Apple Mangles the Street!

Apple released their financial results for the holiday quarter (Oct-Dec), and once again, they posted both record revenues and record profits. The company had $26.74 billion of revenue for the three months, which is over $11 billion more sales than the same period last year. Their profits were also up as Apple made $6 billion in profit (I remember not too long ago, that Apple’s stated annual goal was $5 billion in sales!). This profit was nearly double the $3.38 billion last year.

Apple sold 4.13 million Macs during the quarter. That is simply an amazing number and represents an unparalleled growth of 26% year-over-year. They sold 16.24 million iPhones, which is an 86% growth and that is before expanding their market to Verizon. iPod sales were down 7% in unit sales but Apple sold 19.45 million iPods and maintain a massive market-share lead in the music player business. Of note was that iPod touch sales were up 27% year-over-year.

The new iPad also had stellar sales with over 7.33 million iPads sold during the quarter. Apple could have done even better if it had not had some inventory shortages towards the end of the quarter, especially with iPhones and iPads. Overall, there have been over 160 million iOS devices sold—an astounding number for a new operating system.

Apple’s cash stash increased by about $10 billion and they were left with about $60 billion in the bank and no debt at the end of the quarter. During the conference call, Tim Cook referred to spending some of that money to secure long term supply contracts on some unidentified key components.

Apple’s initiatives internationally, especially in China, resulted in about 62% of this quarter’s revenue being generated by international sales.

There were questions about whether the iPad is cannibalizing Mac sales. Clearly with a 26% increase in Mac sales that does not seem to be the case; this is about 8 times the growth rate for any other computer manufacturer. With Apple’s market share still hovering around 10%, there is a lot of room for iPad, iPhone and iPod sales to generate the “halo” effect that gives buyers exposure to Apple’s products and stimulates Mac sales. Tim Cook said, “so if this is cannibalization, it feels real good.”

Apple guidance for the next quarter is $22 billion in sales and earnings per share of $4.80. This represents guidance of 50% growth year-over-year, which is simply unprecedented. Apple sees increases in iPhone sales and declines in Mac, iPad and iPod sales as is the historical trend coming out of a holiday quarter.

The other remarkable news from Apple with these financial results is that the iPad is driving enterprise penetration. Over 80% of large companies are deploying or piloting iPad use at their companies.

The most incredible story in the history of American business continues to write history. As Steve Jobs takes a leave of absence to deal with his health, it is clear that an important part of Steve’s genius is that he has (as Tim Cook puts it) “driven a culture of innovation into the company and excellence has become a habit.” Those that clamor for a more defined “succession” plan simply do not know Apple.

First off, Tim Cook is as responsible as Steve Jobs for the phenomenal success of Apple. I have seen the nitty-gritty of Apple in terms of inventory planning and basic operations both before Tim and after Tim and it is a night and day difference. Tim Cook is just one of the very deep Apple management bench and is a world-class CEO on his own.

Congratulations to the entire Apple team for yet another stellar and unprecedented quarter of growth and excellence. Apple’s innovation, design and business continue to show the world how it is done and we cannot be prouder to be an Apple Specialist.