What Apple’s fiscal Q1/13 financial results mean for customers and investors

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Apple reports highest quarterly revenue everApple is putting a positive spin on financial results for its 13-week fiscal 2013 first quarter that ended December 29, 2012, which were reported in Wednesday’s conference call, despite a chorus of boos from Wall Street. And why wouldn’t they? By any rational, objective measure, the company’s performance was spectacular, especially in a context of an ongoing rotten global economy.

“Apple Reports Record Results” read the press release headline—the company posting record quarterly revenue of $54.5 billion (although just a hair below below the reported average analyst estimate of $54.73 billion, according to Thomson Reuters I/B/E/S), with a likewise record quarterly net profit of $13.1 billion, or $13.81 per diluted share.

However, the problem (at least in the estimation of finance industry punditry) was that those results were pretty much flat year-over-year compared to revenue of $46.3 billion and net profit of $13.1 billion, or $13.87 per diluted share, over the same quarter a year ago. Gross margin was also down from 44.7% in the year-ago quarter to 38.6% in Q1/13, although average weekly revenue was incased to $4.2 billion in the quarter, up from $3.3 billion in fiscal Q1/12.

Not good enough for Wall Street, which accordingly punished Apple with a further six percent share price drop to US$482.45 in after-hours trading, on top of a nearly 30% swoon over the past several months since Apple stock hit an all-time historical high of $700 late last summer.

In terms of product sales, Apple sold a record 47.8 million iPhones in the quarter—slightly but not radically fewer than reported Wall Street average predictions of roughly 50 million unit shipments—but nicely up from 37 million units out the door in last year’s fiscal Q1, and an even more impressive percentage-wise record 22.9 million iPads (which came pretty closely matching forecasts)—up from 15.4 million units in the year-ago quarter. Less auspiciously, Mac system sales dropped from 5.2 million in Q1/12 to 4.1 million units in Q1/13 and 12.7 million iPods in the quarter, compared to 15.4 million year-over-year. It appears that the bloom is fading a bit on the MacBook Air; unit sales volume dropped six percent on the 2012 holiday season compared with 2011 according to market research firm NPD, although Apple’s MacBook average selling price (ASP), rose almost $100 to $1419, presumably on sales strength of the relatively pricy new 15-inch and 13-inch MacBook Pros with Retina displays released in June and October respectively. It’s also favorable performance contrasted with the PC industry on general, with Windows notebook holiday unit sales dropping 11%, with ASPs rising only $2 to $420—less than a third of Apple’s. As for the iPod, it’s a mature product with a saturated market that is bound to also be squeezed by buoyant iPhone and iPad sales, since either of those devices makes a good iPod substitute.

“We’re thrilled with record revenue of over $54 billion and sales of over 75 million iOS devices in a single quarter,” commented Apple CEO Tim Cook in a release. “We’re very confident in our product pipeline as we continue to focus on innovation and making the best products in the world.”

I’m no financial expert, and I don’t directly own any Apple shares (although it’s very possible that mutual funds held in my arms-length managed retirement fund portfolio might—I simply don’t know), but I’m of a mind as an interested layman that folks who bale out of Apple stock at this point will likely have cause to regret it in the fullness of time. My regret is that I didn’t buy Apple stock back in the “beleaguered” days of the late ’90s and hold onto it!

Not to suggest that everything is hunky-dory in Appledom. Apple has no player in the currently hottest-selling mobile device category—large screen smartphones or “phablets.” Rumors out of the Asian OEM world indicate that a 4.8-inch iPhone is in the works, but unlikely to be released before fall 2013 at the earliest or even not until 2014, and Microsoft’s Windows phone is enjoying strong growth in Europe, particularly in Britain and Italy, with its market shares hitting 5.9% and 13.9% respectively—up from just 2.2% and 2.8% a year ago.

The latest smartphone sales data from Kantar Worldpanel ComTech reveals that while Apple’s iOS remains king of the mobile device operating system hill in the U.S. and Japan, Google’s Android now holds number one spot in other key world markets including Britain, China, Spain, Australia and Germany. Not comfortable metrics to ponder when international sales accounted for 61% of Apple’s Q1/13 revenues.

There has been no scuttlebutt about a touchscreen MacBook, even though touchscreens are becoming a marquee feature of the MacBook’s Intel Ultrabook main competition, and no provision for RAM upgrades in the MacBook Air and Retina MacBook Pro’s remains a sore point with some of us.

Apple’s once overwhelming dominance of the tablet market is diminishing, and its continued doggedly stubborn stonewall of features like file system user access, USB connectivity, external pointing and device driver support remain nettlesome for production and creation oriented iPad users and would-be users.

However, Tim Cook’s claim that Apple continues to make the best products in the world, at least in terms of hardware quality, isn’t being convincingly challenged. OS X continues to (so far) provide a much better user experience than Windows, and the iOS, despite its shortcomings, provides a smooth and easy-to-live-with ride for content consumers. Apple should remain profitable and successful for many years to come.

As Apple’s CFO Peter Oppenheimer observed Wednesday,“We’re pleased to have generated over $23 billion in cash flow from operations during the quarter. We established new all-time quarterly records for iPhone and iPad sales, significantly broadened our ecosystem, and generated Apple’s highest quarterly revenue ever.”

Apple’s guidance for its fiscal 2013 second quarter projects:

  • revenue between $41 billion and $43 billion
  • gross margin between 37.5% and 38.5%
  • operating expenses between $3.8 billion and $3.9 billion
  • other income/(expense) of $350 million
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  • ViewRoyal

    Apple’s stock price means absolutely nothing to Apple’s customers, nor (obviously) to Apple’s revenues and profit success.

    Apple’s stock price has been manipulated downward by those who are profiting from betting against the company (at the expense of investors), while Apple continues to out earn any of its competitors.

    And unlike most other companies, Apple is not really dependant of investors or stock price to be successful. With a reserve that has now grown to $137 Billion (more than the annual budget of most countries in the world), Apple has the means to make all the investments it wants, without relying on stock price.