So now we know. Apple is first and foremost…a phone company! It’s mind-boggling to think about it this way, but the numbers are jaw-droppingly clear.
When you strip out the accounting mechanics required by GAAP, the iPhone represented 39% of Apple’s quarterly revenues, and Apple sold more phones than RIM (makers of BlackBerry) in the last quarter (6.9 million units versus 6.1 million).
Measured by revenue, Apple is now the third-largest mobile phone supplier in the world, behind only Nokia and Samsung. And they are just getting started, with the iPhone having been in the market for only 15 months.
Other tidbits of note from the call:
- Steve Jobs was on the Earnings Call: Jobs almost never participates in these calls, but in crisis times investors look for vision/leadership, and recently, Jobs has been more physically present in Apple events of all kinds, perhaps in recognition of recent fears and rumor-mongering on his health. Plus, he had a story to share on deeper analysis of their numbers (see ‘Metrics Matter’ below). The bottom line is he sounded healthy, conveyed his usual fiery intensity, confidence in Apple’s future and was very much on top of his game.
- Metrics Matter: we are obviously in a crappy economic environment, where jittery investors shoot first and ask questions later (e.g., Apple stock has dropped 43.8% in the past 60 days), so it was interesting to see Apple provide transparency to its non-GAAP financial results, inasmuch as they are an incredibly secretive company. But metrics matter, especially in an environment where, once things settle out, the wheat will be separated from the chaff. Hence, here was Steve Jobs framing the analysis of Apple’s quarter in deservedly glowing terms, “As you can see, the non-GAAP financial results are truly stunning. By eliminating subscription accounting, adjusted sales for the quarter were $11.68 billion, 48% higher than the reported revenue of $7.9 billion, while adjusted income was $2.44 billion, 115% higher than the reported net income of $1.14 billion. Adjusted net income that is more than double our reported income — if this isn’t stunning, I don’t know what is, all due to the incredible success of the iPhone 3G. But even more remarkable is this — measured by revenues, Apple has become the world’s third-largest mobile phone supplier. I know this sounds crazy, but it’s true — as measured in revenues, not units, Apple has become the third largest mobile phone supplier. Let’s look at the ranking — Nokia is clearly number one at 12.7 billion; Samsung number two at 5.9 billion; Apple is number three at 4.6 billion; Sony Ericsson, number four at 4.2; LG, number five at 3.4 billion; Motorola, number six at 3.2; and RIM number seven at 2.1. Pretty amazing.”
- Cash is King, and Apple has a lot of it: In the most recent quarter, Apple added another $3.7 billion in cash to its coffers, so it now has $24.5 billion “safely in the bank, and zero debt.” During the call, Jobs spoke of “extraordinary opportunities” for companies in a time of economic downturn “with the cash to take advantage of them, like Apple does.” While this seems to suggest an accelerated M&A play, Jobs was non-descript, and specifically pushed back on a question about whether Apple would exercise a stock buyback program.
- Apple’s Crystal Ball wrt the Economy is Cloudy: If there is any cause for pause, it’s the simple fact that Jobs, COO Tim Cook, and CFO Peter Oppenheimer were quick to note that they are not economists, and as such, their forward view on earnings was not only very conservative but the best that they could do was to provide a range of revenue/earnings projections for the quarter ahead. This suggests that Apple does not exist in a vacuum relative to the larger economic slowdown. They are prepared for both the short term and the long term, and as detailed in my many posts (see below), they are without peer in terms of roadmap/differentiation, but they are still subject to the rising/falling tide at home and abroad. They called it straight, IMHO.
- Apple TV remains a Hobby: Those of us looking for Apple to pursue a more formidable assault on the digital living room (see my post, 'Apple, TV and the Smart, Connected Living Room'), were told to expect no big surprises in 2009. (Not that Apple would share a substantive change in strategy in a call like this anyway.)
Netting it out: In just 15 months, Apple has become a dominant force in the mobile phone space, generating more revenue from iPhone sales than from either the Mac or iPod. And it’s not like Mac or iPod sales are down. Quite the contrary. As compared to the year-ago quarter, the Mac is up 21% in terms of units sold, and up 17% in terms of revenue, and the iPod is up 8% and 3%, respectively, so all three legs of their strategy are working.
Moreover, in terms of the momentum of the iPhone Platform, bear in mind that the iPod touch is put on the books as an iPod, not an iPhone (even though it runs the same software), so the real momentum behind the platform is even greater than the numbers spotlight.
A final anecdote on this last point is that with zero encouragement, my kids -- especially my three year old -- have taken to my iPod touch like fish to water, with my three year old playing games, listening to music, viewing photos and even using YouTube on a daily basis. Recently, my six year old has started asking about downloading games (from the App Store). Unscientific, but it bodes very well for Apple.
UPDATE 1:
Andy M. Zaky of Bullish Cross has written an excellent post on AppleInsider called, 'Apple radically more undervalued than others tech heavyweights' that assesses Apple's stock price relative to Google, RIMM and Amazon on metrics like trailing P/E, EPS Growth, Total Cash and Price to Cash. When you net it out, either Apple is grossly undervalued or its peers are grossly overvalued. Click on the chart below to see what I mean but read his analysis, which is quite crisp.
Related Links:
- 65 Million Reasons to be Bullish on Apple: analysis of the 'Let's Rock' event where iPod line refresh and iTunes 8.0 were announced.
- Holy Shit! Apple's Halo Effect: how Apple has turned gravity into its friend.
- iPhone 2.0 - What it Means to be Mobile: a detailed summary of my experience to date with the iPhone 2.0 platform.
- The Chess Masters - Google versus Apple: why partners Apple and Google are without peers, and (seemingly) destined to become frien-emies.
- iPhone SDK - Mobile Reasons for Optimism: why the iPhone Universe is a big deal.
- iPhone 2.0 - Swinging for the Fences: an analysis of the WWDC Keynote by Steve Jobs.
- iPod touch: the first mainstream Wi-Fi mobile platform?
