Monday, July 21, 2008

Apple: Good News -- Therefore SELL!

Apple announced its best Mac-selling quarter ever (its best Mac quarter in the year is typically the quarter that includes August, the "back-to-school" quarter) for the quarter that ended with the close of June. Despite worries about Apple's margins, Apple's gross margin for the quarter was 34.8%. Foreign sales have grown to 42% of sales. Retail stores are making a killing.

On the release, the shares lost ten bucks.


Maybe wild speculators were hoping for some kind of outrageous miracle, and bailed when it didn't appear.

Apple says China, Russia, and Latin America supposedly growing over 50% y/y, as are France and Germany. I think we just saw an outrageous miracle announced. With Apple's sales growth in a segment producing >60% of Apple's revenue, one would think profits should drive price upward.

Ohh, down fourteen bucks.

Nice, eh?

Interestingly, Apple's repeated discussion of product transitions involving things competitors will not be able to match seem to suggest either (a) patent-protected products based on Multitouch, or else (b) temporary exclusivity on, for example, Intel-supplied hardware (รก la MacBook Air) to support products with feature leadership. This is consistent both with Apple's brand-image (e.g., exclusivity; yes, don't remind me how Apple is growing out of being a niche supplier) and its recent behavior.

AAPL down sixteen bucks.

Get 'em while they're hot!

UPDATE: Apple's continued use of subscription accounting for iPhone sales means that it recognizes between 1/24 and 1/8 of each sale's revenue in the quarter in which it is sold, depending which month in the quarter it is sold. The remaining revenue is amortized for the remaining 24 months going forward. Thus, exploding phone sales won't hit the bottom line in the quarter sold even though Apple has all the cash from the sale. Because Apple reports lower profits, calculations of Apple's price-to-earnings ratio will make Apple look like it's overpriced based on its phone business, or Apple will be underpriced to meet some "appropriate" P/E number. Given how useless Apple has been at creating value from cash on hand, one wonders why Apple should bother deferring revenue (and thus tax payments), unless to obfuscate the payments received under its agreements with third parties.
Also, this guy seems to have some interesting ideas about how products compete with one another. While one may talk about iPhones "cannibalizing" sales of iPods, the fact that the phones cost more and are more profitable make this a good thing for Apple. What the poster misses is that average sales prices are down for iPods not because sales dropped (they're up 12% compared to the year-ago quarter, though for seasonal reasons they're down sequentially from last quarter), but because Apple is aggressively choking off competition with sales of the low-cost Shuffle. The iPhone and the Shuffle aren't competitors; the Shuffle has no screen, much less a touch screen, and has no functions at all other than playing music from onboard Flash. (Well, you can hear audio books, too, I imagine.) The iPhone and the iPod Touch are plausible competitors, of course -- and by design. The idea that the iPhone is a fad and thus Apple is doomed is pretty entertaining: virtually every electronic gadget has some element of chic that can become outdated -- a fact Apple exploits to sell upgrades. Apple's managed to sell folks notebook computers in order to have the right color, for example. This may not be the bulk of the market, but Apple's brand management is leagues ahead of anything I've seen at Dell or Research In Motion or the like.
As for concerns about Jobs' health: read a biography on Jobs and then come back and tell me you really believe he would authorize company officers to comment on his health, good or bad. In The Second Coming of Steve Jobs, I recall an employee getting rough treatment for answering truthful questions about Jobs' personal life, and I think the lesson didn't go untaught at Apple. Jobs is the only person authorized to speak specifically about Jobs' home life and health. The last time I saw him comment on it, he was pronouncing himself cured, which I imagine would be a pretty clear indicator of his conviction regarding his (now-removed) pancreas.

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