Apple Q2 Financial Results Conference Call

[neutrino23]

No I made the mistake. I'm saying that people who upgraded or purchase their first PowerBook didn't do their homework....basically I'm supremely jaded about Apple's lack of forward momentum and the fact that the rest of the industry is kicking the living snot out of their laptop line all the while people are eating it up based on....*shrugs* What? It’s nice and shiny? Whatever. That is where the phrase comes into play.

This is based on what? Because the form factor hasn't changed in a while? PowerBooks are faster, have more memory capacity, FW400 and FW800, better video out, better graphics chips, better speakers, faster CPUs than ever before. Could they be improved? Sure. Are you disappointed they don't have a G5? I'm not. The G5 will come but before that I'd rather have dual G4s. That would provide better throughput and more flexible power management. I currently have a 1.25GHz Al PB from 2003. This fall I'll upgrade to whatever the current PB will be at that time. These are great times to be an Apple PB owner.

 

[auxplage]

One of the big success stories was the iPod Shuffle-- from 0% to 43% and leader of that Market Segment in a single quarter...


... but wait...

... the shuffle was announced in January and supply-constrained until February (remember the 3-5 week delivery?)...

... and Apple does not yet have the numbers for March!...

... so, that's 0%-43% is a single month (as reported by an independent company).

So now 43% or a larger % of all flashbased MP3 players sold are Shuffles, correct?

 

[neutrino23]

I think that if you listen carefully to the call (or read the results posted on many financial and Mac sites) that you can extrapolate the number of XServes...

Something like # of Computers - # of Desktops - Number of Laptops.

608,000 iMac, eMac, Mac mini and PowerMacs
462,000 portables
________
1,070,000 total Mac units sold.

By this reckoning Xserve sales are zero. They are probably folded into the 608,000 number.

 

[bborofka]

The Mac mini has helped bring Mac sales back to where they were in 2000. There's no doubt it's an initial success, but does it have the momentum to keep going? There was all this talk about an iPod halo effect and Macs exceeding the industry standard for growth. Certainly that happened to some extent to this quarter, but it needs to keep happening quarter after quarter. Imagine if they actually advertised their computers now.

Some say profits and revenues are all that matter, but as a Mac enthusiast I am always most curious about unit sales. If new people don't buy Macs then OS X is never going to truly shine. It is important for Apple and Mac users that new people continue to come to the Mac platform. Apple's been in a hole the past 5 years and they're finally getting out of it. Now they need to continue where they left off and keep growing the Mac.

 

[bobringer]

Consolidating Sales Figures

This is surprising...in June Apple will only announce CPU sales in two categories, desktops and portables. No more iMac/eMac/Mac mini, PowerMac, Powerbook, iBook breakdown. Hmmmm...

Man, I'd love to see the Mac mini numbers for this quarter but I also think it's pretty clear that more than at any other point, Apple needs to keep these numbers really tight for competetive reasons.

This is an absolute blowout quarter. We went from what was probably their best quarter ever in Q1 (hisorically their best quarter) to Q2 (hist. their worst) and while we didn't see $0.70 again, we saw a quarter that I can't imagine anyone expected. The Mac unit numbers were great and imply the Mac mini numbers were through the roof. And 5 million iPod sales? Almost a million more than the Christmas quarter? The suffle is huge and drawing people to the Apple stores in droves... enhancing the halo effect.

The strange thing this quarter is the margins. Where did they come from? Could component costs have come down that much? We have to assume software sales this quarter weren't that strong with people waiting on Tiger, so there must have been big gains in hardware margins. With $150 price drops in the iPod photos, the introduction of the Mini and Shuffle, margins should have been hit hard. Where did we get that extra 2% from?

$7 Billion in cash and the stength of the current product line is going to allow a TON of money to get poured in to R&D and STRATEGIC acquisiitons in the short/mid term. They've done a great job so far in both of these areas, I can only imagine where we will be in $3 years.

Time to get on those LEAPS.

 

[deral]

I'm doing a Media Strategy assignment for Apple's hardware. Anyone know where I can get market shares of Apple Hardware in the Computer Hardware market (not guesses, but like official stuff I can quote).

And to keep on the subject on the thread, wow on the 0 to 43% market share on the shuffles.

 

[mvc]

... Apple's been in a hole the past 5 years and they're finally getting out of it. Now they need to continue where they left off and keep growing the Mac.

Seems to me Apple's been in a hole for more like 10 years, certainly since the mac clone debacle, perhaps since not long after Steve left the first time, with only the bright spot of the original iMac launch breaking the pattern - only now are they actually recovering, and its not because of their great desktop or laptop computers, or even their great new OS, no its consumer gadgets and consumer cut price boxes that have turned the tide.

Welcome to the desert of the real, Apple. 🙁

 

[bobringer]

good numbers???

despite the introduction of mac mini sales of the consumer desktop line climbed a meager 11000 units. Also total macintosh sales stayed almost flat. In other words, it has NO effect whatsoever on windows users, potential switchers / adders.

Dude, comparing Q1 and Q2 is... well... like comparing Apples and Footballs.

Q1 = Best Historical Quarter
Q2 = Worst Historical Quarter

This year, Q2 had > desktop sales than Q1. Q1 was a blowout quarter.

In my book... that = Q2 being a blowout quarter.

 

[eji]

No I made the mistake. I'm saying that people who upgraded or purchase their first PowerBook didn't do their homework....basically I'm supremely jaded about Apple's lack of forward momentum and the fact that the rest of the industry is kicking the living snot out of their laptop line all the while people are eating it up based on....*shrugs* What? It’s nice and shiny? Whatever. That is where the phrase comes into play.

Wow. Couldn't have said it better. One year between PM updates? The outdated 5200 GPU still in the iMac? A Radeon 9200 in the mini that won't run Tiger's CoreImage? The fate of the languishing eMac still unknown? iBook form factor unchanged since 2001? Across the line, every line, it's downright pathetic. They really need to get their hardware up to snuff before Windows users -- even basic consumer users who will never maximize the full potential of their hardware -- consider migrating and the "switch numbers" become apparent. Apple desperately needs to be at the forefront of every field to counter the myths that it's a) going to go bust or b) trendy, overpriced glitz.

 

[mj_1903]

Wow. Couldn't have said it better. One year between PM updates? The outdated 5200 GPU still in the iMac? A Radeon 9200 in the mini that won't run Tiger's CoreImage? The fate of the languishing eMac still unknown? iBook form factor unchanged since 2001? Across the line, every line, it's downright pathetic. They really need to get their hardware up to snuff before Windows users -- even basic consumer users who will never maximize the full potential of their hardware -- consider migrating and the "switch numbers" become apparent. Apple desperately needs to be at the forefront of every field to counter the myths that it's a) going to go bust or b) trendy, overpriced glitz.

Or not. Apple are a very healthy company right now. Their pattern of updates is proven to generate profits and profits are all that matters. Unit sales will not keep Apple alive into the future, profits on the other hand will.

 

[Trimix]

The mac mini is no flop.. Put it this way.. 3 of my friends just got one.. Their first mac.

There was a wait of 6 weeks in this country!

i think it is a flop
had they sold a million of them you can bet, they would trumpet it from the rooftops - no, this is a flop - for competitive reasons ? come on they are touting their sales on the music store, they always give out numbers, when they are ahead and they are mum when it does not work out too well.
and what does a waiting list mean ? not necessarily strong demand, but maybe just very little allocated production resources.

 

[Zaty]

Those are really great figures. However, one interesting question, if the mini is a success or not, remains unclear. Let's have a closer look at the numbers we know:

In Q1, Apple sold 456K iMacs and eMacs. Given that this was the first quarter that new iMacs were sold in quantities and Q1 is traditionally the best quarter, this is a great number. I guess it's safe to assume that about 75% of those 456K units were iMacs. So let's say they sold approximately 300K iMacs in that quarter.

Now, the combined number of iMacs, eMac and Mac minis for Q2 is 467K or a plus of 11K units. Given that Q2 is traditionally the worst quarter, this is, at first sight, an amazing number. But, Mac minis probably have marginalised eMac sales. I would think they sold less than 100K eMacs last quarter. Which leaves us with around 380K-400K units of iMacs and Mac minis. It's also safe to assume that iMac sales dropped a bit compared to Q1. If we assume they sold about 225K units of iMacs, we'll get a total of 160K-180K Mac minis sold. No matter how close my assumptions are, I dare say they sold more iMacs than minis. This is good for Apple's margin but can we call the mini a success? It's probably to early to say as demand for minis was much higher than supply. So I guess we have to wait for this quarter's figures to make an assessment. Since Apple won't give us numbers for the different product families anymore, the mini can only be a success if the total number of desktops rises significantly. If it doesn't, it can only mean two things either of which isn't good for Apple:
a) the minis don't sell as well as we and Apple expect them to
b) the mini sells well but for the price of declining sales of other models.

I guess we'll see.

 

[maxterpiece]

anyone have any ideas as to why the stock is dropping? Seems like it should be doing the opposite.

 

[Savage Henry]

Since Apple won't give us numbers for the different product families anymore, the mini can only be a success if the total number of desktops rises significantly. If it doesn't, it can only mean two things either of which isn't good for Apple:
a) the minis doesn't sell as well as we and Apple expect them to
b) the mini sells well but for the price of declining sales of other models.

I guess we'll see.

I think the re-grouping of product lines is an excellent controlling decision on the part of Apple. With their increased sensitivity to the product releases and developments, hiding the lame lines amongst the market luvvies is a perfect way to control the way the info is interpreted. It looks better for the company if they say that 'desktops sales are robust' as opposed to 'iMacs are selling well, whilst minis were disappointing'.Sure, I'll miss the fun and speculation of line-drops and upgrades, but as long as they keep churning out quarters like this I'm a happy camper.

As for the mini, I don;t think it will be end up like the cube. I can't think it takes much to knock one of these off the production line, so I'll think it will be that market stop-gap for a good few years yet.

 

[minimax]

Those are really great figures. However, one interesting question, if the mini is a success or not, remains unclear. Let's have a closer look at the numbers we know:

In Q1, Apple sold 456K iMacs and eMacs. Given that this was the first quarter that new iMacs were sold in quantities and Q1 is traditionally the best quarter, this is a great number. I guess it's safe to assume that about 75% of those 456K units were iMacs. So let's say they sold approximately 300K iMacs in that quarter.

Now, the combined number of iMacs, eMac and Mac minis for Q2 is 467K or a plus of 11K units. Given that Q2 is traditionally the worst quarter, this is, at first sight, an amazing number. But, Mac minis probably have marginalised eMac sales. I would think they sold less than 100K eMacs last quarter. Which leaves us with around 380K-400K units of iMacs and Mac minis. It's also safe to assume that iMac sales dropped a bit compared to Q1. If we assume they sold about 225K units of iMacs, we'll get a total of 160K-180K Mac minis sold. No matter how close my assumptions are, I dare say they sold more iMacs than minis. This is good for Apple's margin but can we call the mini a success? It's probably to early to say as demand for minis was much higher than supply. So I guess we have to wait for this quarter's figures to make an assessment. Since Apple won't give us numbers for the different product families anymore, the mini can only be a success if the total number of desktops rises significantly. If it doesn't, it can only mean two things either of which isn't good for Apple:
a) the minis doesn't sell as well as we and Apple expect them to
b) the mini sells well but for the price of declining sales of other models.

I guess we'll see.

Yes, this was the point I was making as well. When we look at Q1 2004 and Q2 2004 de difference is not THAT great with regard of seasonal fluctuations. Now, for Ipod, the influence is probably much larger as it is the perfect present, but we're talking computers here and you buy one when you need one, not to give as a present.
The imac had a major lift in sales from the new introduction in Q1, but the same is the case this quarter for the mac mini. It sounds strange if apple couldnt keep up demand for the mac mini, while total sales didnt move. You'd expect them to react fast, since everybody is taking them under close scrutiny to finally see proove of that almost mythical HALO effect. The combined sales number indeed has to be an effect of either a, b, or a combination of both. I suspect it to be the latter. When we look at the total worth of consumer desktop sales the went down from $ 620k to $ 483k so now matter how you turn it, the drop in imacs this Q2 was far larger then Q2 last year.
I do agree it has probably eaten away more from the emac then the imac, but if I look at myself, the choice of the mac mini has lost apple the sale of an imac, although i wouldnt have had the money to buy one already last quarter.

 

[Savage Henry]

anyone have any ideas as to why the stock is dropping? Seems like it should be doing the opposite.

A lot is based on opinions surrounding future earnings ... Steve always likes to announce 'great new products in the coming year' to keep everyone interested, but if the market can't see beyond standard line upgrades they can be a bit ambivalent.

Personally I think the stock price is quite high as it is. I don't think there's too much to be concerned about.

 

[topicolo]

Or not. Mac sales up, margins up, profit up, ipod sales frickin' insanely up, and...stock drops over 2 bucks a share.

This is why I keep my money in a shoebox under the bed.

The expectations were already factored into the share price leading up to the conference call. Apple didn't exceed expectations by some crazy amount, so lots of people sold off to lock in their gains.

 

[topicolo]

Here are the things that really puzzle me:
1) The 55% increase in desktop sales could very likely be due to the introduction of the mini
2) The intro of the ipod shuffle would lower overall margins
3) The intro of the mini would lower overall margins
4) APPLE'S MARGINS WENT UP

So either the 55% desktop sales increase isn't as much due to the minis as we thought (the shuffles obviously sold well from the marketshare grab), or the margin increase was due to hardware costs dropping (probably because Apple takes an eternity to update anything).

 

[fatbarstard]

A Q2y Q2

Apple's numbers were very very good.

Why did the stock drop?? Simple answer - buy the rumour, sell the fact. Its been that way in financial markets since forever.

Margins probably rising purely on volume more than anything else - overall volume up so fixed costs per $$ of revenue go down - its a great position to be in.

The thesis from a number of analysts has been that sales of iPod would help pull through sales of computers and other hardware. This would appear to be the case and is probably helping to lower marketing costs per sale.

PowerMac numbers - get over it. PM's are a high end product aimed at a specific user type (video/graphics/data crunching etc etc). Same for Xserves... these guys are not part of the iPod pull through. But the spend per transactions is probably quite high and thus are very high margin customers. Can't lose focus on these guys.

Apple is far more a consumer business than it has ever been... that's where the focus should be. So what if Shuffle sales pull down margins.. there is a trade off between volume and margin in consumer products...

Now where is Spongebob??

 

[Makosuke]

I think that if you listen carefully to the call (or read the results posted on many financial and Mac sites) that you can extrapolate the number of XServes...

Something like # of Computers - # of Desktops - Number of Laptops.

No, though I haven't listened to the call, at least the numbers listed here all add up; 467K + 141K = 608K and 608K + 462K = 1070K, , so there's no Xserves to be extrapolated from that anyway.

Here's a question I've been trying unsuccessfully to work the math out on: Based on the iPod figures quoted here, you should be able to roughly extrapolate the total size of the portable player market versus past similar figures, and how it has fared apart from the iPod.

These figures are definitely wrong, but here's some very bad math based on the MWSF2004 numbers of 703K iPods sold and 32% market share:

If 703K is 32%, then the total market would've been 2.3M players of which 1.7M weren't iPods; 15 months later there were 5.3M iPods sold for 70% of the market, meaning a total market of 7.6M and 2.3M non-iPod players. If these numbers actually made any sense, that'd imply that non-iPod players are only up 36% despite way more competition, while iPod sales are up about 650%.

Again, that's total garbage, since it's mixing net sales and units moved, as well as US and international figures, but with slightly better numbers you could figure out roughly how severely the iPod is still managing to thrash everything else on the market. It may hold, it may not, but it's sure impressive so far, and the Shuffle ain't hurting.

 

[rdowns]

True, but you're also missing the normal drop-off from quarter-of-introduction sales. Typically, a machine will sell really well in its first quarter and then drop off fairly significantly to a more modest "steady state". This is especially true when the introduction of the new model was heavily anticipated, as it was with the iMac G5.

It's a bit dissapointing that Mac mini results haven't done anything more than counter this natural drop-off, however. I'd hoped to see an additional significant bump in unit sales. Cannibalizing, however, is a bit too strong of a description.

Your comments are right on but let's not forget, you are comparing sales in the xmas quarter (Q1) with Q2 (the slowest Q of the year). Based on that, growth in the number of Macs shipped is quite impressive.

 

[rdowns]

Hmm... no Xserve numbers anywhere. Wonder how sales have been?

(Curious in part because I just bought one--sitting right next to me--and it seems like a nice piece of hardware so far).

And I agree 100% with mj_1903; no the current PBs aren't particularly exciting machines. But they are more than enough for most people to get what they need done. I know someone who's planning on buying one in the next month or two, and she could care less whether it's been a while since they've been updated or whether there are somewhat faster PC laptops available--it does what she needs it to.

And she's not a generic user, either--she's both a soon-to-be-switcher and someone looking to do statistical analysis. Good enough is good enough.

xserves are reported in the PM sales numbers.

You can view the numbers here:

http://www.apple.com/pr/library/2005/apr/13results.html

Click on Data Summary at the top for the .pdf

 

[rdowns]

This is an absolute blowout quarter. We went from what was probably their best quarter ever in Q1 (hisorically their best quarter) to Q2 (hist. their worst) and while we didn't see $0.70 again, we saw a quarter that I can't imagine anyone expected. The Mac unit numbers were great and imply the Mac mini numbers were through the roof. And 5 million iPod sales? Almost a million more than the Christmas quarter? The suffle is huge and drawing people to the Apple stores in droves... enhancing the halo effect.

Yes, a blowout quarter indeed. When you compare to the same quarter a year ago, the numbers are pretty damn good. Even comparing to the xmas quarter, they are pretty damn good. Here are the numbers for Q205 vs. Q105 and Q204.

iMac- 467K shipped, up 2% from Q105 and up 115% from Q204

iBook - 251K shipped, down 7% from Q105 and up 25% from Q204

Powermac - 141K shipped, down 16% from Q105 and down 19% from Q204 (the only bad numbers)

PowerBook - 211K shipped, up 39% from Q105 and up 34% from Q204

iPod - 5,311M shipped, up 16% from Q105 and up 558% from Q204.

iTMS and iPod accessories - $216M in Q105, up 22% from Q105 and up 260% from Q204.

Software - $239M, up 12% from Q105 and up 28% from Q204. These numbers should skyrocket this quarter with Tiger and rumored pro apps.

Revenue - $3.24M, down 7% from Q105 (can you imagine, making almost as much revenue as the xmas quarter while introducing lower margin items like the shuffle and Mac mini?) and up 70% from Q204.

The strange thing this quarter is the margins. Where did they come from? Could component costs have come down that much? We have to assume software sales this quarter weren't that strong with people waiting on Tiger, so there must have been big gains in hardware margins. With $150 price drops in the iPod photos, the introduction of the Mini and Shuffle, margins should have been hit hard. Where did we get that extra 2% from?

Component costs dropping is certainly a factor and software revenue was up too. While Apple lowered prices on iPods, they stripped out accessories (Firewire cable, AC adapters, carry case, docks) to keep margins up. Numbers up for iPod accessories. Brilliant marketing if you ask me. I also suspect that Apple gained from the weak dollar by keeping non-US prices high so as no to get hurt. See all the complaints on this forum about prices overseas.

 

[rdowns]

Here are the things that really puzzle me:
1) The 55% increase in desktop sales could very likely be due to the introduction of the mini
2) The intro of the ipod shuffle would lower overall margins
3) The intro of the mini would lower overall margins
4) APPLE'S MARGINS WENT UP

So either the 55% desktop sales increase isn't as much due to the minis as we thought (the shuffles obviously sold well from the marketshare grab), or the margin increase was due to hardware costs dropping (probably because Apple takes an eternity to update anything).

I mentioned this in another post but I think the reason for margin increase was the fact that Apple removed high margin accessories from the standard iPod package (firewire cable, carry case, dock, AC adapters). I remember reading the average iPod buyer spends $150 on accessories. Smart marketing move by Apple.

Even more amazing to me is the increase in margins with the crappy (high margin) PM (which include xserves) numbers. IBM really needs to get a new chip out the door. Expect the doom and gloom crowd to focus on this negative despite all the other positives.

 

[minimax]

Q1/05 Imac / emac sales units: 456k revenue: $620m
Q2/05 Imac / emac / mac mini sales units: 467k revenue: $483m

And for a reverance on seasonal fluctuations:
Q1/04 Imac / emac sales units: 227k revenue: $251m
Q2/04 Imac / emac sales units: 217k revenue: $252m

Q1/03 Imac / emac sales units: 298k revenue: $356m
Q2/03 Imac / emac sales units: 256k revenue: $302m

The facts speak for themselves. It's the strongest tumble of revenue in 2 years time, which can only be explained by mac mini cannibalizing sales of the emac and imac.