Fourth-quarter revenues didn't quite hit the target, but with iPhone and Mac sales strong, Jobs is optimistic Apple can ride out a downturn
Steve Jobs may not be sure how much the economic slump will hurt Apple, but he's clear on this: It won't be as bad as pessimists predict. And for the first time in eight years, he got on an analyst conference call to discuss quarterly results to make sure the point wasn't lost on anyone.
"We may get buffeted by the waves a bit, but we'll be fine," Jobs said on the call, following the release of Apple's fiscal fourth-quarter results. Evidence of the buffeting may already be showing up. Apple (AAPL) reported $7.9 billion in sales, below the average estimate of analysts, which had come in at $8.05 billion. As for the fiscal first quarter, which includes the all-important holiday selling season, Apple forecast sales of $9 billion to $10 billion, more than $500 million less than analysts were expecting. Per-share earnings will come in at $1.06 to $1.35, at least 30¢ below the consensus estimate. CFO Peter Oppenheimer said the company was being "prudent" in light of the uncertain economy.
But in the immediate aftermath of the results, it was Jobs' comments about Apple being "fine" that carried most weight with investors. Apple shares, which had slumped more than 7% in regular trading, surged $12.84, or more than 14%, to 104.32 in extended trading after the results were released.
There was plenty in the numbers and on the conference call to reassure shareholders who had seen the stock tank more than 40% this year. Fiscal fourth-quarter earnings were $1.26, a full 15¢ higher than analysts had predicted. And had Apple recorded sales of iPhones the same way it accounts for sales of Macs and iPods, per-share earnings would have been $2.69 on sales of $11.7 billion. "If this isn't stunning, I don't know what is," Jobs crowed. Under generally accepted accounting principles, Apple records sales of iPhones over the course of eight quarters.
Apple also outperformed rival Research In Motion (RIMM) in a key metric, Jobs took pains to point out on the call. Having released its second iPhone product, the iPhone 3G (BusinessWeek.com, 6/9/08) in July, Apple sold 6.9 million iPhones, besting the 6.1 million BlackBerrys that RIM sold during the quarter ended Aug. 30.
Jobs also noted that Apple is now the world's third-largest vendor of wireless phones, measured by revenue. On a non-GAAP basis, Apple recorded iPhone sales of $4.6 billion, or more than 39% of non-GAAP revenue. He compared that to $12.7 billion in revenue for Nokia (NOK) and $5.9 billion for Samsung. RIM, he said, came in seventh with $2.1 billion (BusinessWeek.com, 9/26/08). On a GAAP-adjusted basis, Apple's iPhone revenue was only $806 million, or 10% of sales.
The appearance of Jobs on an earnings call was unusual. While he regularly appeared on earnings calls for Pixar before it was sold to Walt Disney (DIS), Jobs last appeared on an Apple earnings call in October 2000, and then later that year on another conference call with analysts in December, when the company warned about disappointing results. "What he's trying to say, but not in so many words, is that he thinks the stock is undervalued," says Bill Kreher, analyst with Edward D. Jones.
The remarks may have also been directed at bucking up staff, says Charles Wolf, an analyst at Needham & Co. "Steve wasn't speaking to investors as much as he was speaking to employees," Wolf says. "Every Apple employee was on that call, and if you listened to Oppenheimer's guidance, you'd probably be pretty unhappy. But when you consider the non-GAAP results, the stock is absolutely cheap."
Adding to Jobs' optimism on the future is the company's $24.5 billion in cash and marketable securities. Asked about buying back shares, Jobs said he instead sees " extraordinary opportunities" for companies with a lot of cash, but declined to elaborate.
Asked about Apple's interest in producing a "netbook" a newly fashionable type of small notebook that vendors like Dell (DELL) and Hewlett-Packard (HPQ) have recently embraced, Jobs seemed cool to the idea. "As best as we can tell, there aren't many of them being sold. …We'll be waiting to see how it evolves, but we've got some pretty interesting ideas if it does evolve," he said.
Mac sales were also strong, suggesting resistance to recessionary pressures. Apple sold 2.6 million Macs for $3.6 billion in revenue, or 45% of the total. Apple's retail unit accounted for $1.7 billion in sales, and sold nearly 600,000 Macs.
Despite the best face Jobs could put on the results, there was no escaping Apple's unusually conservative guidance. "October has always been a foggy month for us," Jobs said. "We're always biting our nails over whether we ordered too many iPods. Sales often don't take off until December. There's a lot of prudence built in." If the recession proves as deep and lasting as some believe, that prudence may prove well founded.
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