iPad overtakes Mac as Apple's second largest business
Despite lack of new iPhone, company doubles quarterly net income and promises more content initiatives this year
Published: 20 July, 2011
READ MORE: Financial | Apple | iPhone | Tablet
Apple delivered a powerful quarter, driven by better than expected sales of iPhones and iPads, even in a period when it had no new smartphone to offer.
Its stock leapt to an all-time high after it announced results for its fiscal third quarter. Net income more than doubled to $7.31bn, or $7.79 a share, from $3.25bn in the year-ago period, while sales were up 82% to $28.6bn. The figures beat analyst consensus forecasts of $5.87 a share on revenue of $25bn. The numbers helped calm some fears about Apple - that it would be hurt by the delay in releasing this year's iPhone, especially amid growing competition from Android handsets; and that it would suffer from the lack of hands-on leadership by the still-ailing Steve Jobs.
The lack of a new iPhone did have its impact however. Growth slowed in the firm's most important territory, the US, largely because of the postponement of the 'iPhone 5' until September - though this should ensure a strong holiday quarter. This was balanced by growth in emerging economies, especially China, regions where Apple has traditionally struggled because of its premium pricing and over-reliance on its home turf. Its progress in Asia should also be boosted if, as expected, it releases a lower cost iPhone model this autumn. Chinese sales were up almost sixfold from 2010, to reach $3.8bn across all product lines, and Apple plans to open 30 retail more retail stores in the country this fall.
By the numbers, Apple sold 20.34m iPhones and 9.3m iPads, more than anticipated, plus 3.95m Macs. Only the iPod did worse than expected, selling 7.54m units, compared to expectations of 8.5m. The iPad is now the second largest source of revenue after the iPhone. Apple, which is famous for its conservative forecasts, said it expected profit in the current fourth quarter to be about $5.50 a share on sales of $25bn. This would be below analyst estimates of $6.41 on $27.7bn but few observers gave Apple's figures much credence. "The forecast is meaningless," one investor told Bloomberg. Apple ended the quarter with a massive $76.2bn in cash.
Gross margin was up to 41.7%, from 39.1% a year earlier, but Apple warned that the product transition in September could weigh on margins during that quarter. It highlighted growing enterprise acceptance of iPhones and iPads, though COO Peter Oppenheimer admitted there was some cannibalization of the MacBook by the iPad 2.
On the content front, he promised "neat stuff" and new directions, especially in video, for the fall. On the analyst call, he revealed that iTunes revenue was up 36% year-on-year. Apple is changing the way it accounts for Mac users because of the launch of iCloud, and will start deferring $22 for each Mac sold over a three-year period, a system it already uses for iOS devices - though the structure will change for those too, with Apple now deferring $16 for each iPhone and iPad, and $11 for each iPod Touch.
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