Monday, October 22, 2007

Apple Q4 Analysis: Mac Red Hot, iPhone Price Cut Doubles Sales Rate

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SAI Apple Analysis Spreadsheet

Initial Assessment: Strong quarter across the board. Easily beat consensus revenue, crushed consensus EPS, driven by strong Mac (laptop and desktop) sales. iPhone sales also well ahead of expectations.

Post-Call Analysis:

Another record quarter for Mac sales proves that Apple is more than just an iPod factory. Apple sold 2.2 million Macs during Q4, almost 25% more units than during Q3 and a 35% year-over-year unit-sales jump. Desktop Mac unit sales, which had essentially been flat for the last 2.5 years, jumped about 30% both sequentially and year-over-year, thanks to (we think) the super-thin, new iMac design, and built-up interest from the creative community, which was waiting for Adobe's CS3 suite to come out before buying new Macs.

The surprise $200 iPhone price cut doubled Apple's phone sales rate. Apple sold 389,000 iPhones in the 19 days between Sept. 11, when it announced its 1 millionth iPhone sale, and Sept. 29, when the quarter ended. That works out to about 20,000 iPhones sold per day. Prior to Sept. 11, Apple sold 730,000 iPhones in the first 72 days of Q4, averaging about 10,000 per day. (In the first two days the iPhone was on sale, Apple sold 270,000, or about 135,000 per day.) So the 33% price cut has effectively doubled Apple's iPhone sales rate. Apple management said during today's conference call that perhaps as many as 250,000 of the iPhones sold so far -- more than 15% -- were bought by people who want to unlock them to work on other networks. That's a lot, and Apple doesn't get any AT&T revenue from those phones.

Apple is expecting a monster December quarter. Management gave guidance for $9.2 billion in Q1 revenue, representing 30% year-over-year top-line growth. How will it get there? Macs, new iPods, and selling more expensive iPhones in Europe will help: by hopping the pond, Apple expands its iPhone market opportunity by 60%.

Key Stats:

  • Revenue: $6.22 billion (vs. expected $6.07 billion)
  • Gross Profit, Margin: $2.09 billion, 34%
  • Operating Income: $1.06 billion
  • Net Income: $904 million
  • Earnings Per Share: $1.01 (diluted)
  • iPods Sold: 10.2 million
  • iPhones Sold: 1.12 million (vs. expected 975,000)