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Is there an Apple Store near you? Count yourself lucky, because the days of Apple’s (AAPL) aggressive expansion into the branded retail space are over — at least for now.
After opening more than 250 company-owned stores in eight years — an average of nearly 8 per quarter and a total of 46 in 2008 alone — Apple in the last quarter opened just one.
The building slowdown is one of several moves that Apple has made in response to what COO Tim Cook this week called a “horrendous economy.”
Although Apple’s revenues grew more than 8% year over year in its second fiscal quarter, the average take per store took a 17% hit, falling to $5.9 million from $7.1 million in 2008.
So Apple has been cutting back. According to its latest SEC 10-Q filing, the company has slashed the ranks of its retail employees — from the equivalent of 15,600 full-time workers at the end of its December quarter to 14,000 in March, a net loss of 1,600 jobs.
It has also been closing stores — temporarily, for renovations — at a stepped up pace. IFOAppleStore, the definitive source for news of Apple Store openings, has been reporting round after round of retrofits. The latest cycle calls for stores to be temporarily closed in Tigard, Ore., Woodland, Mich., and White Plains, N.Y.
As its SEC filing notes, Apple-owned stores requires a “substantial investment in fixed assets and related infrastructure, operating lease commitments, personnel, and other operating expenses. … The Company would incur substantial costs if it were to close multiple retail stores.”
That doesn’t necessarily mean Apple plans to shutter a lot of stores, but it could signal a major reassessment of its retail strategy.
“I believe Apple is at a dangerous crossroads with retail and must make very careful decisions here,” writes a retail management expert who posts on Investor Village’s AAPL Sanity board under the handle nontekkie. Although he believes Apple is doing the right thing, he also sounds a warning:
“And as sales drop, expenses must be cut. So Apple faces the conundrum of cutting payroll and risking the service part of their reputation because they have sent the sales portion of their product to Best Buy, Wal Mart, AT&T, etc etc. The product gains wider distribution, the customer gains convenience, but Apple risks running stores in the red or losing their service strength.
“Apple retail stores… are not meant to saturate a market, they need to be a destination.” (link)
During Wednesday’s conference call, CFO Peter Oppenheimer said the company was still on track to open 25 stores in fiscal 2009. But he added that about half of those stores are overseas. If he’s counting the 6 U.S. stores that have opened since Sept. 27, 2008, Apple could be planning to open as few as 6 new domestic branches before the end of fiscal 2009.
To get a feel for what it means to Apple’s customers for the company to open a new store in their city — and what a loss it would be for them if Apple’s expansion were to slow or stop – check these out:
[Via Forbes Apple 2.0]
The App Store odometer that’s been running on Apple’s (AAPL) home page for nearly two weeks rolled over into 10-digits Thursday afternoon shortly before 5 p.m. ET (2 p.m. PT).
To hit a billion downloads in 9 months and 12 days is certainly a milestone worth trumpeting, and Apple’s executives did their share of horn-blowing during Wednesday’s quarterly conference call.
“We are within hours of reaching our 1 billionth download,” said CFO Peter Oppenheimer. (It turned out to be nearly 24 hours, but who’s counting?). “[It's] an astounding number given the short nine-month history of the App Store.”
One of the factors feeding that growth, and in turn being fed by it, is the size of the App Store’s installed base. COO Tim Cook put it at 37 million — a fact, by the way, that gives analysts a fresh handle on the number of iPod touches in circulation. (Because Apple has reported sales of 21.17 million iPhones over the past 7 quarters, we now know that it has also sold at least 15.83 million iPod touches.)
The other factor is the quality and sheer quantity of applications in the store — more than 35,000 according to Apple (and 37,462 according to 148Apps, which keeps an independent running count). Developers clearly find a lot to like in this platform: a big installed base, a comfortable development environment, and a friction-free payment system whereby Apple handles all the back-office drudgery for a 30/70 revenue split.
How long can this breakneck growth continue? Although the rate at which new apps are being added to the store has started to slow, the rate of downloads is still accelerating — as evidenced by the slopes of the curves in the fever charts below.
But all this could change in the next quarter. The new software development kit (SDK) and the new operating system — iPhone OS 3.0 — coming this summer could launch a new generation of more powerful apps. And if the rumors are true and the company has a new family of App Store-ready portable devices in the works, the flow of new applications could accelerate once again.
Apple may not be “years” ahead of Google (GOOG), Microsoft (MSFT), Nokia (NOK) and Research in Motion (RIMM), as Cook and Oppenheimer claimed at least four times Wednesday. But it is certainly many many months.
UPDATE: Apple issued a press release Friday and announced the grand prize winner of its one billion app countdown contest: Connor Mulcahey, 13, of Weston, CT.
[Via Forbes Apple 2.0]
No analyst we know of correctly predicted Apple’s (AAPL) second fiscal quarter results for 2009, in which the company proved that computer makers don’t have to slash prices or build “junky” $400 netbooks to weather an economic storm. But some analysts did better than others.
Who did best?
Let’s look at the numbers. The table below represents the estimates of all the Wall Street analysts whose numbers we could get our hands on, as well as those of three of the most prominent blogger analysts. (We could have included lots more bloggers; everybody these days seems to have an Apple earnings spreadsheet in their hard drive.)
In our chart, the actual results and the most accurate estimates are highlighted in green. The worst estimates are highlighted in red. There were several ties.
The professionals and the bloggers scored roughly the same — which in itself tells you something. As usual, the bloggers were more bullish than the pros, but this quarter Apple’s actual results in most categories blew past even the most optimistic of the bulls.
It will pain some readers to hear this, given his bottom-of-the-barrel target for Apple’s shares ($95), but the blue ribbon goes once again to Mike Abramsky of RBC Capital, usually considered a Research in Motion (RIMM) bull and an Apple bear. He scored two greens and no reds this quarter. (Last quarter, when his price target was $70, he beat the field with three greens.) [UPDATE: CNBC's Jim Goldman reports that Abramsky reversed himself after that earnings report and has now slapped a $165 per share target on Apple.]
Tied for second place are Piper Jaffray’s Gene Munster and Financial Alchemist’s Turley Muller, with two greens and one red apiece. Muller gets the edge in our book because he hit so close and Munster missed so badly — and inexplicably — on Apple’s earnings per share.
Yair Reiner gets special mention for having nailed that surprising high iPhone unit sales number (3.8 million).
In the department of strange bedfellows, Andy Zaky of Bullish Cross — who never tires of berating the professional analysts for misunderstanding Apple, and has often singled out Morgan Stanley’s Kathryn Huberty for special opprobrium — ended up tied with Huberty in the iPod division, missing the actual number by nearly 500,000 units, but coming closer than anyone else in our chart.
And we can’t close without pointing out that among very worst predictions for the quarter were those offered by Apple COO Peter Oppenheimer, whose guidance numbers missed actual revenue by $360 million and EPS by $0.33 to $0.43 a share. Talk about conservative guidance!
For those readers who submitted estimates that I didn’t include here, you know who you are. Feel free to reiterate them in the comments.
Apple’s detailed earnings results are available in its press release. An audio webcast of the earnings call with analysts is available here and Seeking Alpha has published a transcript.
Barron’s Eric Savitz has published a round-up of analyst reactions to the earnings report — including Abramsky’s upgrade — here.
See also:
[Via Forbes Apple 2.0]
Acting CEO Tim Cook handled the bulk of the questions from analysts in Apple’s (AAPL) second-quarter earnings call Wednesday, and he seized the opportunity — in Steve Jobs’ absence — to wave the company’s flag.
Five key quotes (checked against Seeking Alpha’s transcript):
On Apple’s shrinking market share: “I care about US share, of course I do. However, I think cycles come and cycles go. And what we’re about is making the best computers in the world, not making the most. … And we believe that if we do that over the long-term that we will gain share.”
On netbooks: “For us, it’s about doing great products. And when I look at what is being sold in the netbook space today, I see cramped keyboards, terrible software, junky hardware, very small screens, and just not a consumer experience, and not something that we would put the Mac brand on quite frankly. And so, it’s not a space as it exists today that we are interested in, nor do we believe that customers in the long term would be interested in.”
On leaving AT&T for Verizon: “We view AT&T as a very good partner. … We’re very happy with the relationship that we have and do not have a plan to change it. From a technology point of view as you know, Verizon is on CDMA and we chose from the beginning of the iPhone to focus on one phone for the whole of the world and when you do that, you really go down the GSM route, because CDMA is – doesn’t really have a life to it after a point in time.”
On China: “We now have of the four BRIC countries, Brazil, Russia, India, and China, we have three of those up. We would like to be in China within the next year and are currently working on that. But I have got nothing specific to announce today on this.”
On the Palm pre and Apple’s intellectual property: “We think competition is great, we think it makes all of us better, as long as other companies invent their own stuff.”
See also:
[Via Forbes Apple 2.0]
Apple (AAPL) on Wednesday posted sharply higher revenue and earnings in its second fiscal quarter of 2009, beating both its guidance and analysts estimates.
iPhone sales were particularly strong — up 123% year to year — and seem to have offset a 3% decline in the Mac division.
The headlines from the company’s press release:
CFO Peter Oppenheimer’s canned quote: “We are extremely pleased to report the best non-holiday quarter revenue and earnings in our history.”
That 36.4% gross margin is actually quite impressive, particularly in this economy. It must make the PC makers fighting over the razor thin profits in the netbook market crazy.
The conference call:
5:03 p.m. ET: Were in.
5:04: Peter Oppenheimer is going over the numbers summarized above.
5:05: Talking about how difficult it was to compare Mac sales, given the 50% growth last year. “Very positive about Mac performance.”
5:06: Touts iLife and iWork.
5:07: iPod sales. “Strong sales” of iPod touch, but no numbers. Share of MP3 market over 70%, according to NPD. iPod sales growth in Europe, Australia and China.
5:08: iTunes sold developments. App store. Over 35,000 applications. This is a new stat. Close to 1 billion downloads (but no cigar today).
5:09. iPhone. Now in 81 countries. Rev recognition $1.52 billion, up more than 300% from last year. Repeating what’s new in iPhone 3.0. Deferring rev. on all iPhones sold after March 17.
5:11: Stores. Now 252 stores, one new this quarter. Rev. 1.47 billion, up from 1.42 billion, but average sales per store was down: $5.9 million down from %7.1 million.
5:13: Gross margin discussion. Why up? Commodity costs. Higher-rev products. Etc. He’s losing me.
5:13: Cash discussion.
5:14: Guidance: Forecasting is “challenging.” Rev: 7.7 billion to $7.9 billion. GM: 33%. OpEx $1.35 billion. Tax rate: 31%. EPS”: 95 cents to a dollar.
Confident. Pleased. Etc.
5:16 Q&A below the fold.
See also: Five key quotes from Tim Cook.
Q: Tim, what is outlook for component pricing? A: Cook: Still favorable, but NAND will increase sequentially. Last quarter was about wringing out excess inventory. Average bill of materials in range, not necessarily down.
Q: Peter, cash flow was down year to year. First time in a long time. How come? A: No because of deferred revenue. Three things. 1st: Made pre-payment to LG.(?) 2nd accoungs payable. 3rd: Tax payments. Made 1.3 billion payments in march quarter.
Q: Mac business. Desktop side exceeded expectations, but ASP down. What’s going on in this tough economy? A: Tim: With new desktop line we saw acceleration of sales, which allowed us to equal year before. After launch, higher mix of desktops, helped push average selling price down. Mac pro lower, higher Mac mini. All through quarter pro products were weaker than year before, mainly due to the economy and businesses cutting back. And education in U.S. contracted 11% year over year, due to states not having tax revenues as projected. Hoping stimulus funds will start to flow. In notebooks, sales of $999 Macbook helped drive down ASP. Good news: consumer holding up much better than businesses and education.
Q: What about netbooks? A: Tim: For us it’s about doing great products. When I look at what is being sold I see cramped keyboards, terrible software, junky hardware, small screens. Just not something we would put the Mac brand on. So it is not a space as it exists today that we are interested in. But we’re interested in people who want a small device to do e-mail and browse the net. (The old buy an iPhone story.) But if they can find a way to deliver a product that does something interesting, that could change. Says to perform as they did in this terrible economy is “quite an accomplishment.” The pipeline looks fantastic.
Q: App Store. Paid v. free apps. iPhone v. iPod touch. A: Sorry, don’t disclose. Just hours away from billionth download. Tim: One of the keys to the growth of the iPod this quarter was that the iPod touch more than doubled year over year. The sum of iPhone and iPod touch is about 37 million. So great platform for developers. Apple years ahead of everyone else.
Q: Indirect sales mix. A: Direct 48%. Didn’t bear on gross margins. In June quarter, ed buying begins, one of the reasons expects gross margins to fall and impact of US dollar and commodity costs.
Q: Gross margins. A: Won’t stay as high.
Q: Consumer turnaround? A: Tim: If you look at iPod, you see little difference year to year, except that iPod touch is a runaway hit. On Mac side, sell-through accelerated in March after we turned every desktop in the company on the same day. iPhone was reasonably linear business after the first week or two, so we were pleased not to see the usual seasonality curve.
Q: iPhone. What about new carriers and what about Steve Jobs? A: Tim: We view AT&T as a very good partner etc. Have no plan to change it. Verizon is on CDMA, and we wanted one phone for the whole world.
Q: China. A: We now have three of the four BRIC (Brazil, Russia, India and China) countries. China we would like to be in withing the next year (!) but nothing to announce.
Q: Steve Jobs. A: Peter: What is your question? We look forward to Steve returning to Apple at the end of June.
Q: Mac question. Down 8% in Americas. Lost share in U.S. market. Do you care about your market share? Change in pricing. A: Tim: One world wide basis, IDC said market contracted 7%, we contracted 3% but flat in sell through. But in U.S., a large percentage is education oriented, so subject to budget constraints in states. Also, we saw less pro-Macs being bought in U.S. compared to other countries, which we attribute to the economy. Yes we do care about market share, but cycles come and cycles go, and what we care about is making the best computers in the world, not making the most. We believe that if we do that over the long term, that we will gain share.
That’s a quote for the books.
Q: iPhone price elasticity. A: Tim: Goes off topic to talk about product plans and app store and int. exapansion. We have a plan that continues to make us leaders in the space and years ahead of the competitors and not leave a price umbrella for our competitors.
Q: How do we think about 36.4% gross margins this quarter vs. 33% next quarter? A: Stronger U.S. dollar and education buying season. Expands on both.
Q: % of customers who upgraded iTunes library to DRM? A: Nothing specific. Too soon. iTunes store was strong in general.
Q: Cash flow. Any one-time items in June quarter? A: Goes over what happened this quarter, going from holiday to march quarter. No pre-paids to announce in June quarter. Will make an estimated tax payment, but don’t expect to have audit “true-ups” so not as significant.
Q: iPhone. Wal-Mart. How much impact on Wal-Mart? A: Tim: A key partner for iPod and expanded to iPhone. We believe they provide us with extended reach. But early days yet, not much to report. In terms of total distribution, selling in over 50,000 store fronts in 81 countries. Regarding inventory: Last quarter 1.7 million units in inventory. We are very conservative in how we count that. E.g. we count demos that we can’t sell. 100,000 units. We count units in transit. 100,000 units. In many cases count inventory all the way to the store front. Other companes don’t. Not going to talk about weeks of inventory because its our first June quarter with worldwide spread, but we saw channel inventories were in fall by the end of the quarter, but we ended at 1.83 million units. Long answer.
Q: Explosion of apps, what steps taking to ensure iPhone apps can be discovered? A: Peter: Easy to find top 50 and 100. Genres as well.
Q: Unusual patterns by title? A: Hitting a billion downloads in 9 mos. (not answering question). Games quite popular.
Q: Competition in smartphones? Palm pre? A: Tim: Difficult to comment on products that aren’t shipping. iPhone now sold over 21 million, highest satisfaction, a billion downloads, breath of apps, so we think we’re years ahead. The power of the device and the ecosystem is enormous and we think we’re just scratching the surface.
Q: Cash? A: Peter: We’re working hard to make sure it grows. Nothing new to announce today. Very focused on principal preservation. No update on new headquarters. (!?)
Q: Gross margin guidance suggests strong ed selling season? A: Peter: Last year our GM was down 1% sequentially, this year down a few percent more. Back to his answer about the education buying season.
Q: Protection your intellectual property. No action this year on Palm. How come? A: Tim: We thinks iPhone innovation is leading the comp. by years. We think competition is great as long as companies invent their own stuff.
That’s a wrap. Replays will be available at roughly 5 p.m. PT (8 p.m. ET).
[Via Forbes Apple 2.0]
AT&T (T) released its first quarter results Wednesday morning, and although earnings were down 9%, its iPhone business was strong, with more than 1.6 million activations in the quarter.
According to Piper Jaffray’s Gene Munster, that’s good news for Apple (AAPL). In a brief report to clients he calculates that 1.6 million activations translates — once Apple Store and international shipments are added in — into sales of 3.7 million iPhones.
How does he figure that?
“Last quarter,” he writes, “AT&T activated 1.9 m[illion] iPhones and Apple sold a total of 4.4 m[illion] units. According to this relationship, the AT&T activation number implies a total of 3.7 m[illion] iPhones in the March quarter.”
That would be a positive sign for Apple shareholders, says Munster, because the Street is expecting the company to announce later Wednesday that it shipped 3.3 million iPhones in the quarter.
Strong iPhone sales are also good news for AT&T. 40% of those new activations came from customers who were new to the carrier. Once on board, iPhone customers tend to stay loyal (reducing “churn”) and generate an average 1.6 times more revenue than other customers.
Tune in here at 5 pm ET (2 pm PT) for live coverage of Apple’s 2009 Q2 earnings call.
[Via Forbes Apple 2.0]
On Wednesday, when Apple is scheduled to report its second-quarter results, the same shares opened at $122.27 — a 56% increase.
While that’s still below the price targets set by most analysts — many of whom revised their targets upward in just the past week — some think Apple’s share price has got ahead of itself.
RBC Capital’s Mike Abramsky (an Apple bear) said as much in a note to clients Tuesday. “Valuation has risen faster than peers … and while we expect near term upside around the refreshed iPhone, we continue to see elevated challenges ahead to valuation.”
Still, Apple is not in the same kind of trouble as its competitors — like Dell (DELL) for example. Apple still has rich cash holdings ($25 billion, or $29 per share), enviable profit margins (34.7% last quarter) and the deferred revenue from seven quarters of iPhone sales (which could add 30 or 40 cents to its earnings per share).
But the company has a basic problem with its fundamentals: two of its three primary engines of growth have stalled.
As Silicon Alley’s Dan Frommer points out, the Street is expecting Apple to report that it shipped 2.1 to 2.2 million Macs in the second quarter — a year-over-year decline of 4% to 9%. That would represent the first time in five years that Mac sales have shrunk. Moreover, it’s being compared with a quarter (2008 Q2) in which Mac sales grew by more than 50%. (See chart below.)
Chart: Andy Zaky
Meanwhile, iPod shipments are also expected to shrink — a 6% decline, to about 10 million units.
The iPhone — which was supposed to fill the gap — is still on its growth curve. The Street expects Apple to report that it shipped 3.3 million units in the quarter, nearly doubling last year’s Q2 shipments of 1.7 million.
But that may not be enough to make up the difference. The consensus, according to Thomson Financial, is that Apple will report earnings of $1.09 a share on revenues of $7.94 billion — a 5.7% year-to-year increase in revenue and a 6% decline in earnings.
“How can the market justify giving Apple a 22 P/E,” asks Andy Zaky of Bullish Cross, “when it’s not growing at all?”
Zaky, a blogger-analyst who has taken his Apple profits and turned “agnostic” on the stock, acknowledges that he could be wrong. One could argue, he says, that the market has already adjusted for the current state of affairs by taking Apple’s stock price from $200 to $120. Or that Apple’s growth drivers have stalled because of weakness in the economy and not because there’s anything inherently wrong with the company.
And there are several things that could kick-start Apple’s growth. Like if the rumors are true that Apple is about to cut an iPhone deal in China, or that it’s set to unveil a new family of iPhones, or that it’s working on a new device that will be its answer to all those $400 netbooks — or that the global economy has turned a corner and started to recover.
Meanwhile, the pressure is on COO Tim Cook (standing in for Steve Jobs) and CFO Peter Oppenheimer to report Q2 results that surprise the skeptics, chart a path for growth and offer guidance for Q3 that, while dutifully conservative, reflects a little more confidence in Apple’s future.
Apple will report its earnings on Wednesday after the markets close. A conference call with reporters and analysts is scheduled for 5 p.m. ET (2 p.m. PT). Tune in here for live coverage and analysis.
See also:
Below the fold: more Zaky charts, including operating expenses by quarter and Mac sales by region.
[Via Forbes Apple 2.0]
