Sales Momentum ramps for Apple as iPhone powers earnings

Apple (AAPL) sells a couple products that it labels with the term 'magic', its multi-touch mouse and new iPad Tablet, but after the company's March quarterly earnings, reported Tuesday after the market close, sales of Apples seem out of a fairy tale.

Analysts Wednesday morning have been pushing over themselves digesting the news and raising price targets further. RBC now joins the highest estimate on Wall Street with its brand new price target of $350 for the Cupertino electronics company. Several other firms including Piper Jaffray, Oppenheimer and J.P. Morgan pushed through or moved higher than $300 as well. And after dissecting Apple's report there are many compelling reasons why.

First though, what about the quarter? Well let's recap expectations coming in and see just how handily Apple beat them.

Financial Metrics
exp. $12.06 Billion in Revenue <-> $13.5 Billion in Revenue
exp. $2.45/share in Earnings <-> $3.33/share in Earnings ($3.07 Billion in Profits)

Unit Metrics
exp. 2.7 Million Macs <-> 2.94 Million Macs
exp. 6.8 Million iPhones <-> 8.75 Million iPhones
exp. 9.0 Million iPods <-> 10.89 Million iPods

An astounding financial performance by any measure expected by Wall Street professionals. Apple's sales momentum is at an all time high and the product mix the company has to offer is striking the right chord with consumers even during a time when retail spending hasn't fully begun its recovery, due to continued high unemployment and the global economy's sputtering into growth.

The real story here is the strength of the iPhone. With the AppStore under its wing, the massively popular platform continues to grow in International and Domestic markets. Growth numbers are almost double overseas for Apple as it continues to add more carrier partners and branches into business models that include multiple-carriers in the same country, something it has yet to do in its home market, the United States. The upside surprise on iPhone sales, given its $600 Average Selling Price accounted for the vast majority of the $1.5 Billion in Revenue that Apple over-achieved this quarter.

But just to get back to the numbers, beating the street is one thing, but crushing expectations to this magnitude is quite another. Apple's own guidance is always conservative to the point where one wonders when they will stop giving any at all. For the concluded quarter Apple brass presented the street with ranges of $11 to $11.4 Billion in Revenue and $2.06 to $2.18 in EPS. The street's expectations were
5-9% higher on Revenue and 12-19% higher on EPS, so it's not as if Wall Street is just marching to Apple's expectations drum. The company however, does very well in controlling and managing expectations, it does well in controlling just about everything it can, well except for the massive leak of the next generation iPhone that was widely reported on gadget blogs and Apple faithful websites.

The fact that Apple beat the street's already higher estimates by 12% on Revenue and 36% on EPS is the kind of operational performance that makes the company among the most admired in the world, and leads to the collective fawning markets are seeing this morning with Upgrades and Price Target hikes. Of course Long Investors are just as thrilled about the 6% move in the stock to an all time high near $260.

The first 6 months of a new year are typically seen as 'seasonal' by the industry but the only thing seasonal now is the collective scrambling of Wall Street's major analysts in their re-writing of the rules of the road for Apple future estimates and valuations. In the press release, CEO Steve Jobs touted having several more extraordinary products in the pipeline for this year and so far the smart money's on the cats-out-of-the-bag 4th Generation iPhone. The company also has previewed its next iPhone Operating System, improved its high selling MacBook Pro line of laptops and is likely nearing the 1 Million in sales mark for its iPad device after just going on sale mere weeks ago. The upcoming quarter includes the launch of the iPad with 3G networking, the International launch of the iPad and likely invitations for the next iPhone announcement, expected in June.

Apple continues to be a must own Technology stock and one that is running with a Sales and Product tailwind unlike any in its history. But with all the love, who's left to buy it? With quarterly performances like this one, somehow, somewhere, investors will continue to be found.

Disclosure: Author is long AAPL

Digesting Apple's Pie... and Tablet

A certain Cupertino company, best known for selling a few computers, music players and telephones, had all of Wall St. in a frenzy yesterday as it announced quarterly earnings for the December quarter. A Christmas quarter that was wildly expected to be the most profitable in history for Cupertino based Apple Inc. (AAPL).

Expectations were inching up until analysts had settled on Income of around $2.10/share and Revenue of about $12Billion. Apple's reported numbers came in at Income of $3.67/share and Revenue of $15.7Billion, and that's where the confusion began. Just at a glance it seems something isn't right or analysts had spent too much time in the sun. Exchanges halted the stock in after-hours trading yesterday as Apple officially changed its accounting presentation to remove the controversial "subscription model" for iPhone and AppleTV sales.

With subscription accounting, due to the nature of free software upgrades, Apple has had to account for iPhone and AppleTV sales over a two year time frame, breaking up all related Revenue and Costs and lumped the rest in a deferred item on the balance sheet that caused analysts headaches and long hours at the calculators. When Wall St. still struggled to properly value this cash-generating machine Apple provided non-deferred numbers alongside the official GAAP figures. It also petitioned the standards boards to get rid of the subscription requirement.

In September 2009, the company got its wish and is now able to report Revenue and Earnings with minimal "subscription" effects (A nominal estimate representing the value of future software upgrades, which for Apple represents $25/iPhone and $10/AppleTV). The company decided that starting its new fiscal year was the prudent time to put this practice into place and the Wall Streeters were certainly caught off guard. When Apple stock resumed trading the price activity was very mixed until finally settling into a minimal after hours gain.

So that's the logistics of accounting, but what about the quarter? Apple certainly had its pie and is enjoying every bite. A record quarter in terms of profitability and Revenue starts off another successful year for the electronics maker.

Revenue: $15.68Billion vs $11.88Billion year over year.
Earnings: $3.38Billion or $3.67/share vs $2.26Billion or $2.50/share year over year

Mac Computer sales were a record at 3.36 Million units, besting the previous mark by 300,000, highlighted by the recent introduction of the new iMac desktop line.

iPod sales came in at 21 Million units, down slightly but well expected by the company as this market matures. The silver lining in the iPod numbers is the 55% growth rate in iPod Touch sales, bringing up the Average Selling Price of the business unit.

iPhone (which by definition is also an iPod) sales grew by 100% to 8.7 Million units, a quarterly shipment record, which should be noted was below the 9 Million unit consensus estimates. Some iPhone sales targets were even higher but increased competition in the space and a muted start in China is likely to blame for the shortfall. Another point to consider is the inventory channel, of which Apple is said to be one of the most efficient in the space. The company addressed this on the their conference call by re-iterating that its inventory channel is counted in a more conservative manner than competitors. The real kicker, the Average Selling Price of iPhone is $620!

It's usually the guidance game that is important to analysts and investors when Apple issues quarterly reports, however, during this announcement all eyes were and are awaiting what the company will showcase at its media event on Wednesday. Apple executives throughout much of the conference call almost gave the impression of toying with analysts, while likely secretly passing notes back and forth along the lines of "wait till they get a look at iPad"; or whatever the Tablet eventually is crowned.

The usual Apple hype machine is reaching fever pitch again and is strikingly reminiscent of the time just prior to the MacWorld keynote speech in 2007 when Steve Jobs unveiled the first iPhone to the world. News tidbits are flying out from several sources that Mr. Jobs claims the Tablet is the most important thing he's ever done, and in his customary quote on the quarterly press release he re-iterates that this week includes a new product release the company is very excited about. COO Tim Cook stoked the fires further on the conference call when asked about new product opportunities: "I don't want to take away your joy and surprise", referring to the planned Wednesday event. When Tim Cook, Apple's guru of manufacturing, retail and supply chain managment says "joy and surprise" there must be something special about this new device.

For one thing, Apple certainly have mastered the art of getting people interested and getting them in the room to have the conversation. Will the tablet be the be-all end-all of casual computing? A device to be left on the coffee table, used by anyone to control just about any media and anything electronic in their homes? Lots of questions remain and should be answered by the time Steve relents his magic wand by walking off that stage Wednesday. One thing is clear as day, and that's Apple's ability to cash in on their design prowess and excitement generation. The company took in a tidy sum last quarter, generating only about $5.8Billion in cash!

Disclosure: Author is long AAPL

Apple's Earnings Aftermath

By now the news media has digested the rock-solid quarter from the Steve Jobs-led-innovative bunch in Cupertino, so now its time for the experts to weigh in. First, here's a simple recap of Apple's (AAPL) quarter.

$1.67Billion in profits ($1.82/share) on $9.87Billion in revenue, which compares to $7.9Billion in revenue and $1.14Billion in profits ($1.26/share) a year ago. Considering the street was anticipating $1.42/share, with a whisper number in the $1.60s/share, this is quite the professional thrashing. Even the highest estimate on the street was left in the cold in the $1.70s.

The real kicker here however is when Apple accounts for iPhone sales right away and not under the subscription method. In that instance the company earned $2.85Billion on sales of $12.25Billion. Clearly this company can not be priced based on P/E valuations.

Now for the sales figures.
3.05Million Macs (A new quarterly record)
10.2Million iPods
7.4Million iPhones

All impressive in their own right, considering iPods are by all accounts supposed to be dying off, and iPhone 3GS supply was limited most of the quarter. I'd speculate Apple wants to stock up for the Christmas season now as it steps into its newest market, China. The 3Million Mac number is most impressive, as the company beat its previous quarterly record by 400,000 units, and its not even the Christmas season yet.

Apple has just also announced 2 new iMac desktops, starting at $1200 a newly redesigned entry-level MacBook at $1000, and 3 models of the Mac Mini, setting one of the up to be a home media server type device. This refresh of the desktop line is sure to spur holiday sales into a segment that has been stagnant for sometime as laptops dominate computer sales. In what's still considered a recessionary environment, Apple stands out as a testament to quality, design, innovation and marketing power. The quarterly performance definitely can't be argued with.

The pros had their say before the quarter and the market had its say boosting shares to all time highs over the $202 mark. What do the pros say now? Higher price targets and upgrades galore!

A who's who list of tech analysts that includes firms such as Piper Jaffray, Oppenheimer, RBC, Carris & Co., UBS, Needham & Co. have reiterated, upgraded or raised targets on Apple with UBS being the highest at $280. The love-fest with the electronics maker didn't stop there as targets came in at $277, $275, $260, $235 and so on. Although the numbers the pros give vary, one thing was common-place. Apple is a must-own tech bell-weather.

Just think when they change their accounting! Over the last 4 quarters, non-adjusted profits total $9.77/share vs $6.11/share under GAAP. Roughly a P/E of 20 (now that this calculation makes sense)!

Oh, and the company now keeps 19% of its market cap, about $34Billion in cash in its bank vaults.

Disclosure: Author owns AAPL

Apple does far more than just Shine with another Record Blowout Earnings Number

Not to be outdone by its Technology peers in the "Blowout earnings" game, Apple (AAPL) came through with a record breaking September quarter. Going against history Apple also guided higher than Wall Street anticipated for the Christmas quarter. The earnings of $1.01/share and the guidance of $1.42/share for next quarter led the stock to gain 7% after hours.

There are blowout earnings and there are BLOWOUT earnings and Apple's quarter certainly falls into the 2nd of the 2 categories. Apple's earnings of $1.01/share beat the street expectations of $0.85/share and Revenue of $6.22Billion was well ahead of the expected $6.02Billion. The company ends its Fiscal Year this quarter and for FY07 the company did over $24Billion in revenue. This first time in its history having a FY with revenue over $20Billion. Guidance from the company surprised analysts as it was very bullish compared with Apple's historic trends.

Apple's typical conservative guidance due to "less favourable commodity conditions" and "product transitions" really was a sly practice for past quarters but I believe the company knows the Street is onto its game and is now ready to step up to the plate and concede that they are in really good shape, regardless of economic conditions, to capitalize on an excellent product mix and unmatched company momentum.

The Mac line of computers was very strong, making record sales during the quarter, and culminating with 2.16Million units sold. The music player iPod line sold 10.2 Million units and the company added sales of almost 1.2Million iPhones. The Phone/Media revolutionary device was stronger than even very bullish analysts had expected. It was clear that the decision by the company to cut the price of the device by $200 late in the quarter helped to spur furthur additional sales. Apple cited a favourable tax rate, favourable component costs, a weaker US currency and good seasonal trends, as all attributing to the record results.

Even with a warning to analysts that some of these trends will become more normalized the company still guided 3 cents higher than the Street had expected. If Apple sticks to its previous trends of posting a guidance number that it is very confident in making than Investors everywhere should feel almost euphoric as to what an earnings result the company could be in for come January. As Apple's stock has rallied to $174 before the results the company growth metric were expanding almost into overvalued territory. Forward P/E and trailing P/E ratios were both inflating and PEG numbers were getting higher than many technology competitors.

Apple's trailing ratios will come down slightly based on Monday's closing price. At $174 the P/E stood at 49 with trailing earnings of $3.55/share. After the results trailing P/E stands at 44 on $3.94/share in earnings. With the stock up to $187 in after hours trading the P/E climbs back up to 47.5. Investors are clearly bullish about growth in all sectors for Apple. The forward guidance for the January quarter puts trailing earnings at $4.22/share. At current trailing P/E ratios that puts a target price of $198 on shares going into January. It's no surprise that analysts have seemingly stumbled over each other of late increasing their own price targets for Apple stock. While all the bullish sentiment can be enamouring the realist trader must re-think future possibilities. Apple hitting $200 by January of next year represents about a 7% gain, and for a stock that has seen a 20% rise in 1 month and a 90% rise in 6 months, that's actually slowing momentum. Keep in mind I am warning momentum traders not long term investors. The belief in Apple's continued execution has benefited investors tremendously over the last couple of years and with this product mix that is almost assured to continue. As such any profit taking dips should be well welcomed by the ever growing base of Apple believers.

With the continued growth successes in the Mac computer line, iPods fresh and ready for Christmas and the iPhone just coming into its own, the future is still very bright for Apple as a company and as a stock. With these positive results and bullish forecasts there seems to be little resistance in Apple's path to $200 and beyond.

Disclosure: Author is long AAPL

Hewlett-Packard Firing on all Cylinders with Earnings Beat

Hewlett-Packard (HPQ) reported today after the close. The results were nothing but positive as the largest computer maker continued to take market share from its main rival, Dell (DELL). The computer maker reported $0.71/share earnings excluding items on $25.4Billion in revenues.

Both figures topped estimates and the revenue number showed top-line growth of 16%. That's good news for HP investors, however the better news came with the company forecast for next quarter. Forecasting 2-3 cents higher than previous analyst estimates showed that indeed all businesses are doing very well and growth is set to continue worldwide. Shares of the company hit a 52-week high of $49 recently and have not fallen as hard as other growth tech names such as Apple (AAPL) or Research In Motion (RIMM).

The growth in PC shipments for the company shows that it is on par with high growth Apple machines in the sector as both companies continue to leave Dell in the dust. IDC market research reports showed recently that HP increased its PC shipments by over 35% year over year. Dell is trying desperately to lure customers back but HP is working very well in all channels and is the PC of choice while Apple is enjoying its great success with Macs.

The cost cutting plans implemented by management a couple years ago are paying dividends now as HP competes in all PC sectors and is widening its market share lead across the globe. Even the printer division is doing better as market share is being taken from Lexmark and Dell here also. HP trades at a forward P/E multiple in line with IBM and several points cheaper than Dell. This is a bargain of a growth technology company with the Price-Earnings-Growth ratio now under 1.

The market trends currently don't support heavy bullish buying as credit fears and liquidity problems sweep across all sectors but a winner is clearly here in HPQ and its difficult to stand idle when solid growth like this is available for such a discount. Hewlett-Packard proved in its latest quarter that it is the biggest and best PC company in the world. Investors should take notice.

Disclosure: Author is long AAPL and holds no position in HPQ, DELL, RIMM

Is the Hype behind the VMware IPO Worth the Investment?

VMware (VMW) is a software service unit that creates various virtualization solutions for a multitude of consumers. EMC Corporation (EMC) is behind VMware and is spinning about 10% of the company in the IPO that is due to open trading August 14th. EMC acquired VMware in 2004 for around $600Million and if the hype machine behind the IPO translates into interested investors, the company will surely reap the benefits. The biggest sell of virtualization software is the ability to run multiple operating systems on the same physical machine at the same time. With the amount of money that is spent on server infrastructure within American corporations this, some argue, is the future of computing. Less physical boxes running simultaneous split operating systems will save incredible amounts of money, use less resources and provide increased flexibility as the world of multi-core computing becomes reality.

VMware also creates smaller scale solutions for consumers, such as its popular desktop virtualization tools that allow Apple (AAPL) Mac users the ability to simultaneously run Windows on their Intel-based iMacs or MacBooks. Apple's own solution called Boot Camp provides a similar functionality however the user is forced to reboot the machine in order to switch between Windows and Mac OS X.

This growing business isn't anything close to small peanuts as VMware did $700Million in Revenue last year and had $87Million in profit. Last quarter the growth continued as VMware reported $300 Million in revenue, representing an 89% increase year-over-year. EMC plans to issue 33 Million shares of the around 375 Million in VMware. That's right EMC is keeping almost 90% of the company out of public hands. VMware has certainly been popular among the huge market tech names as both Cisco (CSCO) and Intel (INTC) have stepped up and purchased small pieces of the firm.

Can VMware make the average investor money on IPO day? It's possible but I would be extremely cautious of over-paying for a tiny piece of this solid, growth company. Investors started to realize that EMC would actually be the safer way to get in on the VMware craze and shares of EMC jumped 8% today to $19/share, giving the company a market cap of $40Billion and a P/E ratio of 31. A company that showed growth of 20% last quarter and posts an estimated growth rate of 19% from this year to next is certainly attractive at P/E levels in the low 30s.

The hype behind VMware is icing on the cake for EMC investors, and this should be the safer, smarter play for those who won't get in on the ground floor when VMware's IPO price is announced. Ranges for the IPO have increased from the mid 20s to the high 20s with some analysts expecting over $30/share. There's also been talk that the company could open as high as $60/share. At $60 that would give VMware an implied market cap of $22Billion. Half the market cap of its owner EMC. That would be extremely high for a company that looks at estimates of $1-2Billion in revenue this year. In contrast, EMC had over $11Billion in revenues last year and sports of growth rate of almost 20%.

Virtually the entire market expects a red hot VMware IPO, no pun intended. Plenty of money will change hands and opportunities will be there, however, a word of caution for investors because if reasonable prices can't be found in the early going I would not recommend the chase. With EMC still owning 90% of VMware anyway, that should be the way to play this one.

Disclosure: Author is long AAPL, INTC and holds no positions in the other stocks mentioned

Apple unveils new iMacs, Software and more at Media Event

Apple Inc. (AAPL) held a special media event today that saw CEO Steve Jobs take the stage for nearly 2 hours talking about new Apple products. This event was Mac focused and that could be seen early on. Most rumors circulating on today's event assured virtual certainty that new Mac desktops would be shown in a sleek new form factor.

My were the experts, rumor-mongers and amateurs right. New iMacs were revealed in 20" and 24" form factors, encased in sleek aluminum with the screen covered by glass, thinner and sexier than ever. The 17" model computer was cut from the lineup completely. Photos of the keyboard circled briefly on the Internet in the days leading up to this event and it seems those too were right on the money. The new Apple keyboards that come with these computers are a measly 0.3 inches tall.

Investors are watching this presentation with bated breath for any surprises out of the Cupertino company as the stock of late has really shown its inherent volatility to rumors, news and surprises. The iMac computer price points have also dropped with this new line, which is sure to entice even more consumers to consider Apple computer purchases. Steve Jobs points out that Mac sales are growing at more than 3 times to industry average. A number that if it can continue for several more quarters would see Apple's computer share climb dramatically and shareholders rewarded handsomely.

On the software side of things, Apple seemed to address their lagging Internet platform .mac by making it completely integrated with the new iLife '08 software package. The .mac platform, was an area of contention as it had been neglected and consumers paid $99/year for the services. The announcement of 1.7Million subscribers was dubbed by Steve Jobs as the starting point for future excellent growth in .mac as usability features are added and integrated through the iLife software suite. Virtually everything you could do with iLife, you can now publish to a ".mac Web Gallery", at home or out and about with your iPhone, which is sure to be a big hit with the growing socialite-nature of this "New Internet".

iLife programs get a revamp for this '08 iteration as the bundle of iPhoto, iMovie, iWeb, iDVD and GarageBand come with new Macs for free and the one year .Mac subscription with 10GB of space is $100. Apple is well known for providing great usable software in a beautiful hardware package and these improvement to iLife will certainly be appreciated by the computer buying public. As foot traffic increases in Apple stores the ability to demo all of these software features in-store, with an expert on hand, is a major selling point, which allows Apple Retail Stores to have much higher sales conversions than traditional electronics stores. Better software helps drive further hardware sales. The upgrade of both the hardware and software cycle will surely bode well during this "transition period" for Apple as it leaves itself 3 months before it has scheduled shipping its new operating system Leopard. So instead of a sales lull, the company should expect steady volume as excitement over new hardware is seen in the early stages, and a secondary sales bump once Leopard ships. A great business model and strategy that should translate into additional shareholder value.

Apple's productivity software suite is also revamped for its '08 iteration. iWork, previously Pages (word processor) and Keynote (Presentation application) were joined by a third application named Numbers (spreadsheets). This was long overdo for some Apple software analysts, but its inclusion now adds that needed productivity application to round out the suite and make it a formidable alternative to Office for Mac by Microsoft. This coming at a time when Microsoft announced delays in bringing the next version of Office to the Mac platform.

Expectations from Apple announcements usually carry unrealistic hopes from antsy investors and if breakthrough products aren't announced the stock can be very volatile. This is a the Apple game short term investors play and it can be a lucrative one. This announcement left a lot of possibilities open, as did the impromptu Q&A session, and may be viewed as a disappointment short term. Apple shares come under pressure when announcements don't live up to the hype but the long term future of the company is safely within Steve Jobs' vision.

Disclosure: Author is long AAPL

Market Manipulation bites Apple Inc.

Shares of Apple (AAPL) sank almost $10 in regular market trading (down almost 7%) on news that appeared to be no news at all. An article this morning on TheStreet.com (Link) referenced a "research note" from Miller Tabak & Co.

The note referenced chatter between Goldman Sachs traders that Apple had cut production on iPhone from 9 million to 4.5 million units. There was also further speculation that Apple had cut production in their iPod line also. For a company, as hush-hush about its supply-demand dynamics, Apple really let something slip, or did they? Where did this rumor come from?
With earnings barely behind the company does this make any sense? Earnings showed over 20% iPod growth and reiterated a sales goal of 10Million iPhones in 2008, so why the apparent production cut? I think the other question that has to be asked is what is really going on here? And who is Miller Tabak and Co.

Directly from the website of Miller Tabak and Co. one reads the following excerpt.
"Miller Tabak + Co., LLC (MT) is a twenty-four year old institutional trading firm specializing in the discrete handling of stock purchases and sales, portfolio rebalancings and listed options. We act as agent on behalf of sophisticated institutional investors, executing trading and hedging strategies imaginatively and aggressively."

I for one would call creating rumors out of speculative trader talk as both imaginative and aggressive. With the stock trading down heavily in the morning there was some talk out of Miller Tabak and one analyst, Peter Boockvar, in particular who noted that no research note was issued and simply gossip was passed down. If that's all it takes to shave almost $8Billion in market cap from this leading technology company than the market is more fickle than most would like to even imagine.

Granted the overall slide in technology stocks late in the day only compounded the problem but the seeds of doubt had already been planted. And on a day where Apple announced it had sold its 3Billionth song on iTunes.

Taking a hard look at this "research report" can point an investor only one of two ways. On one hand, if the rumors were in fact totally made up to stir selling so heavy-hitters can buy in at lower prices and extend profits further into the holiday season then that's complete and utter market manipulation. On the other hand, if there's any shred of truth to a production cut for iPhone, then maybe Apple's in serious trouble. But for this to come out only days after earnings with the company reiterating its sales goals for all of 2008, make little to no sense. The company did say several times during their conference call that product transitions would take place this quarter, which to several analysts meant either new iMacs, new iPods or both. So if Apple's cutting production on some iPods lines how could that be considered a bad thing? If this is to lead to a model refresh of the top of the line video iPod, or mid-range iPod nano or both, common sense would dictate that this would spark sales and growth rather than stunt it.

Perhaps the worst is not over yet in this drop from inflated highs for Apple stock, but those faithful Apple investors who believe in the company products and growth strategy should remain patient. And in fact have to use these opportunities to add to current positions so they too can play the game and be competitive with the "Big Bad Wolves" on the street.

Disclosure: Author is long AAPL