Apple’s Q4 Numbers, And Some Observations.

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Apple’s Q4 numbers were released today. This is being covered everywhere, so I won’t dwell too much on the overall numbers, but they’re phenomenal:

  • Revenue was $6.22 billion, net profit $904 million, $1.01 per diluted share. This surpassed even the most optimistic analyst estimates I’d seen.
  • The 2.16M Macs blew past the previous quarterly record by a whopping 400K! “Record-shattering” doesn’t even seem adequate to describe that.
  • IPod sales remained strong even though the lineup in question was relatively “old” by tech standards for two of the three months. Over 10 million units is easily enough to shut the mouths of those who continue to wait for the iPod bubble to burst. Don’t look for any bubble bursting this quarter either: twenty-five million iPods.
  • IPhone sales were incredible. Amazing to get such numbers for a high-end phone, on only one network, and in only one country. Very interesting to see what opening the phone in Europe will do, although only about half the quarter will be affected.

There were other tidbits from the earnings press release or the earnings call held afterwards (full transcript) that are worthy of comment:

  • Mac products and services represented 62% of total quarterly revenue. Those of you still insisting that Apple has forgotten the Mac, or is no longer a computer company, or is just living off of its iPods kindly shut up now.
  • Gross margin was 33.6 percent, compared to 29.2 percent YOY. Considering Apple’s guidelines for the quarter specifically mentioned expected decreased margins, this must be a site for sore investors’ eyes.
  • Apple ended the fiscal year with $15.4 billion in cash and no debt. This is great. At what time does Apple think about a dividend? No, I wouldn’t get a dime since I’m not a stockholder, but the time is possibly ripe for one, no?
  • Apple provided guidance for expected revenue of about $9.2 billion and earnings per diluted share of about $1.42 for the next quarter. Whoa! I just checked this again; yep, it’s Apple (Peter Oppenheimer) talking. They’re usually conservative in their guidelines, but this looks aggressive to me. Kind of makes my 25M iPod prediction look small.
  • Tim Cook said this was the most successful back-to-school season Apple has ever had. How does this jibe with Gartner’s latest report where Mikako Kitagawa, principal analyst for their Client Computing Markets group, says “the preliminary results show that back to school sales were softer than expected in the U.S.”? Were all new students getting Macs instead of PCs?
  • Apple inventory in the channel was below targets. Unlike Microsoft stuffing the channel and claiming those units as “sold”, Apple likes to keep inventory low. That they’re even lower than targeted is great news.
  • Apple’s guess is 250K phones were sold to unlockers or unlocker wannabes. That’s Apple’s own estimate. I’m curious why they even bothered to estimate this. I’m even more curious as to how they estimated this. What do they know that we don’t?
  • Apple’s retail stores have once again generated record quarterly revenue and traffic, with $1.25 billion or 42 percent year over year growth. I wonder if the single most amazing feat performed in Jobs’ second reign wasn’t the Apple Stores. The numbers speak for themselves, but think of how many people were convinced to buy Apple at a store even though they eventually bought online. Their impact to the bottom line has to be even greater than their own revenue shows.

It’s amazing what the guidance for next quarter has done to the stock. Apple has crushed Wall Street estimates in quarters past (indeed, it’s becoming a habit) yet the stock usually shakes, and then falls a couple points. I think conservative guidance usually leads investors to believe this might be the last of the “killer” quarters. This time around, however, by destroying Wall Street and providing guidance higher than the most optimistic street estimates, the stock took off in after-hours trading.

Bottom line is Apple kicked some serious ass in the final quarter of FY07, rounding out a great FY. Peter Oppenheimer summed up Apple’s FY07 quite well:

“We generated over $24 billion in revenue and $3.5 billion in net income. We sold 7 million Macs and 52 million iPods, each growing by more than 30% over the prior year. We introduced the revolutionary iPhone and sold over 1 million in the first 74 days. Our retail stores hosted over 100 million visitors and produced $4.1 billion in revenue.”

it’s safe to say the upcoming quarter (Q1) will be killer. Apple’s guidance certainly indicates that. I can see where they would be optimistic: it’s the holiday quarter; their iPod lineup has never been better; the new iMacs are very well-received; Leopard is released on Friday; and the iPhone rolls out in Europe next month.

Looking ahead to FY08 Q2, there’s the iPhone SDK (already promised) and whatever Jobs may pull out of his hat at Macworld. And none of this takes into account what Apple may do in the area of product updates (new Intel Penryn processors in the Mac Pro?) or feature-adds to the iPhone.

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