Apple Earnings – The Good, The Bad and The Ugly

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Oct 20 2010
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Apple Inc.’s (Nasdaq: AAPL, stock) shares tumbled more than 7% to below $300 a share after the iPod, iPhone, iPad and Mac makers announced its earnings after the bell Monday (18-Oct-2010) in extended trading hour. The stock is now recovering and is trading above $310 a share. The Dow is down more than 3-digit points while the Nasdaq is heading south as well.

The news that the People’s Bank of China raised its key interest rate to slow rising inflation and heating economy by 25 basis points to 2.50% from 2.55%, its first in 3-years, poured more fuel into the burning bear. Investors actually took the opportunity to lock-in profits after the recent hike in Dow to above 11,000-level. So is the bullish party over? Not quite, at least not to Apple.

China iPhone 4 Sales 

Apple’s Earnings – The Good

  • Reported net income of $4.31 billion, a 70% jump
  • EPS of $4.64 a share vs forecast of $4.10 a share
  • Revenue jumped 67% to 20.34 billion vs forecast of $18.9 billion
  • Sold 14.1 million iPhone (up 91.4% year-over-year) vs consensus of 11.5 million units
  • Sold 3.89 million Mac computers vs analysts forecast of 3.8 million units
  • International sales accounted for 57% of the total revenue
  • Cash and investment were at $51 billion vs $45.8 billion in the previous quarter


Apple’s Earnings – The Bad

  • Sold 4.2 million iPads vs expectation of 4.8 million, due to supply shortages
  • Sold 9.05 million iPods vs expectation of 9.6 milion units


Apple’s Earnings – The Ugly

  • Expects earnings of $4.80 per share on revenue of $23 billion for Dec quarter vs analysts expectation of $5.03 per share on revenue of $22.35 billion
  • Gross margin fell to 36.9% vs 41.8% a year before. Expectation for gross margin was 38%. Increase in sales of low-margin iPads diluted the gross margin.

 China iPad Sales

Frankly, it’s quite silly to take the number of iPads sold against the analysts over expectation and concluded that the world is over and you should sell the AAPL stock. It wasn’t Apple’s fault that they couldn’t sell more due to supply constraints. Apple has actually sold over 4 million units of iPads and the company has just started selling it in China. Maybe analysts should look at the sales of iPhone which blew analyst expectation with huge margin and tell if iPads could not do any better.

And if you do not already know, Apple’s iPhone 4 has just landed on China’s soil not many months ago. You may also wish to know that despite criticism of iPads, the product actually sold many units more than Mac computers itself. Steve Jobs was probably right when he mentioned the current 7-inch tablets produced by competitors will be DOA – Dead on Arrival. Maybe analysts were plainly jealous of Apple that has over $50 billion in cash and was hope the stock price would crash so that they can buy cheaply *grin*.

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