I've been catching up on the Apple financial news today after yesterday's nigh-incomprehensibly strong results and the analyst conference call. A few items that stand out:A huge barrelful of unlocked iPhones. The announced estimate of phones sold to presumptive unlockers -- 250,000 -- was so high that some questioned whether I heard it correctly (including me). Apple, of course, knows both how many iPhones have been sold and how many AT&T contracts have been activated, so barring a large quantity of phones purchased as gifts and languishing in underwear drawers, that number has to be taken at face value. Our commenters also note that iPhone bulk purchases may be under tighter control now, and unlocked iPhones are readily available for purchase in the Far East.
With the fraction of iPhones sold to unlockers edging towards 20%, there has to be a powerful cognitive and contractual dissonance at work in the braintrust at One Infinite Loop. On the one hand, there's no subscription revenue from AT&T for those phones; on the other, hey, that's an additional 250K phones sold, not a bad thing. It will be very interesting to follow this number quarter-over-quarter and see if the legitimate EU introduction lowers the demand for unlocked devices.
More below...
December guidance: whatever they're smoking, we want some. Apple's earnings guidance over the past few years has been tight as a drum; if the CFO says (as he did for Q42006) the expectation is $0.48/share, they make $0.62. The discrepancy between guidance and actual results has gotten bigger over time, so that with the most recent results the forecast of $0.65 per share turned into an actual $1.01/share. Despite analysts' comparative optimism (consensus numbers for Q407 were around $0.85/share), Apple has consistently blown past both the whisper number and the extremely conservative official guidance.
All that said, looking at Apple's estimate for next quarter's results -- the first holiday season featuring both iPhones and Leopard on sale -- gives me goose pimples, a metallic taste in my mouth, and slight altitude sickness. The official, conservative, we're-totally-sure-we-can-hit-this earnings guidance is $1.42 per share, $9.6B in revenue. Leaving aside for the moment that those numbers are 2x or more versus the year-ago quarter, what happens when you apply the reverse Apple-CYA factor and make a wild guess at what the actual earnings will be? This quarter, actual results were more than 1.5x the predicted results. Apply that fudge factor to next quarter's estimate and you are comfortably past $2.00/share, a freakish number indeed.
MacObserver notes that analyst Shaw Wu is surprised Apple is guiding above Wall Street's estimates for next quarter (last time that happened: December 2005). Is Apple retuning the forecasting to get closer to real-world results? Or are we looking at another conservative estimate that is going to be absolutely shattered by the true outcome? Let me check my crystal ball over here...
No subscription accounting for iPod touch. John Gruber has wondered aloud whether revenue from the iPod touch is being handled on the same basis as the iPhone revenue; that is, spread out over 24 months for accounting purposes & to allow for substantial upgrades in functionality without charging the customer. Nothing in the call or in other news indicates that Apple is doing this for the touch, and I'm not surprised: the 24-month accrual for the iPhone has more to do with the duration of the AT&T contract, IMHO, than the forward-looking functional upgrade possibilities. I would expect that firmware and functional upgrades for the iPod touch will be handled much as they have been for the other non-phone iPods: free and frequent. Considering that the touch will be a valid target for the iPhone/iPod touch SDK, I expect that by next Spring we'll see lots of enhanced functionality for the touch, whether or not Apple changes a thing.
Who's keeping score, anyway? Meanwhile, assuming the status quo holds through the market close today, Apple's market cap will be higher than both Intel's and IBM's. We've seen this coming for a while now, but that doesn't make it less remarkable. Another side note, captured in the graphic: Google's lifetime gains are 513% since IPO. AAPL, since January 2001? Over 2300%... that's some serious shareholder value.
As always, for the latest coverage on Apple as an investment vehicle, swing over to our colleagues at Blogging Stocks. (For continuing coverage on Apple as a technology company/lifestyle choice/evil anti-hacker villain/hero of the people/fetish, you can stay right here.)
Reader Comments (Page 1 of 1)
10-23-2007 @ 2:15PM
Alexander said...
EU introduction?
If England, France and Germany form the EU something has happened...
Most countries in the EU still don't get iPhone, including the Netherlands. Why can't Apple just release them worldwide at the same time like they do with their other products? (I know about the provider problem, but Hey Vodafone, T-mobile AND Orange are the most important carriers in Holland... (and also found in most of the other European countries).
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10-23-2007 @ 2:56PM
Eric said...
Wasn't their something about opening stores in Asia and even China (Olympics)?
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10-23-2007 @ 3:01PM
Ari B. said...
Almost makes you wonder if Apple won't just go into the cellphone carrier business for itself.
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10-23-2007 @ 3:02PM
Austin said...
England? I think you mean England, Scotland, Wales and Northern Ireland
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10-23-2007 @ 3:20PM
Alexander said...
Well the UK then, but that is still only a small bit extra...
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10-23-2007 @ 3:25PM
Luigi193 said...
Ok...why did ya guys have to put those AOL links up there????
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10-23-2007 @ 3:35PM
lookmark said...
I think Apple is usually confident of a blowout holiday quarter 'cause they've got:
- a tiny nano with a elfin but nice bright hi-res screen that plays video
- at long least, a fullscreen "true" video iPod
- a $400 smartphone that has a 95% high satisfaction rate
- the introduction of the iPhone into the UK, Germany, and France
- strong Mac momentum among grumbling Vista dissatisfaction (especially until MS works out the bugs out and companies get their drives done)
Seems like a winner.
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10-23-2007 @ 3:36PM
lookmark said...
Oh man, and I forgot about Leopard even.
- 100-140M from Leopard
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10-23-2007 @ 4:03PM
Wolfbane said...
Why is it so difficult for people to accept that Apple has partnered with a specific company and if they want to keep their ecosystem closed.. that should totally be their choice. (Any laws, DMCA or abroad) seeking to influence or force openness seem to be a detriment to the experience.
It'll be amusing when Apple comes out with their next update which further locks down the iPhone/Touch and all of the unlockers are locked out of new functionality once again. Then again, I can't imagine buying a $400 cell phone with the sole purpose to run it on someone else's network.
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10-23-2007 @ 4:11PM
yacoub said...
http://www.foxnews.com/story/0,2933,304456,00.html
18% of iPhones sold were never activated w/ AT&T. Safe to say 18% were unlocked/jailbroken? :)
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10-23-2007 @ 4:17PM
Mo said...
@1: Um, selling the iPhone in a select few countries in the EU is by definition an “introduction”, especially if Apple plans to expand that list of countries later.
And yes, it's “the UK”, not just “England”. We even have Apple Stores up here in Scotland, you know.
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10-23-2007 @ 4:24PM
Mo said...
“Why is it so difficult for people to accept that Apple has partnered with a specific company and if they want to keep their ecosystem closed.. that should totally be their choice. (Any laws, DMCA or abroad) seeking to influence or force openness seem to be a detriment to the experience. ”
Because this battle has been fought over and over again, and the collective mind of the consumer was made up long before Apple showed upon the smartphone scene. Long ago enough, in fact, that lots of EU countries have had laws about this sort of thing since before Apple was producing the iPod, let alone the iPhone.
The law is thus: it's the consumer's right to decide, ultimately, whether something has a net positive or negative effect. There may well be benefits (special data plans, extra features) to sticking with the bundled carrier, but every consumer is different. Perhaps I'd like the option to pick a different carrier because the bundled one has extremely poor signal strength where I live and work (actually, it does). Perhaps I'm willing to forego the unlimited data plan or visual voicemail in order to use all of the other features. That's my choice. If I make a bad choice, I lose out. If I make a good choice, I benefit. That's how the world works.
In the countries where laws exist governing this sort of thing, one can only assume that Apple hasn't been foolish enough to count on 1 iPhone sold being 18 months of revenue (given the “apparently for unlocking” sales figures, it seems unlikely that they would have, and the price of the iPod Touch suggests that the carrier revenue was a bonus rather than a requirement to cover margins).
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10-23-2007 @ 5:55PM
Bruce said...
Back in January in Macworld Expo, Steve Jobs set a goal of 10 million iPhones in 2008. So this last quarter, Apple sold 1.119 million phones, or about 4.5 million iPhones over a year.
To get to the 10 million iPhones a year goal in 2008, they need to sell 2.5 million a quarter. So they're selling less than 1/2 of what they need to make their 2008 goal.
Do they expect non-US sales to make up the difference? Or are they going to have seriously deep discounts for future iPhones to get the volume?
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10-23-2007 @ 6:43PM
Mo said...
@Bruce: In a word, yes. The 10 million goal was global, not just US (as far as I know). France, Germany and the UK aren't small markets, and they're just the three that have been confirmed so far.
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10-23-2007 @ 8:33PM
tnkgrl said...
@Wolfbane
"Why is it so difficult for people to accept that Apple has partnered with a specific company and if they want to keep their ecosystem closed."
Because it's just wrong... Bits want to be free!
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10-24-2007 @ 2:12AM
see3pio said...
The subscription accounting for the iPhone has little to do with the contract deal with AT&T.
Apple has previously stated they are accounting for the iPhone AND AppleTV in this way is because of Sarbanes-Oxley accounting rules that require them to do so in order to release new features to products to via software updates. This is to avoid the customer backlash over things like the $2 802.11N Enabler from last January.
Seeing as Steve said in his Hot News item last week there would be added third party application support for the Touch come February, I would be VERY surprised if they weren't accounting for Touch revenue using this subscription method. If they weren't doing this for the AppleTV as well, your arguments would hold up better.
You won't see this type of accounting on the classics and nanos because Apple is unlikely to release new features for them via updates, usually reserving new features for the following years version.
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