The Right Stuff: Apple's Q4 Earnings Call

By Mark Sigal
October 20, 2009

apple-right-stuff.pngStock Price (January 20): $78.20
Stock Price (July 20): $152.91
Stock Price (October 20): $199.57

Okay, so let me net it out for you. Yesterday's call was about two things. One, the iPhone Platform continues to deliver the goods.

In fact, the high profile wins for Google Android notwithstanding - Motorola's CLIQ and Verizon's Droid (rumored to be built by Motorola at Google's direction) - the Android Platform still feels a good 12-18 months behind where the iPhone is today. (Sidebar: Pre just isn't yet in the game).

And, let me assert that everything I know about devices and platform plays tells me that Android isn't the straight line to inevitability a lot of people think it is.

Why? Just as people fail to appreciate the importance of the App Store and the difficulty getting the surrounding application platform (SDK) right, they are forgetting about the 'unfair advantage' of having iTunes in your arsenal.

Apple is playing a hot, and complete hand, and they remain very much on offense.

The moral to the story is that there is a cosmic and global appeal to the iPhone and the iPod Touch, and the Tablet is on its way.

By the way, did I mention that Apple is launching iPhone in China, the largest global market, in about a month (via China Unicom)?

Now, I did say that the call was about two things. The other thing was the continued impressive growth of the Mac, especially MacBooks.

Some backstory first. About eighteen months ago, I had this Holy Shit moment (Read: Holy Sh-t! Apple's Halo Effect) when I realized that Apple was executing a leverage play that was right out of the Microsoft Global Domination Handbook, circa the PC Wars.

What tipped it for me then was the fact that somehow, despite seemingly overwhelming odds, the Mac was once again relevant. (Long-term Mac owners remember all too well the dark days when Mac OS obsolescence seemed inevitable.)

The numbers don't lie sometimes, and in this case, the year-over year Mac sales data was showing a rate of growth that was (as of eighteen months ago) ever-solidly 3.5X better than the PC industry.

So where are we sitting eighteen months later? In the words of Apple CFO Peter Oppenheimer, "The Mac is showing fantastic momentum," outpacing the market's rate of growth in 19 of the past 20 quarters, and in this quarter grew 17% versus 2% for the rest of the market - 8.5X better than the PC industry! Do you see a trend here?

Apple generated 3.05M sales this quarter, which was their best quarter ever by 440K Macs, a fact that I could tell they were very proud of. The $29 upgrade pricing on Snow Leopard appears to have realized really good uptake, too.

Oh, and as before, the company is experiencing GOOD GROWTH, not just growth for the sake of optics. The Fourth Quarter, 2009 that ended September 26, 2009 was their most profitable quarter ever (read the FULL RELEASE HERE). Gross margins got better in a difficult economy, growing to 36.6 percent, up from 34.7 percent in the year-ago quarter. Operating margin was its highest-ever at 22%.

International sales accounted for 46 percent of the quarter's revenue (with 42% growth in Asia-Pacific). The company's products are unquestionably compelling globally, something that felt very evident when I was in Paris earlier this year (iPhones everywhere).

The company also added something REALLY special this quarter. Another $2.9 billion to top off the $31.1B pile of cash that now constitutes a $34 billion rainy day fund.

On the product front, Portable sales were up 35% and were 74% of Apple's Mac mix (starting to understand why the Tablet is an imminent add to the product line?)

The Apple Stores have done a brilliant job of bringing first-time Mac and iPod buyers into the Apple family, and same store sales, which had dipped back in the March and June quarters, have rebounded back to their prior levels of a $7.1M average per store.

At $199, the iPod Touch (20M units sold, runs same software as iPhone, 30M units sold) is the perfect gateway into iTunes, App Store, and a coveted consumer Billing Relationship, adding to the 100M credit card-activated accounts that Apple already has secured.

RBC's Mike Abramsky asked Apple COO, Tim Cook about "wannabe" phones and how iPhones will maintain their lead, particularly with the looming holiday season.

I liked Cook's answer. "We have significant momentum," Cook says, as well as apps, which it has "a country mile more than anyone else...we feel very good about suiting up and competing against anyone." Rivals are still trying to catch up with the first iPhone, he adds, and Apple has moved beyond that.

If you appreciate what it means to have achieved such a strong level of Platform Status, you know that this is no empty chest beating. Apple has really delivered the goods.

When you talk to iPhone/iPod Touch owners, a simple truth bubbles to the top again and again; namely, that the iPhone is the first truly 'personal' computer; more personal to its owners than the PC ever was.

In terms of Outlook for the Quarter ahead, Apple as always, sandbagged (i.e., quoting extremely conservative financial guidance so they can handily beat the numbers in the coming quarter).

On deck, they have the Holiday Quarter, armed with a diverse Product Matrix to fit all stocking sizes, and multiple sales channels to reach their base. Plus, they have been diligent in finding the balance between maximizing operating margins, and not leaving Pricing Overhang for competitors to inculcate.Yet to come: the good tidings of a Strong Product Pipeline in the year ahead.

Could anyone seriously question the assertion, as backed by tangible results, that Apple has The Right Stuff?

Related Posts:

  1. Rebooting the Book (One Apple iPad Tablet at a Time)

  2. Analysis: Apple June Quarter Earnings Call - Keeping it Real

  3. Holy Sh-t! Apple's Halo Effect

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