A stellar quarter in the face of one of the weakest holiday shopping periods in recent memory has Apple executives and investors feeling fine. But the waters are still choppy.
Tom KrazitFormer Staff writer, CNET News
Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.
With all the economic doom and gloom in the world these days, Apple executives must be wondering what all the fuss is about.
Apple's Tim Cook and Peter Oppenheimer acknowledged Wednesday that these are uncertain times to be in the retail consumer electronics business. But put aside any doubts about Apple's ability to sustain the first wave of recession. Posting record revenue and profit during its fiscal first quarter, the company shattered analyst predictions on the strength of solid Mac sales and stronger-than-expected iPod sales.
Can it last? Tough to say, given that few can predict how quickly or strongly the economy might rebound in 2009. But Apple actually improved its financial standing during what many considered to be one of the worst holiday shopping periods in generations. And that's likely to impress upon investors that Apple can hold its own even if the economy gets worse; they sent Apple's stock up 9 percent in after-hours trading following the results.
One problem was that Mac growth inside the U.S. was just 2 percent, while overall desktop sales fell 25 percent. But 16 percent growth internationally made up the difference for Apple. What's more, expected refreshes to an aging iMac design could help lift desktop sales this year.
The other major factor was that the iPod continues to be a consumer electronics phenomenon, with 22 million units flying off the shelves and propelling Apple to a company record for shipments. Most analysts were expecting Apple to record only around 18.5 million shipments, making for a notable discrepancy.
The conventional wisdom was that a slowing economy would take its toll on iPod sales, but there seems to be some truth to a prevailing theory presented by some Apple executives and fans that shoppers recognize the value of the iPod when it comes to gift-giving: the basic iPods are still a hit with the kids and the iPod Touch is turning into a mini-gaming platform in its own right.
Apple knows it can't afford to coast coming off results like these.
It will need to sustain iPhone momentum, even with no new units expected for at least a few months, given the iPhone's importance to Apple's bottom line these days. Cook and Oppenheimer hinted that with 39 out of 50 states projected to run budget shortfalls in the coming year, Mac sales to educational customers--always an important segment for Apple--could be affected. And count on iPod shipment totals to fall dramatically next quarter, as they have in past years coming off the holiday quarter.
But Cook made an interesting comment midway through the conference call when discussing Apple's guidance for the upcoming quarter, which followed the company's traditional conservative pattern. In October, when Apple last reported earnings, the company spoke of the very uncertain economic environment that was hurting its "visibility" into the upcoming year.
That seemed like "a period of time where banks were going down seemingly every other day," Cook said. But now, "it is not as unpredictable as it was in October, perhaps."
Could Apple have already turned the corner on the recession? That's going way too far: Apple's increased confidence in its ability to predict 2009 resulted in guidance that would deliver a 4 percent increase in revenue and a decrease in earnings per share. But given Apple's notorious record of underpromising and overdelivering when it comes to financial guidance, the company could have far more aggressive internal targets for its business in 2009.
And having deposited another $4 billion in cash into a now-enormous war chest of $28 billion probably increases one's confidence as well.