Apple Q1 2006 Financial Results

[MacRumors]

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

In an audio webcast (http://www.apple.com/quicktime/qtv/earningsq106/) conference call today, Apple is announcing its 2006 Q1 financial results (http://www.apple.com/pr/library/2006/jan/18results.html), covering the last 14 weeks of 2005.

Apple reported its highest-ever revenue and earnings.

Highlights, with 2005 Q1 for comparison:

- Macs shipped: 1,254,000 (20% growth over 2005 Q1)
- iPods shipped: 14,043,000 (207% growth over 2005 Q1)
- Revenue: $5.75 billion, 40% from international sales ($3.49 billion in 2005 Q1)
- Net quarterly profit: $565 million ($295 million in 2005 Q1)
- Gross margin: 27.2% (28.5% in 2005 Q1)

From Steve Jobs, Apple CEO:
We are thrilled to report the best quarter in Apple's history. Two highlights of an incredible quarter were selling 14 million iPods and getting ready to launch our new Macs with Intel processors five to six months ahead of expectations. We are working on more wonderful products for 2006, and I can't wait to see what our customers think of them.

From Peter Oppenheimer, Apple CFO:
We're very pleased to report year-over-year revenue growth of 65 percent and net income that was nearly twice the year-ago level. Looking ahead to the second quarter of fiscal 2006, we expect revenue of about $4.3 billion.

[mazola]

I predict bad things for Apple's stock on this news!

[Edge100]

Revenues and profit WAAAY up, stock down by 6% in afterhours trading!

Go figure!

Apple RAWKS!

[shawnce]

Yup a barn burner of a quarter.. even for Macs despite the Intel transition.

91% increase in profit over later year Q1 :)

[longofest]

Apple's stock is already down about 3% today... Oh well, it will go back up.

[Photorun]

Revenues and profit WAAAY up, stock down by 6% in afterhours trading!

Go figure!

Apple RAWKS!

Typical Wall Street, dumb money for soulless people based on rampant vacant rumor, speculation, lies, and corruption.

But go Apple!!! You're still three times better than Dell stock and hundreds of times better as a company.

[plinden]

Of course, the breakdown in numbers is more interesting.

Desktop sales up 11% on last quarter, or 7% on last year. Laptops down 7% on last quarter, up 39% on last year.

56% of Apple's income is now iPod/music related.

[jholzner]

Revenues and profit WAAAY up, stock down by 6% in afterhours trading!

Go figure!

Apple RAWKS!

Their gross margins are down from the year ago quarter. I suppose that could be part of the reason. Not that I care! This was an awsome quarter for Apple! Can't have lower priced products and expect your gross margins to go up...but people want to eat their cake and have it too!

[plinden]

Revenues and profit WAAAY up, stock down by 6% in afterhours trading!

Go figure!

Apple RAWKS!
That's because of the "conservative" estimates for next quarter, of $4.3 Billion. Apple always seem to do that, then beat their own estimates.

[freeny]

Typical Wall Street, dumb money for soulless people based on rampant vacant rumor, speculation, lies, and corruption.

Well said.
Same thing happend last quarter. 5% drop but it rebounded the next day. Lets see if people spot a good price to buy in the next few days....

[SiliconAddict]

OH NO! Apple is doomed! They are going out of business next week! ;) :D

Revenues and profit WAAAY up, stock down by 6% in afterhours trading!

Go figure!

Apple RAWKS!


Part of it may be iPod sales. Wasn't there some insane estimates of 19 million expected to be sold?

[~Shard~]

Looks like I'll make some decent money after all, after shorting AAPL 2 days ago... I'll be getting out soon enough though before it rebounds. :cool:

Great numbers though on the whole - it will be interesting to see how Apple sustains this though. The stock is trading at a very high multiple and I think will correct some more (hence why I shorted). If Apple can't sustain these types of numbers, it could mean more rough times ahead for the stock. Regardless though, it's great for Apple to see such positive numbers - hopefully an increase in computer marketshare will add to the accolades in 2006 as more PC users make the switch. :cool:

[MacsRgr8]

One word:

EXCELLENT!!!! :cool:

[Stella]

The laptop sales indicate that once again the powerbooks ( and iBooks ) are uncompetitive AND that Apple were absolutely right to create the Frankenstein Mac Book Pro.

56% of revenue is iPod... this is a tad worrying. Apple are relieing ( spelling ) too much on one product.

[Doctor Q]

More facts from the conference call:587,000 iBooks and Powerbooks shipped
667,000 desktop systems shipped

Music: 59% of total revenue

A "stunning reaction" to the new ipods, despite replacing iPod lines. iPod inventories "lower than we would have liked".

The iTunes Music Store is now available in 90% of the global music market and sells 83% of all music purchased legally online in the U.S.

Retail profits were $90 million. 11 new Apple stores, now 135. Plans are to open 40 new stores in Fiscal 2006.

Q1 was 14 weeks, not 13 weeks as Q2 will be, and covered the week before New Year's day, adding to the record high quarter.

[Doctor Q]

More facts:Apple saw an "extraordinary response" to their announcements of the new iMac and MacBook Pro, which they mistakenly called the new PowerBook! :)

They are "thrilled with the response" from last week and hopeful that they can meet demand for iMacs during the upcoming quarter.

With the MacBook Pro shipping in February, there is limited time within the quarter, so they may not be able to meet first quarter demand.

[gwangung]

The laptop sales indicate that once again the powerbooks ( and iBooks ) are uncompetitive AND that Apple were absolutely right to create the Frankenstein Mac Book Pro.

56% of revenue is iPod... this is a tad worrying. Apple are relieing ( spelling ) too much on one product.

Word.

With desktops making up a solid majority of systems sold, that puts Apple in an uneasy spot (at least for modern computing). Some sort of Macbook Pro needed to come out soon, and this sort of release (imperfect as it is) will probably help out the bottom in second quarter.

[qtip919]

Typical Wall Street, dumb money for soulless people based on rampant vacant rumor, speculation, lies, and corruption.

But go Apple!!! You're still three times better than Dell stock and hundreds of times better as a company.

I would have to say that there is a little bit more to it than that...

Look at it this way...it's not necessarily about what the company is doing, its more about wha they could do. Its also more about how much people believe that they could do it...

Look, 80/share is way too high for Apple even with the wildest of expectations. Simple reason; you just dont get that many #1 hits in a lifetime. Dont get me wrong, I consume just about everything apple sells, but its just not enough for an 80/share price. We're all living on speculation and hype right now that apple will:

1. Cut waaaay into the home user market - No one cares too much about this long term, and this will likely drive costs up around apple as a whole. especially when you consider support costs. Think about the rediculous situation we had a while back with people SUING Apple over sticking their ipod nano's in their pockets which was full of dust and debris which then scratched their screen...That was a very expensive hit on apple. Welcome to the new world of customer support

2. Create another new market for video distribution - This is quite likely what is causing the majority of the stock speculation. But it is by no means a done deal. The players are worse than the RIAA, and satisfying customers is a lot more difficult here. You cant get away with selling people low-quality versions of videos through itunes. People want the highest quality available for watching videos at home first, and they will also take other versions, but realistically, these lower quality versions should be free if I have already purchased a DVD...ah, but that would be ILLEGAL...welcome to the new world of copyright protection in video...it sucks...big time

3. Step into the ITPro server market - Sun + Apple = success? Dont bet on it. There is more work to be done here than anyone could realistically begin to estimate. You have two very different companies with extremely different visions of computing. Bringing these two worlds together will be painful and it take a long time before they could even consider competiting with areas such as email, storage, etc. ... however, there are also some quick wins that could keep a merger like this on life-support for a long, long time.

All of these (and more) are reasons to want to buy stock in apple at 80, but I would be cautious...the split is coming with a likely short-term dip in stock price...if they split and come down to the low 30's... there would be a mad rush to buy their stock again, especially if they can keep the reality distortion field going at full strength and announce at least 2 more ground-breaking products...and Im NOT talking about iWeb ;)

Come on...where is Front-Row 2!!!!

[EricNau]

20% growth in Mac sales! That is a good thing. Maybe next year we can see 100%! :eek: :D

[Some_Big_Spoon]

Welcome to the stock market.

If Jesus himself was CEO and turning water into $100 bills the stock would still go down 10% because the analysts are "concerned that the Son of God isn't choosing to turn water into $500 bills".

Have you met a stock broker, fund manaer, analyst ever? I'm surprised they can tie their own shoes.

Revenues and profit WAAAY up, stock down by 6% in afterhours trading!

Go figure!

Apple RAWKS!

[shawnce]

If Jesus himself was CEO and turning water into $100 bills the stock would still go down 10% because the analysts are "concerned that the Son of God isn't choosing to turn water into $500 bills". :D :D :D :D :D

Now that made my day.

[bigandy]

i'm pleased to see how the mac sales are steadily increasing. i hope this trend does continue upward beyond all our humble (HA!) expectations... :rolleyes:

[eSnow]

This is excellent, absolutely excellent news!
I still remember the "beleagured computer maker" comments in the years 1996 and following, so it really warms my heart to see them succeed big time.

I don't expect them to gain market share big time, but they now sure have some money in their war chests...

[Whiteapple]

Why make trillions when we can make...billions?
Muhahaha

[Doctor Q]

More facts:Apple expects its next quarter to be the second highest in Apple history, trailing only this just-finished quarter.

The PowerBook G4 and iMac G5 will be sold while supplies last. They didn't promise discounts.

iPod sales in the holiday season lead to subsequent accessory sales, a source of revenue in the coming quarter.

There are now over 35,000 outlets selling iPods, although not all models are sold in all outlets.

Some iPod models are low on stock, even though the averages across all models are on target. Apple didn't confirm, but didn't deny, that the 4GB iPod nano is a bottleneck in the supply flow.

Comments about components: Apple saw greater than predicted memory and LCD sales. They expect the supply to continue to exceed the demand for LCDS, while the DRAM market is expected to stabilize. Hard drive prices are declining at lower than historical rates and price reductions are expected to continue for flash memory.

Most of the new Apple Stores will be in the U.S., but new stores will be opened in Canada, the U.K., and Japan.

[FoxyKaye]

Maybe I'm crossing wires here, but didn't I read somewhere a year or so ago that Apple took a chunk of its corporate savings and paid off all of its debts in full? If so, that would seem to mean that the company is now operating entirely in the black - and doesn't that make it a bit of an anomaly in the corporate world?

[NEENAHBOY]

Supposedly lackluster guidance for Q2, but I'm not concerned. Of course, stock's down over 7% in after-hours :rolleyes:

Now's a decent time to buy AAPL.

[shawnce]

Maybe I'm crossing wires here, but didn't I read somewhere a year or so ago that Apple took a chunk of its corporate savings and paid off all of its debts in full?

Even when Apple was carrying some debt they had been operating in the black (positive cash flow) for many quarters but yes they did payoff their last major debt a few quarters back.

If so, that would seem to mean that the company is now operating entirely in the black - and doesn't that make it a bit of an anomaly in the corporate world?

Yes and no... Apple has a good debt rating so they will get good lending rates. So if they needed cash they could borrow instead of burning their investments. Depending on the goals and the business plan not carrying any debt may not be the best thing for a company... basically if you have favorable lending rates and don't borrow is it like leaving money on the table. Again it depends on business plans on what makes sense for each company.

[jholzner]

Maybe I'm crossing wires here, but didn't I read somewhere a year or so ago that Apple took a chunk of its corporate savings and paid off all of its debts in full? If so, that would seem to mean that the company is now operating entirely in the black - and doesn't that make it a bit of an anomaly in the corporate world?

You are correct, sir! I think it was around this time last year that they announced that they would have all their debt paid of by Feb '05. Pretty nice if you ask me. These days I almost forget what it was like back in the mid to late 90's. Things have turned around and now the media can't stop praising them...back then you could hardly read an article that didn't saying how much they sucked.

[jholzner]

Supposedly lackluster guidance for Q2, but I'm not concerned. Of course, stock's down over 7% in after-hours :rolleyes:

Now's a decent time to buy AAPL.

Lackluster? I think it would be the second best quarter ever not including the one they just had if their guidance plays out. Pretty hard to top the xmas shopping season.

[shawnce]

Supposedly lackluster guidance for Q2, but I'm not concerned. I wouldn't call this quarter (Q2) guidance lackluster. The guidance (if realized) would make this quarter the 2nd best in Apple history behind the last quarter (Q1, the xmas shopping season). The markets Apple plays in are affected by sessionally and Q2 has historically been one of Apples weakest quarters... so giving guidance that it will be only second to last quarter in their history is impressive.

[Doctor Q]

The conference call is over. Conference call audio replay will be available here (http://www.apple.com/quicktime/qtv/earningsq106/) starting no later than 5pm Pacific time (2 hours from now).

A few more tidbits:Apple's business in Europe was up over 50%, but that's partly because the September quarter in Europe is the traditional time of summer vacations.

iTunes Music Store sales and sales of iPod accessories (both Apple's and those by other developers) follow from the sales of iPods. Both categories saw significant growth, compared to the previous quarter and compared to Q1 last year.

Apple will continue to invest for purposes of "long-term growth" in development, in advertising and marketing, and in Apple Stores.

[shawnce]

It is to bad the quarter to quarter unit volume for Mac was flat... this likely means that they underperformed relative to personal computer market growth for the quarter (holiday quarter). This means their market share will drop for the quarter.

Such a drop will likely be spun by some to imply that Apple is failing in the PC market while not fully considering (or disclosing) the effects of the Intel transition (Apple was clear they saw a unit volume fall off when rumors of Intel system at MWSF 06 sprang up).

[trans3062]

Notebook sells lower than I expected.

Bring on the rest of the "PowerBook" and iBook lines.

[Peace]

The foward looking statements today were a smokescreen...

Buy AAPL NOW!

It's gonna split 2nd quarter..after the new mac mini media et.al comes out..


remember this post! ;)

[Soulivar]

this is off topic and maybe you already know, but check out this link on speed tests done on the new intel based imacs:
http://www.macworld.com/2006/01/features/imaclabtest1/index.php

they actually run twice as slow when they need to use rosetta for native applications??

i'm not sold on the switch to the intel chips yet.

[FoxyKaye]

Yes and no... Apple has a good debt rating so they will get good lending rates. So if they needed cash they could borrow instead of burning their investments. Depending on the goals and the business plan not carrying any debt may not be the best thing for a company... basically if you have favorable lending rates and don't borrow is it like leaving money on the table. Again it depends on business plans on what makes sense for each company.
So, for example, if Apple were to make an expansion to pull production of the Intel PowerMacs back under its own roof (instead of outsourcing), even if they have all the cash up front, it might actually be better to do this with a loan to maintain a better overall business standing (which, I'm guessing, would in turn affect its stock favoribly). I suppose then, what they might have paid off was the debt from the 1990s so that they're not paying for things in the past - so now any new debt will be incurred for things that advance the company's current agenda.
You are correct, sir! I think it was around this time last year that they announced that they would have all their debt paid of by Feb '05. Pretty nice if you ask me. These days I almost forget what it was like back in the mid to late 90's. Things have turned around and now the media can't stop praising them...back then you could hardly read an article that didn't saying how much they sucked.
Well, actually, it's m'am. :p But yeah, it is really nice to see pro-Apple stuff in the media again. Kind of brings back some early 1980s nostalgia.

[shawnce]

So, for example, if Apple were to make an expansion to pull production of the Intel PowerMacs back under its own roof (instead of outsourcing), even if they have all the cash up front, it might actually be better to do this with a loan to maintain a better overall business standing (which, I'm guessing, would in turn affect its stock favoribly). I suppose then, what they might have paid off was the debt from the 1990s so that they're not paying for things in the past - so now any new debt will be incurred for things that advance the company's current agenda.

Yup that is a feasible and reasonable example of the point I was trying to make. :)

[macosxuser01]

I think Google and Apple could rule the world
lol

come on 14million ipods, thats alot of ipods

[shawnce]

they actually run twice as slow when they need to use rosetta for native applications??
Not sure why folks are surprised or concerned by this... Rosette exists to help smooth the transition. It isn't meant as the end solution for products you buy.

To me that is excellent success at emulation and in the test cases outlined showing that AltiVec emulation is reasonably capable.

Have you ever tried to use Virtual PC? On its best day it could seldom come close to what Rosette is doing (when on a Core Duo).

i'm not sold on the switch to the intel chips yet.
Based on emulated performance numbers?

Don't ignore the generally good performance seen in native code for a processor designed for laptop use when stacked up against a desktop class CPU... then factor that same CPU in a MacBook Pro compared to the now replaced PowerBook. It will generally eat PowerBooks for lunch.

The Macs that Apple come out with year will do rather well in performance and features.

[amateurmacfreak]

I think Google and Apple could rule the world
lol

come on 14million ipods, thats alot of ipods
Yes, I agree on the Google and Apple ruling the world. Would it not be awesome?:rolleyes: :D Also, I couldn't help but correct your grammar. You did my one pet peeve. You should say "a lot" instead of "alot." Sorry. Couldn't help myself.:o

[mymemory]

Apple makes more money than my country for salling oil:confused:

[strange days]

aaaargh, i just bought AAPL at 84.10; in after-hours trading it went down to 75.xx...

sob, sob...

...ok, it's back to around 79.xx, but still, what a bitch; i should have waited one day... :(

[macosxuser01]

Yes, I agree on the Google and Apple ruling the world. Would it not be awesome?:rolleyes: :D Also, I couldn't help but correct your grammar. You did my one pet peeve. You should say "a lot" instead of "alot." Sorry. Couldn't help myself.:o
fasho i don't mind.
I just pissed off because i told my dad to buy apple stock like over a year now and he said "no". Instead he has Microsoft stock. wtf:eek:

[macosxuser01]

aaaargh, i just bought AAPL at 84.10; in after-hours trading it went down to 75.xx...

sob, sob...

...ok, it's back to around 79.xx, but still, what a bitch; i should have waited one day... :(

you should wait to buy it when the stock spilts

[Blackheart]

But go Apple!!! You're still three times better than Dell stock and hundreds of times better as a company.

Sorry to burst your bubble but:

$80 x 842.768M = $67,421.44M = Apple's market value

$30 x 2,353.522M = $70,605.66M = Dell's market value

Apple still has $3,184,220,000 more to go! :D

[strange days]

you should wait to buy it when the stock spilts

yeah, well, when stock splits, i'll be doubling my shares, right ?

so no pain in that...
...i guess

[therevolution]

yeah, well, when stock splits, i'll be doubling my shares, right ?

so no pain in that...
...i guess
You'll have double the shares at half the price. Net effect: none. It doesn't really matter whether you buy before or after a split.

[macosxuser01]

yeah, well, when stock splits, i'll be doubling my shares, right ?

so no pain in that...
...i guess
Yes the $hares double....$$$$:D :D $$$

[macidiot]

You'll have double the shares at half the price. Net effect: none. It doesn't really matter whether you buy before or after a split.


yeah, what he said. A split is has a net effect of nothing.

You buy one share at 80 or two shares at 40. You still spent 80.

[Doctor Q]

this is off topic and maybe you already know, but check out this link on speed tests done on the new intel based imacs:
http://www.macworld.com/2006/01/features/imaclabtest1/index.php

they actually run twice as slow when they need to use rosetta for native applications??

i'm not sold on the switch to the intel chips yet.It's not off topic. This subject was brought up in the conference call.

Apple dodged questions about how G4/G5 Mac sales and prices would be affected by the Intel Macs, while saying vague words about their plans taking all factors into account.

Apple touted its native code in iLife, iWork, Mac OS X, and the apps that ship with it, such as Mail. Apple said we'd have to ask Microsoft and Adobe about the status of native code for their applications, but Apple did claim that MS Office runs well under Rosetta. Of course, "runs well" is in the eye of the beholder.

[Pyrix]

If Jesus himself was CEO and turning water into $100 bills the stock would still go down 10% because the analysts are "concerned that the Son of God isn't choosing to turn water into $500 bills".


Wait.. wait.. wait.. you mean Steve Jobs isn't the son of God? :eek:

Dang.

[jholzner]

So, for example, if Apple were to make an expansion to pull production of the Intel PowerMacs back under its own roof (instead of outsourcing), even if they have all the cash up front, it might actually be better to do this with a loan to maintain a better overall business standing (which, I'm guessing, would in turn affect its stock favoribly). I suppose then, what they might have paid off was the debt from the 1990s so that they're not paying for things in the past - so now any new debt will be incurred for things that advance the company's current agenda.

Well, actually, it's m'am. :p But yeah, it is really nice to see pro-Apple stuff in the media again. Kind of brings back some early 1980s nostalgia.

HaHa...sorry about that. I was doing more for dramatic effect than anything else :)

[shawnce]

Wait.. wait.. wait.. you mean Steve Jobs isn't the son of God? :eek: NO HE IS GOD :p

[JDW]

I read every single post in this thread, and I'm here to say that you all are off-base on why AAPL was lower today. A few seconds of Googling would have given you all the answer:

After the close, Apple Computer (Research) reported fiscal first quarter earnings that rose from a year ago and met forecasts. However, the company also warned that fiscal second-quarter earnings and revenue will come in below analysts' forecasts and that sent shares lower in extended-hours trade.

Source: http://money.cnn.com/2006/01/18/markets/markets_newyork/index.htm?section=cnn_topstories

Also, there has always been a dip in the price of AAPL shortly after a stock split. Past performance is no guarantee of what will occur in the future, but it still can serve as a guide.

Therefore, it would make sense to wait until the price declines a bit after the split before you buy more. And at current prices, Apple should split the stock sometime in February.

[macidiot]

Maybe I'm crossing wires here, but didn't I read somewhere a year or so ago that Apple took a chunk of its corporate savings and paid off all of its debts in full? If so, that would seem to mean that the company is now operating entirely in the black - and doesn't that make it a bit of an anomaly in the corporate world?


Yup, they did pay off all their debt a while back. It wasn't all that much, only about 100 million or so (I think).

Debt really has no effect on whether a company is running in the black... unless of course, the debt is so big that all the money is going to pay it off.

And yes, Apple is a bit of an anomaly. But that isn't necessarily a good thing. Generally accepted and basic business theory is that all companies should have some debt because it maximizes profit. Every company should be leveraged a little. The trick is finding the right balance.

A very simplified illustration:

Company A spends $100 of its own money and makes $150. It makes $50 profit or 50%.

Company B spends $75 of its own money and borrows the other $25. It makes $150. It just made $75 profit, or 100%.

Obviously, you have to account for paying that money back. But its still better.

[manu chao]

Company A spends $100 of its own money and makes $150. It makes $50 profit or 50%.

Company B spends $75 of its own money and borrows the other $25. It makes $150. It just made $75 profit, or 100%.

To modify your example:
Company B makes $48.5 (150-75-25-0.06*25) of profit having paid back the money plus 6% interest, corresponding to 64% of return on its capital invested.

[macidiot]

Their gross margins are down from the year ago quarter. I suppose that could be part of the reason. Not that I care! This was an awsome quarter for Apple! Can't have lower priced products and expect your gross margins to go up...but people want to eat their cake and have it too!

Its largely because their forward guidance is lower than what people expected.

However, the initial reaction was absurd. Down to 76-77...

I will say that the same thing happened last quarter. Apple guided lower, to .48. The stock took a hit. Then the analysts and wall st. spent the rest of the quarter raising estimates and watching the stock go up. And of course Apple reports .68.

Apple management is excellent. They don't let Wall St. morons dictate to them and they are conservative in their forecasting. Underpromise and overdeliver.

BTW, I have to comment on some moron that was on cnbc earlier today. This fool was saying that if Apple doesn't report .66/share and 6billion in revenue, the stock would go to 77. Seriously, how stupid is he? They pre-announce that revenue was around 5.7. He's looking for an extra 300 million to magically appear from a quarter that ended?

Unfortunately, this retard will get to say that he got the call right in that Apple did drop to 77. Thing is, his reasoning is completely wrong. Kind of like saying that Apple stock hit 77 because it rained 2 weeks ago.

I'm only sorry that I didn't get what brokerage he worked for, so I could avoid that company like the plague. Then again, I don't base my decisions on what stock analysts say. Following analysts is a great way to not make much money for yourself. But it is a great way for the companies the analysts work for to make a lot of money off of you.

[Doctor Q]

Macworld conference call summary (http://www.macworld.com/news/2006/01/18/liveupdate)

[Hattig]

A very simplified illustration:

Company A spends $100 of its own money and makes $150. It makes $50 profit or 50%.

Company B spends $75 of its own money and borrows the other $25. It makes $150. It just made $75 profit, or 100%.

Obviously, you have to account for paying that money back. But its still better.

That just seems retarded, unless you plan on grabbing the profit yourself and then claiming the company is bust and thus never paying back the loan.

It's that sort of business thinking (fiddling with numbers, debt? what debt?) that gets businesses into trouble in the first place. Only borrow if you need it to create more earning potential. i.e.,

Company A has $50. It takes $100 to invent a $foo. It borrows $50. It then sells 100 $foos, making $200. Profit: $150, Debt: $50. Repeat.

Company B has $50. It never invents a $foo, and thus never makes money, or it invents a crappy $foo_lite that loses to $foo anyway.

[arn]

That just seems retarded, unless you plan on grabbing the profit yourself and then claiming the company is bust and thus never paying back the loan.


Well, I think it might make more sense to think of it like this.

Company has $100 total

Company spends $50 of it's own money and $50 borrowed money to make kiiler product #1
and
Company spends $50 of it's own money and $50 borrowed money to make killer product #2

vs

Company spends $100 to make a single killer product (#1 or #2, they have to pick)

Assume the chance of your "killer product" succeeding is 50:50. The first scenario has less risk (25% chance of two killer products, 50% chance of one killer product, and 25% chance of bankrupcy) and more profit.

Scenario 2, you have a 50% chance of one killer product, and 50% chance of bankrupcy.

of course, a very simplified example
arn

[aswitcher]

Well I expect from this with the Mac lines now buried in supply demand issues and the migration to intel, the ipod line needs to keep people buying iPods and Apple iPod accessories. New Shuffles for sure come March/April (no earlier or they would have made the keynote). New Nanos, bigger memory (and video?) And definetly a new (bigger screen?) better battery life and maybe wireless headphone iPod by summer...

[macidiot]

That just seems retarded, unless you plan on grabbing the profit yourself and then claiming the company is bust and thus never paying back the loan.

It's that sort of business thinking (fiddling with numbers, debt? what debt?) that gets businesses into trouble in the first place. Only borrow if you need it to create more earning potential. i.e.,

Company A has $50. It takes $100 to invent a $foo. It borrows $50. It then sells 100 $foos, making $200. Profit: $150, Debt: $50. Repeat.

Company B has $50. It never invents a $foo, and thus never makes money, or it invents a crappy $foo_lite that loses to $foo anyway.

It might seem retarded to you, but you'd be wrong. Because it makes absolute sense. Actually, your numbers don't seem to make sense to me. I'm not sure what your example is supposed to show. I get what your trying to say, but I don't get how it applies here.

It is not fiddling with numbers. It is using leverage to maximize the returns on what money you do have. Where in my example is there fiddling? The numbers don't lie. I tried to make it as simple as possible. Its obviously more complicated than that but the principle is the same. I didn't bother including things like interest rates, short term revolving lines of credit, exotic debt vehicles, etc.

And as someone else posted, even after you pay back the money plus interest, your making a higher percentage than if you didn't borrow the money.

Obviously, adding debt increases risk. If adding debt increases your return when sales are good, it also increases your losses when sales are bad.

Using my same example:

Company A spends 100. It makes 50. Its loss is 50. Or 50%.

Company B spends 75. It borrows another 25. Total cost is 100. It makes 50. Its loss is 50. Or 66%.

This doesn't account for having to pay interest. If included, your loss is even greater.

As I said, the trick is to figure out the right balance of debt to maximize return while minimizing risk. Some people and companies can't handle the risk, so they never borrow money. Its a matter of risk tolerance.

Seriously, this is basic finance 101 stuff.

[iMeowbot]

The conference call is over. Conference call audio replay will be available here (http://www.apple.com/quicktime/qtv/earningsq106/) starting no later than 5pm Pacific time (2 hours from now).
And for listening offline, Apple offer this and prior conference calls in a podcast (http://phobos.apple.com/WebObjects/MZStore.woa/wa/viewPodcast?id=74942331&s=143441).

[winmacguy]

That's because of the "conservative" estimates for next quarter, of $4.3 Billion. Apple always seem to do that, then beat their own estimates.
Its known as under promise and over deliver.

[bobajoul]

Wall Street is the ultimate example of how a good deed never goes unpunished.

[winmacguy]

aaaargh, i just bought AAPL at 84.10; in after-hours trading it went down to 75.xx...

sob, sob...

...ok, it's back to around 79.xx, but still, what a bitch; i should have waited one day... :(
I bought mine back in December for $73 so I am still ahead :cool:

[nagromme]

56% of Apple's income is now iPod/music related.
Is that 56% of revenue? Or actual profit? I know a lot of that music revenue i the Music Store which is close to break even.

I'm curious whether the music side has surpassed the Mac side in this quarter in terms of actual money MADE for Apple.

[strange days]

I bought mine back in December for $73 so I am still ahead :cool:

well, since you asked for it...

...i bought exactly the same amount of shares back when it was at 60.xx, so that gives me :

60.xx + 84.xx = 145.00 ( approx, in reality it's a few cents less )
145 divided by 2 lots of equal xxx shares gives an average of 72.5 per share...

so i'm 0.5 per share ahead of you in the end... :p

[BRLawyer]

That's because of the "conservative" estimates for next quarter, of $4.3 Billion. Apple always seem to do that, then beat their own estimates.

Apple is very smart in doing that, because it keeps expectations much more realistic and fairly low to the next quarter; in this context, shares typically fall a bit in the next days, instead of taking a huge plunge downwards if guidance are not met (just remember '98 days, when Apple's shares fell to less than half their value, due to the same problem).

Apple is doing extremely well and is more valued and important than commodity companies such as Dell and even Sony; and naysayers are now an almost extinct species. GO APPLE!

[Hattig]

It might seem retarded to you, but you'd be wrong. Because it makes absolute sense.

Seriously, this is basic finance 101 stuff.

Well I haven't done any such course.

It just seems logical that for a company with billions in the bank, that can afford to research pretty much anything entirely from those billions, that it doesn't need to rely on external funding ever. It doesn't take $10b to research anything that Apple's made.

If they get into spaceship design then maybe there'd be a high R&D cost up front that would require borrowing beyond Apple's saved billions.

Sure, if it is a small company it may help them to spread the risk when developing an idea, and the don't have billions anyway, but borrowed money isn't free. Your own money is. Unless you get a loan deal where the interest rate is lower than the interest rate on the company's savings account and it's simply better to borrow than to spend your own money.

[jacobj]

Of course, the breakdown in numbers is more interesting.

Desktop sales up 11% on last quarter, or 7% on last year. Laptops down 7% on last quarter, up 39% on last year.

56% of Apple's income is now iPod/music related.

There's nothing surprising there. Laptop sales were sure to decline due to the rumours of an imminent release of the intels.. and it cam true :eek:

As I said in another thread, it is the results for Q1 2007 that we really have to hope are good otherwise long-term faith in Apple will suffer.

I am thinking that analysts will want to see a 40% growth on Macs to be happy. You heard it here first. 40% or bust!

[jacobj]

Its largely because their forward guidance is lower than what people expected.

However, the initial reaction was absurd. Down to 76-77...

I will say that the same thing happened last quarter. Apple guided lower, to .48. The stock took a hit. Then the analysts and wall st. spent the rest of the quarter raising estimates and watching the stock go up. And of course Apple reports .68.

Apple management is excellent. They don't let Wall St. morons dictate to them and they are conservative in their forecasting. Underpromise and overdeliver.

BTW, I have to comment on some moron that was on cnbc earlier today. This fool was saying that if Apple doesn't report .66/share and 6billion in revenue, the stock would go to 77. Seriously, how stupid is he? They pre-announce that revenue was around 5.7. He's looking for an extra 300 million to magically appear from a quarter that ended?

Unfortunately, this retard will get to say that he got the call right in that Apple did drop to 77. Thing is, his reasoning is completely wrong. Kind of like saying that Apple stock hit 77 because it rained 2 weeks ago.

I'm only sorry that I didn't get what brokerage he worked for, so I could avoid that company like the plague. Then again, I don't base my decisions on what stock analysts say. Following analysts is a great way to not make much money for yourself. But it is a great way for the companies the analysts work for to make a lot of money off of you.


You make some good points. Analysts are sheep following each other around without any of them knowing who's the leader.

The truth is that Sheep are usefully stupid and simple and their behaviour can be predicted. We can therefore make money by predicting the whims.

Having said that, they are also dangerous because they are more often than not overly optimistic, like a small child opening a present hoping for a real spacehip only to find a model. They like it, but part of them is disappointed so they start throwing their toys out of the pram only to realise that they actually want them back.

Apple shares will take a small(ish) hit in the short-term, recover strongly throughout 2006 and then be judged seriously in 2007. I keep saying it but Q1 2007 is what we are waiting for when looking at Apple's long-term future.

If you follow the markets shares tend to go up pre profit announcement and then drop on the announcement itself. Our only concern should be that Michael Dell will be a smug ***** today.

[~Shard~]

Wall Street is the ultimate example of how a good deed never goes unpunished.

I shorted AAPL at the beginning of the week, as I thought this would probably happen. Yes, the stock market is a wonderful thing - trust me, I've lived and breathed it for quite a few years now... :cool:

[lord patton]

Laptops down 7% on last quarter, up 39% on last year.

Interesting... it seems Apple has two seasonal trends: holiday (for iPods—14 million!) and back to school (for laptops).

I imagine the entire portable line will be updated in 2-3 months, but for sure by this summer. My worthless prediction is Apple will release 10" and 13" iBooks (or MacBooks) and that they will be _everywhere_ on campus in the fall.

As an informal observation, in coffee houses in Chicago's suburbs, I see most users are on PCs. In Chapel Hill, North Carolina (UNC), Apples are at least a 2-1 majority. To the extent that 15-25 years olds drive notebook sales, Apple portables will do _very_ well this year.

[Evangelion]

Typical Wall Street, dumb money for soulless people based on rampant vacant rumor, speculation, lies, and corruption.

It's very simple, really. Analysts and investors expected a profit of X dollars. And the shareprice reflected that expectation. But when Apple reported profit of (for example) X - 10%, the shareprice will go down, regardless of the fact that the reported profit were excellent. The fact still remains that they were less than what was expected, and it was therefore less than what was reflected on the share-price. Therefore the share-price will go down.

[Evangelion]

Maybe I'm crossing wires here, but didn't I read somewhere a year or so ago that Apple took a chunk of its corporate savings and paid off all of its debts in full? If so, that would seem to mean that the company is now operating entirely in the black - and doesn't that make it a bit of an anomaly in the corporate world?

Well, Apple IS an "anomaly" in the sense that it has no debt. However, "operating in the black" means that the company is turning a profit. And lots and lots of companies are profitable, so there's nothing strange about that :). And there's nothing weird in having debt and being profitable. Maybe 98% of all profitable companies have some debt.

IIRC, having debt has some tax-benefits. But I'm no accountant, so what do I know?

[longofest]

Important distinction should be made. 15" Powerbook G4 and iMac G5 will be available as supplies last, but they did not include the 12" and 17" Powerbook G4 in that number.

Arn, you might want to correct the story to reflect this.

[weldon]

I imagine the entire portable line will be updated in 2-3 months, but for sure by this summer. My worthless prediction is Apple will release 10" and 13" iBooks (or MacBooks) and that they will be _everywhere_ on campus in the fall.
I hope so. I remember a few years where laptops were released in September/October which seems too late for the back-to-school shopping crowd. June/July would be about right to make sure that there is enough product in the pipeline for people to buy in August/September. Updated iBooks in the $1000 range would be killer for the college market. Combine that with an iPod promo (shoot even $25-50 in free iTMS credit would be great) and Apple will sell loads of laptops in the fall.

[skunkworks]

My prediction is that the share price will go down. If anything i think they got more orders for the laptops than imacs and are scurring to airfreight imacs so customers don't cancel, like i just did. I'm kind of glad considering that the performance is not what SJ had announced. I'm waiting patiently for the 64bit imacs in june to appear.

Its also obvious that itunes and ipod sales will be affected this quarter considering that the major buying season was christmas. I would start to buy apple again at $60-70 range, hopefully in the next month or so. I also predict their earnings are on target and not conservative unless they come out with some other things to sell and have them in stock.

[legacyb4]

Go figure.

AMD earns $0.21/share profit in the last quarter and amidst reports that Intel fared badly, their stock jumps 10% today

Apple reports $0.64/share profit in the last quarter (their best ever) and despite Dell posting less than ideal numbers, they get whacked.

It really goes to show how much logic and actual soothsaying powers that the analysts have...

[skunkworks]

Analysts don't give you breathing room thats for sure, they expect every quarter to be that much better than before if not your marriage ends with them. Apple will pick up after march but until then if they don't come out with anything new I personally don't expect them to have a stellar quarter considering these new machine are not performing as SJ had announced.

[Evangelion]

Go figure.

AMD earns $0.21/share profit in the last quarter and amidst reports that Intel fared badly, their stock jumps 10% today

Apple reports $0.64/share profit in the last quarter (their best ever) and despite Dell posting less than ideal numbers, they get whacked.

It really goes to show how much logic and actual soothsaying powers that the analysts have...

Again: it's because the earnings were LESS than the analysts were expecting. Apple might have delivered stellar results, but if the analysts expected even more, the share is going to go down.

[strange days]

Again: it's because the earnings were LESS than the analysts were expecting. Apple might have delivered stellar results, but if the analysts expected even more, the share is going to go down.

ok, EVANGELION; how low do you think APPLE is going before bouncing back ?

[macidiot]

Again: it's because the earnings were LESS than the analysts were expecting. Apple might have delivered stellar results, but if the analysts expected even more, the share is going to go down.

Not really in this case. Apple beat estimates. There might have been some whisper numbers, but its doubtful, considering Apple preannounced.

What was disappointing to analysts was the forward guidance. Which was a lot less than what the analysts are forcasting. And considering the runup Apple stock had this year, people were looking for a reason to cash out. Of course, those same people will probably be buying back in later.

However, I think Apple is just guiding expectations lower and acting conservatively. In all probability, the stock will go back up when they realize that.

Besides, Apple stock was already a bit ahead of itself. 78 is a fair value at this point.

[strange days]

Besides, Apple stock was already a bit ahead of itself. 78 is a fair value at this point.

...oh man, i should have asked around here before buying at 84.10... :(

...i've got the feeling you guys would have certainly suggested to wait for the Q1 results and buy days after the event, right ?

[macidiot]

Well I haven't done any such course.

It just seems logical that for a company with billions in the bank, that can afford to research pretty much anything entirely from those billions, that it doesn't need to rely on external funding ever. It doesn't take $10b to research anything that Apple's made.

If they get into spaceship design then maybe there'd be a high R&D cost up front that would require borrowing beyond Apple's saved billions.

Sure, if it is a small company it may help them to spread the risk when developing an idea, and the don't have billions anyway, but borrowed money isn't free. Your own money is. Unless you get a loan deal where the interest rate is lower than the interest rate on the company's savings account and it's simply better to borrow than to spend your own money.


I'm not sure why your hung up on research costs. Why do you think companies borrow money only for research? Why do you think that research the main cost of doing business? This is a very minor part of Apple's operating costs. About 4%. As in the other 96% of the money Apple spends day to day goes to things like marketing, manufacturing, office salaries, rent, electricity, phone bills, paper, pens, etc.

Forget about Apple, look at a guy that wants to build a supermarket. He has enough money to build it himself. But he gets a mortgage instead, borrowing the money. Now, since he only had to use a part of his own money, instead of all of it, he decides to use his other money, along with more borrowed money, to build 3 supermarkets instead of one. Yes, he owes interest on the borrowed money. But now he can make triple what he would have if he only used his money.

Of course, if the supermarkets fail, he is in big trouble, owing a lot of money. But I explained that before.

And you really need to forget about that 10 billion in this situation. That is there for many reasons other than a piggy bank for running the company. Its there as a cushion in case the company starts losing big money. Like if people decided to stop buying iPods and macs. It is also there to provide psychological support that the company is strong. It is there in case Apple wants to buy another company or invest in another company. For example, Apple has owned or does own large percentages of companies like AOL, Akamai, ARM semiconductors, etc.

It is not there just for developing an idea.

Apple makes enough money day to day to cover the day to day running of the company. That includes research and development costs.

Borrowed money isn't free. But its often better to make money using someone else's money instead of your own. And actually, considering what interest rates have been at over the past 5 years, borrowing money was in fact essentially free.

I understand that this might be complicated or new for you. And it can get very complicated. You really might want to buy a book or take a class about this. I might understand this stuff, but I'm probably not the best person to teach it.

[macidiot]

...oh man, i should have asked around here before buying at 84.10... :(

...i've got the feeling you guys would have certainly suggested to wait for the Q1 results and buy days after the event, right ?

I wouldn't have. I don't try to time stocks or the market. Its a great way to lose money. At the very least, reduce your returns. Besides, the last I checked, my psychic powers were pretty weak.

But what I do try to do, among other things, is figure out what a fair value for a stock is. And when that stock dips below a certain level, I consider it a buying opportunity, assuming the reasons I liked the stock in the first place are still there. And this can hurt you too. There are lots of stocks that I never bought because I always thought they were too expensive. Thing is, they always stayed expensive. Stocks like Starbucks, Ebay, etc. And I definitely missed out on making some money. But I still stick with what I think works. Because for every ebay, there's an etoys.

But really, if you like a company and its long term prospects, and have done enough research to satisfy yourself, day to day prices shouldn't have much impact. For example, if, 2 years from now, Apple is at 150, will it really be that big of a deal that you bought at 84 instead of 78?

Then again at this point, part of me thinks that Apple stock is EXTREMELY expensive, considering what I paid for it. :D

[skunkworks]

Its only natural for the stock to fall at this point, you must look at the long-term. Buying and selling for the short term is for big time investors. If you're like me keep it for the long-term, apple will do fine.

Having said all this, at this point I am concerned about the speed improvement in the imac and certainly haven't seen a lot of activity of people selling their imac G5's to switch. I also think that airfreighting imacs is a sign that things aren't going so well and really need to get these machines shipped otherwise people will cancel their orders...my opinion.

I believe that the estimates will be on target and no less. If apple starts to lower prices on older machines, definetly a sign that things aren't going so well. In any case keep your pants on and wait till year end.

[Evangelion]

ok, EVANGELION; how low do you think APPLE is going before bouncing back ?

Unfortunately I'm not a stock-analyst :). If I knew everything about Apple and the future of their shares, I would have bought metric assload of those shares 5 years ago :(....

[strange days]

I wouldn't have. I don't try to time stocks or the market. Its a great way to lose money. At the very least, reduce your returns. Besides, the last I checked, my psychic powers were pretty weak.

But what I do try to do, among other things, is figure out what a fair value for a stock is. And when that stock dips below a certain level, I consider it a buying opportunity, assuming the reasons I liked the stock in the first place are still there. And this can hurt you too. There are lots of stocks that I never bought because I always thought they were too expensive. Thing is, they always stayed expensive. Stocks like Starbucks, Ebay, etc. And I definitely missed out on making some money. But I still stick with what I think works. Because for every ebay, there's an etoys.

But really, if you like a company and its long term prospects, and have done enough research to satisfy yourself, day to day prices shouldn't have much impact. For example, if, 2 years from now, Apple is at 150, will it really be that big of a deal that you bought at 84 instead of 78?

Then again at this point, part of me thinks that Apple stock is EXTREMELY expensive, considering what I paid for it. :D


heh, i always liked Apple, but i didn't have spare money for Wall Street until late in the game. Apart from that, i'm considering a long-term investment on this stock, so yeah, i agree it shouldn't be much of a loss if nothing strange happens...

...on the other hand, i'm not very competent and i can learn from observations you guys make here.

THANKS ! :)

[~Shard~]

heh, i always liked Apple, but i didn't have spare money for Wall Street until late in the game. Apart from that, i'm considering a long-term investment on this stock, so yeah, i agree it shouldn't be much of a loss if nothing strange happens...

...on the other hand, i'm not very competent and i can learn from observations you guys make here.

THANKS ! :)

As I stated earlier in this thread (and others) I decided to short AAPL on Tuesday @ 85.00. Not sure how much longer I'll hold it, but I have made some decent money on it just this week alone. In general, from my experience, "buy and hold" rarely works in today's markets, and I have been far more successful at short term investing and trading over the years myself. Popping in, popping out, playing seasonality, etc. Take it for what it's worth. :cool:

[strange days]

WTF is going on ?

...AAPL going towards 70$ ???

new iTunes content added, product annoucements coming, iMac and MacBook Pro orders galore...

is it just the financial quarter "forecast effect" ? :confused:

[WildCowboy]

The bubble is starting to deflate...glad I got out at the top.

A lot of it is the next quarter guidance by Apple. Yes, Apple has historically low-balled their guidance and then blown by it, but they actually went so far it was a bit of a shock when they announced guidance of $4.3 billion in sales and $0.42/share earnings. Analysts had been expecting $4.6+ billion and $0.48/share. Some of that difference can be attributed to conservatism by Apple, but it's an awfully big difference and there are concerns that Apple sees a good reason to temper expectations...expectations which could be considered to unreasonable.

[~Shard~]

WTF is going on ?

...AAPL going towards 70$ ???

new iTunes content added, product annoucements coming, iMac and MacBook Pro orders galore...

is it just the financial quarter "forecast effect" ? :confused:

It wasn't that hard to predict. As I said above, I shorted it at $85 and am making good money on the stock now as a result. :cool:

[macidiot]

WTF is going on ?

...AAPL going towards 70$ ???

new iTunes content added, product annoucements coming, iMac and MacBook Pro orders galore...

is it just the financial quarter "forecast effect" ? :confused:

Its due to the forward guidance from Apple and the uncertainty regarding the Intel switch. Oh and today, its possibly from the FUD from Microsoft that they are going to make an "iPod killer." To go along with every other "iPod killer" from the last 4 years. :p

Also, this quarter is going to take a hit in computer sales. A lot of people are waiting for or ordered a new Macbook. Which doesn't ship till Feb. Which means a month of little or no laptop sales. And this should continue through the year for each product. People will hold off on iBook, mini, and possibly the desktops. If there are any product delays, it could cause a big hit to earnings.

Basically, Apple is trying to do a massive rollout, replacing its entire line of computers in one year. A huge undertaking. There are lots of places where the rollout could breakdown. Of course, even if problems happen, at some point the rollout will be complete, and at that point any lost earnings should be recovered.

That said, if Apple is simply flat with computer sales this year, the stock should still go to ~95 this year. iPod sales alone justify this.

Me, I'm waiting for the stock to stabilize, then I'm probably going to start buying, up to 75 or so. Anything under 75 looks like a very nice price point.

[strange days]

ok, i'll relax then; i do not need to sell right away, will probably wait until january next year...