Apple Earnings: All About iPad - InformationWeek

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08:03 AM

Apple Earnings: All About iPad

Apple's latest quarterly earnings revealed tremendous iPad sales, solid Mac sales, and good iPhone sales, but fell short of analyst expectations.

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If Apple CEO Tim Cook and CFO Peter Oppenheimer made one thing crystal clear to media and analysts during its quarterly earnings call Tuesday, it's that the iPad has become one of Apple's most important business units.

The company reported its 2012 third-quarter fiscal earnings and, while it exceeded its own conservative guidance, it failed to meet analyst expectations. Apple generated revenue of $35.0 billion and reached a quarterly net profit of $8.8 billion, or $9.32 per share. Margins were strong at 42.8%. All of these numbers are up compared to the year-ago period.

During its third quarter, Apple sold 17 million iPads. That represents a massive 84% increase compared to the year-ago period and sets a new quarterly record for Apple's tablet. It also sold 26 million iPhones, 4 million Mac computers, 6.8 million iPods, and 1.3 million Apple TVs.

Let's look at each of these businesses in depth.

-- iPad: Apple introduced the new iPad with Retina Display earlier this year, and saw incredible uptake of the new tablet. According to Apple CEO Tim Cook's comments, the device has been very well received. With quarterly sales of 17 million, I'd say so.

Cook was obviously pleased to detail some of the iPad's success in the education market. He noted that the company sold about 1 million iPad 2s (which go for $399, or $100 less than the new iPad) to educational entities during the second quarter. The drop in price point opened up the door to schools, especially those in the K-12 range.

[ Will a smaller iPad be part of Apple's 2012 refresh cycle? See iPad Mini Rumors Are Anti-Nexus 7 FUD. ]

He also pointed out that iPad sales to companies in the Fortune 500 have tripled. British Airways, for example, uses thousands of iPads across its business. iPad sales alone accounted for approximately $8 billion--about 20%--of Apple's quarterly revenue.

-- iPhone: iPhone sales amounted to 26 million for the quarter, a significant drop from the previous quarter's 35 million unit sales, but up from 2011's numbers. In the United States, AT&T and Verizon Wireless alone accounted for about 6 million iPhone sales.

This is one of the numbers that has Wall Street's knickers in a bind, because the iPhone has become a core revenue generator for Apple. The massive quarter-over-quarter drop, said Apple, is due to market anticipation of the next "product transition" slated for the fall. In other words, people aren't buying iPhones because they're waiting to see what the iPhone 5 is all about. It is expected to debut in September or October. Apple blamed the dip in iPhone sales during 2011's July to September period for pretty much the same reason: anticipation of new devices.

-- iPod and iOS: iPod sales continued their slow descent. Apple sold 6.8 million of them during the quarter, representing a 10% drop compared to the year-ago period. Apple's iPod business has been declining for years, as people are replacing dedicated media players with all-in-one devices such as the iPhone. Apple noted that half of all iPod sales were of the iPod Touch, which is similar to the iPhone but lacks cellular data capabilities.

Despite revved-down sales of iPods, Apple is pleased with the iOS ecosystem in total, which also includes the iPhone and iPad. According to Apple, it has sold a cumulative 410 million iOS devices worldwide, with 45 million shipping in the most recent quarter. The iTunes App Store is now home to 650,000 apps, with 225,000 of them dedicated to the iPad. Apple has paid $5.5 billion to app developers.

Apple also said that reaction to iOS 6 has so far been positive, and the company "can't wait" to get it into the hands of consumers.

-- Mac: Apple sold 4 million Macs during the quarter, which includes laptops and desktops. Apple's PC business has outpaced the overall market for computers for 25 quarters in a row, but its third-quarter numbers were lower than it wanted them to be. Again, Apple blamed anticipation of new hardware for a slowdown in Mac sales for much of the quarter. They were only buoyed when the new range of laptops reached the market in the second half of June. Apple believes its fiscal fourth quarter sales of Macs will be strong compared to the overall PC market.

-- AppleTV: It may not seem like a lot, but Apple sold 1.3 million AppleTV's during its most recent quarter, making a total of 4 million for the year so far. The AppleTV costs $99, and lets people push the content in their iTunes accounts to their TV. Still, Apple categorizes the business as a hobby.

-- Retail Stores: Apple's brick-and-mortar business continues to be a good one. The company added another nine stores, making for a total of 392. Apple Stores were responsible for $4.1 billion of the company's $36 billion in quarterly revenue, which is up 17% year-over-year. Apple CEO Tim Cook largely attributed the stores' success to iPhone and iPad sales. Of the 4 million Macs sold during the quarter, 971,000 of them were sold at Apple Stores--more than half of which went to new customers. Each store averaged $11.1 million in sales and saw 17,000 visitors per week. Apple said 83 million people visited its retail stores during the quarter.

"We're thrilled with record sales of 17 million iPads in the June quarter," said Tim Cook, Apple's CEO. "We've also just updated the entire MacBook line, will release Mountain Lion [Wednesday], and will be launching iOS 6 this fall. We are also really looking forward to the amazing new products we've got in the pipeline."

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User Rank: Apprentice
7/26/2012 | 8:52:22 AM
re: Apple Earnings: All About iPad
Interestingly, when I bring up Apple's propensity to hit success and fall back into the lounge lizard category, most techno hacks take great umbrage. Often, I get a lot of vitriolically defensive rebuttals boarding on religious (cult-like) fundamentalism when the subject of evolution enters into the picture.

However, I also remember when Apple had a corner on the graphics market. At the time, all the big graphics houses and printers were purchasing Apples. The company I was working for decided to wait, and sure'nuf a German company came out with a comparable system at a fraction of the cost. They bought the system and sent the key art department to Germany for two weeks of training all for about three-quarters the cost of an Apple system.

Apple's present rapid rise to glory, from what I observed, was built on a trend driven marketing strategy - a fashion accessory the does magic tricks to entertain friends and family along with increasing the owners prestige and popularity. They'll all say how 'much better and easier' owning Apple products has made their lives, but psychologically ("Propaganda," Edward Bernays), it's not really about that, it's about being fashionable and one-upmanship with gadgets

The big problem is that in order to actually dominate the market, as Apple is attempting to do, you need to come up modestly priced products that are cost effective for business, not just designer gear for high-end businesses and TV presenters, but something a service company would find affordable to purchase for two hundred employees that does the job - and inexpensively replaceable.

Again, I observed with various companies that supply smart phones to their employees aren't iPhones, but mostly Android systems. It's going to be the same scenario with the Tablets - best cost and technology for industry/businesses that will win out in the end.

Previously, Apple hit the edge of oblivion because of the same systemic problems they have now - elitism, price, and compatibility with other established systems. It's what the small and medium size businesses can afford, and I think Google will take the day.

Andrew Hornback
Andrew Hornback,
User Rank: Apprentice
7/26/2012 | 2:06:59 AM
re: Apple Earnings: All About iPad
And so the battle is joined... Apple shows that their iPad is a major component driving their success (while missing analysts' expectations) just as Google starts shipping their 7" tablet and Microsoft is pushing their Surface.

Got a feeling that history will be repeating here - Apple dedicated so much of their effort in the 80s to the education market, now they're doing the same thing 20 some odd years later with a different product line. Google's brand new product is half the price and just coming to the game in this space.

Get your popcorn ready, the next few years should be quite interesting to watch.

Andrew Hornback
InformationWeek Contributor
User Rank: Apprentice
7/25/2012 | 5:34:50 PM
re: Apple Earnings: All About iPad
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