It has to do with Apple's Internal finnacial accounting practices. It allows apple to issue MAJOR updates to their products without getting major fines from the SEC.

I'm sorry, I wasn't clear; by subscription, I did not mean AT&T. I was just worried that Apple was going to charge us for a subscription to something in addition to the hardware. So, if I understand you correctly, this is merely bookkeeping jargon/semantics to allow Apple to roll out updates without having to charge the customer, right?

[05elstonc]

The other really cool part about all of this has to do with my solid belief that Apple has decided to keep the iPhone extremely tight. If you buy an iPhone at launch that phone will continue to be updated and will last more than 2 years since they are accounting for it over a 24 month period. This means you will not be screwed by buying an iPhone in the begining. The iPhone hardware is advanced enough to handle the new software apple will want to ship, and when 3G and more memory is added in new models the form factor will remain the same, and as new features are added the entire line will see the benefits. Unlike the iPod where 3g iPods cannot play the games or some of the other new iPod OS features.

I'm sorry, I wasn't clear; by subscription, I did not mean AT&T. So, if I understand you correctly, this is merely bookkeeping jargon/semantics to allow Apple to roll out updates without having to charge the customer, right?

Yep. Exactly

[tektonnic]

If what you say is true, i can't wait to see what the other Qs show :D

I've been looking at Apple Hardware sales all day as part of my dissertation (due Friday :eek: ) and Q2 is traditionally the weakest, from Q3 2000 to Q1 2007 the cumulative sales per quarter are as follows:

6,883,000 Q1
5,206,000 Q2
6,807,000 Q3
7,175,000 Q4

Meaning the average hardware unit sales per Q (until today) were:

983286 Q1
867667 Q2
972429 Q3
1025000 Q4

So that means Apple exceeded thier average for the last 7 years!

[05elstonc]

The 35% margins are also due to the fact that the iPod and Mac lines have not been updated with new components in a long time allowing for Apple to squeeze more profits out of the hardware as the cost to Apple falls. They guided that margins will return to the average high 20's soon. This indicates that updates to their product line is coming which will incorporate new components which will cost more and lower margins.

[gwangung]

The 35% margins are also due to the fact that the iPod and Mac lines have not been updated with new components in a long time allowing for Apple to squeeze more profits out of the hardware as the cost to Apple falls. They guided that margins will return to the average high 20's soon. This indicates that updates to their product line is coming which will incorporate new components which will cost more and lower margins.

Ah, good catch and good analysis. (And 35% is not excessive; 20% is bare bones survival, so 30% with a temporary spike looks to be healthy).

[flopticalcube]

The 35% margins are also due to the fact that the iPod and Mac lines have not been updated with new components in a long time allowing for Apple to squeeze more profits out of the hardware as the cost to Apple falls. They guided that margins will return to the average high 20's soon. This indicates that updates to their product line is coming which will incorporate new components which will cost more and lower margins.

And/or a lower price but not likely. :(

[05elstonc]

Ah, good catch and good analysis. (And 35% is not excessive; 20% is bare bones survival, so 30% with a temporary spike looks to be healthy).

Let's just hope Apple doesn't sit on the sidelines with updates trying to squeeze more out of their customers with the rationale, "if they are buying them at these prices, we do not need to update the line" I think they are ready with new models with the Santa rosa chipset and will drop them as soon as they see a slight dip in sales.

[GanleyBurger]

Apple shipped 1,517,000 Macs

Really? Wow!!! That is a lot of computers. Impressive!!!:D

My money is still burning a hole in my pocket. :eek:

Come-on Santa Rosa by June... I'm ready to hit the button.

[Mgkwho]

Shaw Wu is such an idiot.

-=|Mgkwho

[Rocketman]

I have been trying to understand and integrate some of the "consequences" of the new accounting treatment for iPhone and AppleTV with the straight line 24 month revenue recognition (even though customers still pay cash on the barrelhead).

It seems to me one of the consequences is a very large portion of OSX development costs are going to be (or are already) ascribed to these new programs, thus, for accounting purposes, increasing the margins on traditional Macs.

With the componet gurus estimating iPhone has a 50% hardware gross profit margin as opposed to iPod around 30%, one wonders if instead of a portion being used to offset a data plan or increase retail margins, it is actually going into software development budgets (and corporate profits) during the 3-5 year ramp-up of the series of "iPhones" (ATN, ATNN, ATN2).

iPhone and AppleTV are, in fact, OSX Macs.

Rocketman

[aafuss1]

Last quarter's conference call stated-stay tuned for iLife/iWork updates. Apple's hasn't given any updates on that.

[05elstonc]

Last quarter's conference call stated-stay tuned for iLife/iWork updates. Apple's hasn't given any updates on that.

Will come out with Leopard and be Leopard only due to Core animation and Objective-C 2.0

[Porchland]

New software and new features included in the iPhone. No additional charge as they become available. Will use subscription accounting. Big BIG BIG deal.

The subscription accounting change for :apple:tv looks like Sarbanes-Oxley ass-covering, i.e., an attempt to prevent another situation like "waking up" the n-card feature in the new MBPs without charging for it.

:apple:tv is going to get some new goodies, but I don't really think that's news.

[johnee]

Apple shipped 1,517,000 Macs

Really? Wow!!! That is a lot of computers. Impressive!!!:D


And people are wondering why there are a lot of newbie questions around here :rolleyes:

[05elstonc]

The subscription accounting change for :apple:tv looks Sarbanes-Oxley ass-covering, i.e., an attempt to prevent another situation like "waking up" the n-card feature in the new MBPs without charging for it.

:apple:tv is going to get some new goodies, but I don't really think that's news. Beyond HD content in iTS, I wonder what's coming for :apple:tv:?

Yes, it does have to due with new accounting practices and SEC regulation, but notice how the iPod or Mac are not switching to the new accounting method. Just iPhone and AppleTV. This means the updates will make a material difference in the functioning of the device and as such the revenue of the device cannot be accounted for at sale because all of the features of the device have not yet been delivered. Therefore this is not about new content in the iTunes store. It is about new functionality, like iPhone as a remote for AppleTV, Browsing the Youtube clips on the Apple TV, buying content from Apple TV directly, allowing more formats to be played, and other features I cannot even think of.

[Multimedia]

Wow that's huge growth - especially in light of the fact that this is only the beginning of the transition to intel processors.

[Rocketman]

Last quarter's conference call stated-stay tuned for iLife/iWork updates. Apple's hasn't given any updates on that.

Here's how they addressed that :)

"Apple assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates."

Chickens!

The long list of "risks" is fun to read and watch what new potential disasters they add each time (see post #1 near the end).

Rocketman

[Phobophobia]

As a shareholder, this is good news.

[dunnonuthin]

Notice that Stevo makes a point to say the iPhone is coming in LATE June.

So there goes any hope of seeing it released at WWDC...

[IJ Reilly]

As a shareholder, this is good news.

And to whom is it bad news? ;)

[flopticalcube]

And to whom is it bad news? ;)

Competitors.

[scu]

Well earnings came out at .87 a share. Wall Street anticipates some of that so the stock went up $2 in regular trading. In After Hours it is up $6.5 dollars breaking that 100 barrier. I see the stock trading between 100-110 for the next 3 months. The stock will really take off after 3rd quarter.:)

[Rocketman]

Apple should at least cough up a dividend.

I don't think they've made a dividend payment to shareholders in recent history. Now with profits like these and billions in cash reserves, it's about time.

I'm going to disagree. What Apple uses its cash for is large prepayments to suppliers (flash, CPU, memory) to get favorable parts cost outcomes. Better than everyone else indeed. This has resulted in wildly increased profit margins, net profits and thus huge increases in share price. FAR more value than a dividend would deliver.

Growth is crack to the stock market (Cramer). Apple is focused on sales, profit and margin growth. As a stockholder, I'll take that over a dividend any day. The tax rate on long term capital gains is 15%.

Rocketman

[johnee]

Notice that Stevo makes a point to say the iPhone is coming in LATE June.

So there goes any hope of seeing it released at WWDC...

That's cause wwdc is for COMPUTERS! but is it for osx developers that will also make iphone apps?

iphone is on hold cause wwdc he'll unveil a whole new imac/macbook/mbp lineup !!

[MacTheSpoon]

Man... all I can say is, I sure wish I owned more Apple stock!!!

Congratulations, Apple! :)

[Willis]

These numbers are HUGE! Q3 is going to be a big one too as it will include iPhone sales.

[IJ Reilly]

I'm going to disagree. What Apple uses its cash for is large prepayments to suppliers (flash, CPU, memory) to get favorable parts cost outcomes. Better than everyone else indeed. This has resulted in wildly increased profit margins, net profits and thus huge increases in share price. FAR more value than a dividend would deliver.

Growth is crack to the stock market (Cramer). Apple is focused on sales, profit and margin growth. As a stockholder, I'll take that over a dividend any day. The tax rate on long term capital gains is 15%.

Rocketman

They don't need a $12 billion cash mountain for that. Apple should invest that money in growth (capitalize it), or distribute at least some of it to the stockholders in the form of dividends (The tax rate on qualified dividends is as low as 5%). Dividends reward investor patience, decrease volatility and declaring one sends a positive message to the markets. Dividends are a good thing.

[SMM]

I'm going to disagree. What Apple uses its cash for is large prepayments to suppliers (flash, CPU, memory) to get favorable parts cost outcomes. Better than everyone else indeed. This has resulted in wildly increased profit margins, net profits and thus huge increases in share price. FAR more value than a dividend would deliver.

Growth is crack to the stock market (Cramer). Apple is focused on sales, profit and margin growth. As a stockholder, I'll take that over a dividend any day. The tax rate on long term capital gains is 15%.

Rocketman

It also allows for more options in inventory management. For example, if a company must pay substantial debt service, they cannot afford to hold inventory. This places considerable pressure on supply chain management. You often must accept less than favorable suppliers, and terms. However, if you can capitalize your purchases, you can reverse both of these. You still must do good inventory management, but your options are much greater.

For example, take the case on the Mac Pro. If you were to take a caliper and micrometer and measure the tolerances, inside and out (I have), you will be impressed with how little tolerance build-up there is. These cases are built to aerospace specs - very impressive. Look at how well everything is radiused, the edges broken, etc. This is quality craftsmanship. Compare that to brand X. There is no comparison. The reason Apple can afford to offer such better quality is largely due to the fact they can order in large quantities to get the price down. That means they have to hold inventory, but if they do not have to pay debt service, it is largely mitigated.

[digitalbiker]

I'm going to disagree. What Apple uses its cash for is large prepayments to suppliers (flash, CPU, memory) to get favorable parts cost outcomes. Better than everyone else indeed. This has resulted in wildly increased profit margins, net profits and thus huge increases in share price. FAR more value than a dividend would deliver.

Growth is crack to the stock market (Cramer). Apple is focused on sales, profit and margin growth. As a stockholder, I'll take that over a dividend any day. The tax rate on long term capital gains is 15%.

Rocketman

Come now, that sounds like Apple propoganda.

Apple has something like 10 Billion in cash reserves. They do make use of a small fraction of that income to prepay suppliers but not close to the whole amount.

While stock price growth is excellent, I am not complaining about their performance, Apple could also commit to a quarterly dividend. Dividend payments would attract more investment from the sector of investors which invest for income generation and aren't as interested in long term growth. This demographic is getting very large now with the approaching of retirement age for many "baby-boomers".

High-growth stocks like Apple also tend to be higher-risk. In that, usually products are hit or miss and highly dependant on an economy populated by customers with a large disposable income. Don't forget that Apple had a pretty hard time in the mid-90's.

When profits are this strong and the market is growing this fast, I just think it is proper for Apple to consider yielding a dividend to the loyal stockholders that have stood with her through good and bad times.

[scu]

Actually I just want a stock split. It will show great confidence in the future.

The cash could be used to invest some new techonology most of us only dream about.

[MrBigMac]

:D HUMMMmmmm do I C a 2 fur 1 forward split in da near future ?

[IJ Reilly]

Apple has something like 10 Billion in cash reserves.

Nearly $12 billion (as mentioned two posts above).

[StrongBad]

adjusted for splits, I have several hundred shares at $8.


That's right, $8.


Steve is like the tooth fairy, except instead of trading teeth for shiny nickels, I'm trading $10,000 (circa 2003) for a new house.


thanks easter bunny.

[Stella]

And to whom is it bad news? ;)

Consumers who pay excess prices for the 35% margin.

There is a notion of "excessive profit margins".

Normally this occurs as a result of price fixing, or monopolies et al... but Apple is far from that ( monopoly ).

--
Nice results, btw.

[Rocketman]

http://phx.corporate-ir.net/phoenix.zhtml?c=107357&p=irol-dividends

Here's one which is more scholarly:

http://ce.seekingalpha.com/article/29007

[reverie]

iPod revenue is down 1 % year over year, from $1714 to $1689. Nobody worried about that?

The average iPod price keeps going down all the time and is now at $160.11. It's $40.95 down compared to the March 2006 quarter (which can be explained with the cheaper iPod and iPod shuffle) but it's also $2.59 down compared to the December 2006 quarter.

The iPod seems to be slowing down. But who am I to count out Apple's engineers? Let's hope for some nice new models reigniting consumer interest this year. Otherwise there are going to be a lot of people who can't get the iPhone because it's tied to certain carriers and who won't buy another iPod so soon because they pale in comparison.

Great Mac unit growth in Retail (79 % year over year) and Europe (37 %). Desktops are flat, Portables up 79 %.

[aliasfox]

Four gigabytes of flash goes for maybe... $50? If each Santa Rosa based laptop needs that much, and Apple sells 800,000 units per quarter, that's $40 million. If Apple sells 40 million gigabytes worth of flash based iPods, that's another $500 million... yeah, Apple will still have a lot of money to spare after they prepay for all that flash memory.

I'd rather it go back into R&D. The MacBook Pro industrial design dates from late 2003 (or even early 2003 for the 17"), and has been around longer than any other Apple "look" in recent memory.

The MacBook has quality control issues that still haven't been fully ironed out (my black C2D occasionally shuts down when I try to put it to sleep, for example).

I'm waiting on a 12" PowerBook replacement (my other machine).

A value oriented 20" PVA display for the Mac Mini, HDMI across the board, and a new iSight wouldn't hurt.

Oh yeah, maybe a full screen iPod... the one that everyone's been thinking about for 2-3 years...

[CuteMacGirl]

I just hope some of that 770 millioin dollars was donated to people who really need it!

[gwangung]

Consumers who pay excess prices for the 35% margin.

There is a notion of "excessive profit margins".

Yeah, but not at 35%; manufacturing, you start at 15-20% for mere survival, you cycle between 28 and 35% to be healthy and you can go as high as 45% AS AN AVERAGE in some industries.

I think a lot of people around don't have a good feel for real world economics.

[rikers_mailbox]

Wow that's huge growth - especially in light of the fact that this is only the beginning of the transition to intel processors.

The "transition" is done. PPC Macs are no longer sold.

just thought i'd point that out.

[BornAgainMac]

iPod revenue is down 1 % year over year, from $1714 to $1689. Nobody worried about that?


When history is made, the iPod will be looked at as the device that helped Apple gain consumer mindshare to sell computers, software, phones, speakers, and other household electronics. It will be a trusted and familiar brand like Sony. Overall, they will do well.

The Fan Boy Windows users will be wiped out like the Jedi and you won't hear much about them.

[Stella]

No.

Apple cannot be expect continued rises of iPod in every quarter.

Its been a long time since the last significant iPod change,that was 5G - a long time ago. iPod 5.5 was minor upgrade. Apple have milked the 5G ( and 5.5 ) for a long time.

When the 6G is released you can pretty sure that sales will be on the up.

Alternatively, maybe this quarter was just a blip.

iPod revenue is down 1 % year over year, from $1714 to $1689. Nobody worried about that?

[reverie]

When history is made, the iPod will be looked at as the device that helped Apple gain consumer mindshare to sell computers, software, phones, speakers, and other household electronics. It will be a trusted and familiar brand like Sony. Overall, they will do well.


This is true. Those iPod owners I mentioned who can't get the iPhone because of carrier restrictions but have serious techlust might just get an Apple TV this season.

The iTS does have little video content (especially outside the US), but didn't those same people buy the 5G iPod mostly for video back when there was even less video content? I hope Apple will show us Apple TV figures next quarter and I hope they're over a million (life to date). More movie content providers following MGM (Fox?) should help as well.

However, the problem is this: Apple's new mojo is in the iPod. They've always been making good product, but it's just now with the success of the iPod that they are recognized for it. A faltering iPod business would mean less consumer confidence in the new product lines.

[mrjk]

It seems to me one of the consequences is a very large portion of OSX development costs are going to be (or are already) ascribed to these new programs, thus, for accounting purposes, increasing the margins on traditional Macs.
Rocketman

OSX development must already be capitalized - or at least some of it, or they wouldn't have had that problem with having to charge for that N network upgrade because the the expense would be already be realized ... wait that was on a driver not really part of OSX perhaps.

Any way, I cannot believe that Apple doesn't capitalize their OSX development, (spreading the recognition of the cost out over 3 or 5 years, "depreciating" the cost as it were). OSX is the kind of thing they wrote the software capitalization rules for in the first place.

I can see the iPhone absorbing some of the cost - but it should if it is sucking in a bunch of OSX people. I don't think that is burying the cost, just spreading it to all functions that use OSX, so the net cost per Mac should be lower if the expenses aren't proportionally higher - more devices would use OSX. It would be interesting to know how Apple divides things, internally does every computer get assigned an OSX cost or do they just keep it all as a bunch as a separate Entity with just high expenses.

[Maccus Aurelius]

I'm glad for this news, as it means Macs will be around much longer, and that they[Apple] will not quite simply abandon them. This certainly should shut up those pundits that think Apple should license out its OS and abandon the hardware ventures al la Microsoft.

I hope Apple doesn't get too big. To tell you the truth, I think they'll keep doing much better while they stay the relatively smaller corporation. I think getting too large will make them get lazy, and eventually just push out one product after the other, and none are noteworthy and valuable in the long run, but generate some dough in the short term. Maybe I'm wrong and they're an exception that can handle massive growth, but it's just a feeling I get. But anyway, at their current market position they do extremely well, despite these vague marketshare percentage discussions. 3-5% my left.....:rolleyes:

[lukeisme09]

dear god, all of my shares are going to apple.... lol jk

[scrambledwonder]

Wow, that's a lot of profit. Wonder where all that money goes. . .

[Wild-Bill]

While desktop units sales only saw a 2 percent increase from the year-ago quarter, unit sales of Mac portables surged 79 percent and unit sales of the iPod surged 24 percent to more than 10.5 million.

If that isn't a sign that Apple seriously needs to re-think keeping the Mac Pro updated with new components, I don't know what is. They would have realized a larger than 2 percent increase if they offered components that were actually made in 2007, instead of keeping old tech in there (1900XT anyone?)

But, since ATI just announced the 2900XT in Tunisia, perhaps we can look forward to new components in the Mac Pro in the future. Apple need to move away from the old PPC schedule of updating their platforms.

[dejo]

If that isn't a sign that Apple seriously needs to re-think keeping the Mac Pro updated with new components, I don't know what is.
Maybe it's just a symptom of the entire desktop sales market being stagnant. Anybody have any figures on this?

[Maccus Aurelius]

If that isn't a sign that Apple seriously needs to re-think keeping the Mac Pro updated with new components, I don't know what is. They would have realized a larger than 2 percent increase if they offered components that were actually made in 2007, instead of keeping old tech in there (1900XT anyone?)

But, since ATI just announced the 2900XT in Tunisia, perhaps we can look forward to new components in the Mac Pro in the future. Apple need to move away from the old PPC schedule of updating their platforms.

I think it may have more to do with the fact that Apple has no real middle ground desktop machine besides the iMac. While this is a good computer, I think a great deal of people would rather have a good midrange headless system. All they have is the mac mini, which may be too minimalist for many users' tastes, and the mac pro, which is overkill for the average prosumer/consumer alike.

[scrambledwonder]

"The Mac is clearly gaining market share, with sales growing 36 percent -- more than three times the industry growth rate," said Steve Jobs, Apple's CEO. "We're very excited about the upcoming launch of iPhone in late June, and are also hard at work on some other amazing new products in our pipeline."

Seems to be a blockage in that pipeline. . .

[scrambledwonder]

I think it may have more to do with the fact that Apple has no real middle ground desktop machine besides the iMac. While this is a good computer, I think a great deal of people would rather have a good midrange headless system. All they have is the mac mini, which may be too minimalist for many users' tastes, and the mac pro, which is overkill for the average prosumer/consumer alike.

Or the fact that the desktop is dying. Why use a desktop when you can have nearly as much computing power in a portable? Desktops are making less and less sense for most computer users. Pro users will benefit from the power of the MacPro, but there aren't many Pro users compared to everyday Joes.

[Maccus Aurelius]

While the desktop appeal may be dwindling, it'll be a long long way until we see the last of those.

I will say this though. The current Mac Mini is not as powerful as my macbook, while the 'book has easier access to the RAM and hard disk. In desktop mode my laptop is just as competent, despite having fewer ports on the side (which is solved with an Apple Cinema Display :D )

[Rocketman]

Headline numbers
EPS $0.49
Sales $14.4B ^32%
Profit $4.9 Billion ^65.5% (6.36x Apple's profit)

Vista sales better than forecasted.

http://www.microsoft.com/presspass/press/2007/apr07/04-26Q3FY07ERPR.mspx

Microsoft Reports Record Profits
Robust demand for Windows Vista and the 2007 Microsoft Office system drives 72% growth in earnings per share
Related Links
Microsoft Resources:
•
Microsoft Investor Relations
REDMOND, Wash. — Apr. 26, 2007 — Microsoft Corp. today announced revenue of $14.40 billion for the quarter ended March 31, 2007, a 32% increase over the same period of the prior year. This revenue drove record profits with operating income of $6.59 billion and net income of $4.93 billion. Diluted earnings per share for the quarter grew 72% to $0.50, and included $0.02 in tax benefits and $0.01 in legal charges.
These results reflect $1.67 billion of revenue and operating income, $1.14 billion of net income and $0.12 of diluted earnings per share that were previously deferred primarily related to the technology guarantee programs for Windows Vista™ and the 2007 Microsoft® Office release.
“I am extremely pleased that we delivered a quarter of strong double-digit growth for revenue, operating income and EPS,” said Chris Liddell, chief financial officer at Microsoft. “And I am looking forward to a very good finish to this fiscal year with strength continuing into fiscal 2008.”
Net cash flow from operations was $7.29 billion and Microsoft returned $7.72 billion in cash to shareholders through share buybacks and dividends this quarter.
“This quarter marked the consumer launches of Windows Vista and the 2007 Microsoft Office system, and we are delighted with the positive customer response these products have received,” said Kevin Turner, chief operating officer at Microsoft. “We continue to deliver on our compelling product cycle and build upon strong field sales and marketing execution in order to drive revenue and profit growth for the company.”
Business Outlook
Microsoft management offers the following guidance for the quarter ending June 30, 2007:
•
Revenue is expected to be in the range of $13.1 billion to $13.4 billion.
•
Operating income is expected to be in the range of $5.0 billion to $5.2 billion.
•
Diluted earnings per share are expected to be $0.37 to $0.39.
Management offers the following preliminary guidance for the full fiscal year ending June 30, 2008:
•
Revenue is expected to be in the range of $56.5 billion to $57.5 billion.
•
Operating income is expected to be in the range of $22.0 billion to $22.5 billion.
•
Diluted earnings per share are expected to be in the range of $1.68 to $1.72.
Additional details on fiscal year 2008 guidance will be provided in the fourth quarter earnings announcement and during the company’s Financial Analyst Meeting on the 26th of July.
Webcast Details
Microsoft will hold an audio webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today with Chris Liddell, senior vice president and chief financial officer, Frank Brod, corporate vice president and chief accounting officer, and Colleen Healy, general manager of Investor Relations, to discuss details of the company’s performance for the quarter and certain forward-looking information. The session may be accessed at http://www.microsoft.com/msft. The webcast will be available for replay through the close of business on April 26, 2008.
About Microsoft
Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.
Forward-Looking Statements
Statements in this release that are "forward-looking statements" are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as:
•
challenges to Microsoft’s business model;
•
intense competition in all of Microsoft’s markets;
•
Microsoft’s continued ability to protect its intellectual property rights;
•
claims that Microsoft has infringed the intellectual property rights of others;
•
the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;
•
actual or perceived security vulnerabilities in Microsoft products that could reduce revenue or lead to liability;
•
government litigation and regulation affecting how Microsoft designs and markets its products;
•
Microsoft’s ability to attract and retain talented employees;
•
delays in product development and related product release schedules;
•
significant business investments that may not produce offsetting increases in revenue;
•
the level of corporate spending and changes in general economic conditions that affect demand for computer hardware or software;
•
adverse results in legal disputes;
•
unanticipated tax liabilities;
•
key component shortages and delays in Xbox 360 product delivery;
•
impairment of goodwill or amortizable intangible assets causing a charge to earnings;
•
changes in accounting that may affect Microsoft’s reported earnings and operating income;
•
exposure to increased economic and regulatory uncertainties from operating a global business;
•
general economic and geo-political conditions;
•
natural disaster, cyber-attack or other catastrophic event disrupting Microsoft’s business;
•
acquisitions and joint ventures that adversely affect the business;
•
limitations on the availability of insurance and resulting uninsured losses;
•
improper disclosure of personal data could result in liability and harm Microsoft’s reputation
•
sales channel disruption such as the bankruptcy of a major distributor;
•
implementation of operating cost structures that align with revenue growth;
•
continued access to third party distribution channels for MSN® and other online offerings;
•
disruption to Microsoft’s operations as a result of weather-related events; and
•
foreign currency, interest rate, fixed income, equity and commodity price risks.
For further information regarding risks and uncertainties associated with Microsoft’s business, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s Investor Relations department at (800) 285-7772 or at Microsoft’s Investor Relations website at http://www.microsoft.com/msft.
All information in this release is as of April 26, 2007. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.
Note to editors: If you are interested in viewing additional information on Microsoft, please visit the Microsoft web page at http://www.microsoft.com/presspass on Microsoft’s corporate information pages. Web links, telephone numbers and titles were correct at time of publication, but may since have changed. Shareholder and financial information, as well as today’s 2:30 p.m. PDT conference call with investors and analysts, are available at http://www.microsoft.com/msft.

[Peace]

Gee..I was expecting microsoft to report sales of 100-200 million.

This is shocking :rolleyes:

[IJ Reilly]

Headline numbers
EPS $0.49
Sales $14.4B ^32%
Profit $4.9 Billion ^65.5% (6.36x Apple's profit)

EPS 44% lower, and that is the number which matters most to investors.

[dejo]

EPS 44% lower, and that is the number which matters most to investors.
IJ Reilly, how are you getting 44% lower? The press release states "Diluted earnings per share for the quarter grew 72% to $0.50". What am I missing? :confused:

[IJ Reilly]

IJ Reilly, how are you getting 44% lower? The press release states "Diluted earnings per share for the quarter grew 72% to $0.50". What am I missing? :confused:

Rocketman was comparing Apple's profits with Microsoft's profits, indicating that Microsoft's profits are more than six times higher. I was pointing out that on an EPS basis, Microsoft's profits are 44% lower than Apple's. Sorry, I failed to make that clear.

[dejo]

Rocketman was comparing Apple's profits with Microsoft's profits, indicating that Microsoft's profits are more than six times higher. I was pointing out that on an EPS basis, Microsoft's profits are 44% lower than Apple's. Sorry, I failed to make that clear.
That's okay. Thanks for "edumacating" me!

Here's a summary for us dimwits:

Apple
EPS $0.87
Sales $5.26B ^20%
Profit $770 million ^177%

Microsoft
EPS $0.49 ^72% (.56x Apple)
Sales $14.4B ^32% (2.73x Apple)
Profit $4.9 Billion ^65.5% (6.36x Apple)

[flopticalcube]

That's okay. Thanks for "edumacating" me!

Here's a summary for us dimwits:

Apple
EPS $0.87
Sales $5.26B ^20%
Profit $770 million ^177%

Microsoft
EPS $0.49 ^72% (.56x Apple)
Sales $14.4B ^32% (2.73x Apple)
Profit $4.9 Billion ^65.5% (6.36x Apple)

That is a meaningless comparison. Besides having many more shares outstanding than Apple, Microsoft trades at around $30 per share where as Apple trades at $100.

PE ratio Microsoft 61
Apple 115

Microsoft would seem the better bargain on this basis (all other things being equal).

[IJ Reilly]

Microsoft would seem the better bargain on this basis (all other things being equal).

Which of course they never are. Sure Microsoft's sales and profits are huge. But what is the point of this comparison? Apple is growing their profits much more significantly, which is reflected in their EPS and the historical change in the stock's price. This is what investors care about.

[Cult Follower]

Go apple i love you keep it up

[WildCowboy]

How is comparing EPS between companies relevant? (Sorry, I'm sure the answer is obvious, but I fried my brain today.)

If Apple goes forward with their rumored stock split, the EPS gets cut in half. Comparing a company's own EPS (as long as you account for stock splits) over time is valuable for an internal gauge of performance, but I'm not seeing the connection between two different companies with different numbers of shares outstanding.

[Evangelion]

EPS 44% lower, and that is the number which matters most to investors.

I'm sorry, but you do not know what you are talking about. EPS is merely Earnings per share. If Apple split it stock, then their EPS would go down. Would that mean that Apple's financial performance would also be down? No it woul not.

[Evangelion]

How is comparing EPS between companies relevant? (Sorry, I'm sure the answer is obvious, but I fried my brain today.)

If Apple goes forward with their rumored stock split, the EPS gets cut in half. Comparing a company's own EPS (as long as you account for stock splits) over time is valuable for an internal gauge of performance, but I'm not seeing the connection between two different companies with different numbers of shares outstanding.

Exactly. It's like when people stare at shareprices to detrmine which company is "better", when they fail to realize that the two companies might have different amount of shares floating around. Now they have moved to stare at the EPS instead? It makes no sense.

[flopticalcube]

Which of course they never are. Sure Microsoft's sales and profits are huge. But what is the point of this comparison? Apple is growing their profits much more significantly, which is reflected in their EPS and the historical change in the stock's price. This is what investors care about.

Just pointing out the uselessness of EPS comparisons. PE is better but as you can see a "bargain" isn't always what it seems. I would definitely buy Apple over MS any day.

[IJ Reilly]

Just pointing out the uselessness of EPS comparisons. PE is better but as you can see a "bargain" isn't always what it seems. I would definitely buy Apple over MS any day.

Yes, you are all correct. My brain was fried when I wrote that. The point I was driving at and made so poorly is that EPS growth is what investors care about, not profit numbers. Comparing Apple and Microsoft's raw revenues or profits (especially for any given quarter) doesn't say much if anything, in terms of how well a company is doing. Apple's revenues and profits have grown far more than has Microsoft's over the last five years, and this is reflected in their stock prices.

Sorry for the confusion. I was typing under the influence of tiredness. :o

[gnasher729]

PE ratio Microsoft 61
Apple 115

Microsoft would seem the better bargain on this basis (all other things being equal).

You are the only person in the world who quotes a PE ratio based on quarterly numbers. Everyone else compares the stock price with the earnings for one year. And for companies that are growing, like Apple does, you quote "trailing PE" and "forward PE": Trailing PE takes the numbers from the last year, forward PE extrapolates current trends for the next year. Apple has a trailing PE of 35, and a forward PE of 25.

The price that people pay for a share is rationally based on the profit that the company makes, plus the expectation of growth in the future, and then of course there will be many irrational factors. In the case of Microsoft, people don't expect any growth anymore. Clearly you will pay more for a company like Apple with 25 or more percent growth than for Microsoft with no room for growth at all.

[IJ Reilly]

Another thing I noticed in my reading this morning is that Microsoft beat the street by around 6% (49 vs. 46 cents EPS), to which the markets reacted by pushing MSFT up around 5%. In the end AAPL made a smaller move up the day after beating the conventional wisdom by 35%. This alone tells you volumes about the market's relative expectations for these two companies.

[flopticalcube]

You are the only person in the world who quotes a PE ratio based on quarterly numbers. Everyone else compares the stock price with the earnings for one year. And for companies that are growing, like Apple does, you quote "trailing PE" and "forward PE": Trailing PE takes the numbers from the last year, forward PE extrapolates current trends for the next year. Apple has a trailing PE of 35, and a forward PE of 25.

The price that people pay for a share is rationally based on the profit that the company makes, plus the expectation of growth in the future, and then of course there will be many irrational factors. In the case of Microsoft, people don't expect any growth anymore. Clearly you will pay more for a company like Apple with 25 or more percent growth than for Microsoft with no room for growth at all.

Just illustrating a quick point based on the numbers given. Of course PE is annualized. No need to be offensive, gnasher.

[reverie]

Apple has 3 desktops selling around 200k each (stagnant since 2005) and 2 portables selling around 450k each (100 % growth since 2005). I think it's obvious that we won't see another desktop line for lack of customer demand.

Introducing a headless mac would cannibalize all 3 present desktop lines and force Apple to raise the price by say $100 for the mac mini, $100 for the iMac and $200 for the Mac Pro.

[scotty321]

Is anybody on this forum going to the Apple shareholders meeting this Thursday at 10am?

If so, can you PLEASE stand up & ask Steve Jobs why in the hell he is keeping Intuit CEO Bill Campbell on the Apple Board of Directors, when Bill Campbell has CONTINUED to delivered COMPLETELY SUBPAR financial products for Mac OS X?

Even in the year 2007, Quicken & QuickBooks are absolutely horrible products on the Mac, and COMPLETELY pale in comparison to their Windows counterparts.

Just as a quick example:
1. Quicken for Mac does NOT auto-connect to MOST financial institutions for instantaneous downloading like it does in Quicken for Windows.
2. Quicken & QuickBooks for Mac both feature less than 50% of the feature set of the Windows versions of these products.
3. QuickBooks has no multi-user support, whereas every version of QuickBooks for Windows can be networked.
4. Neither product supports a cross-platform file format so Windows users will actually LOSE MANY FEATURES & FINANCIAL INFORMATION upon switching to Macintosh, and the tedious export/import routine for QuickBooks still does not work reliably under any circumstances.

These are just the top 4 issues off the top of my head, but obviously there are DOZENS UPON DOZENS more! There are no other real personal financial software alternatives for the Mac (with the exception of MYOB, which is okay for small businesses), so we are stuck with these subpar products from Intuit.

And the only way that many Windows users can switch to the Mac is to end up using their INtuit product in Parallels or Boot Camp.

All of this and BILL CAMPBELL SITS ON THE BOARD OF DIRECTORS AT APPLE!!

I will not be able to make it to the shareholders meeting this week -- can somebody please bring up this information at the meeting?

As far as I'm concerned, Bill Campbell should be kicked off the board completely.