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| The Apple iPhone |
Apple reported impressive third quarter results on Wednesday fuelled by demand for iPods and Macintosh computers.
Apple said record sales of iPods and Macs helped the company report a 73% increase in its fiscal third-quarter earnings and a 24% rise in revenue. Apple also said it sold 270,000 iPhones in the period and reiterated its target of selling 10 million of the mobile phones by the end of next year.
Apple's shares jumped 9.4% to $150.18 in after-hours trading, from $137.26 at the 4 p.m. close on the Nasdaq Stock Market.
The Apple iPhone went on sale on the evening of June 29, just 30 hours before the close of the quarter.
Apple said it expects to sell one million iPhones by the end of the current quarter. It said that it took seven quarters from the launch of the iPod for the company to sell one million of the digital music players.
"It won't be easy to build a third great business, because our competitors are large and entrenched, and it will not be done over night," said Tim Cook, Apple's chief operating officer. "Our perspective is measured in years, not months, but the rewards, we believe, are huge for Apple."
Apple said it intends to announce partnerships later in the quarter to bring the iPhone to the European market.
The Company posted revenue of $5.41 billion and net quarterly profit of $818 million, or $.92 per diluted share. These results compare to revenue of $4.37 billion and net quarterly profit of $472 million, or $.54 per diluted share, in the year-ago quarter. Gross margin was 36.9 percent, up from 30.3 percent in the year-ago quarter. International sales accounted for 40 percent of the quarter’s revenue.
Apple shipped 1,764,000 Macintosh computers, representing 33 percent growth over the year-ago quarter and exceeding the previous company record for quarterly Mac shipments by over 150,000. The Company also sold 9,815,000 iPods during the quarter, representing 21 percent growth over the year-ago quarter.
“We’re thrilled to report the highest June quarter revenue and profit in Apple’s history, along with the highest quarterly Mac sales ever,” said Steve Jobs, Apple’s CEO. “iPhone is off to a great start—we hope to sell our one-millionth iPhone by the end of its first full quarter of sales—and our new product pipeline is very strong.”
“We are very pleased to report strong financial results including cash flow from operations exceeding $1.2 billion for the quarter,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the fourth fiscal quarter of 2007, we expect revenue of about $5.7 billion and earnings per diluted share of about $.65.”
In an Earnings Conference Call, Peter Oppenheimer said:
We are pleased to report strong financial results and another landmark quarter for Apple. Revenue of $5.41 billion was the highest for a June quarter in the history of Apple and represented 24% growth over the
prior June quarter sales. The revenue was fueled by record breaking Mac sales and continued strong demand for iPods. Operating margin for the quarter was stronger than expected at 19.2%, resulting from higher than expected revenue and the continued very favorable commodity cost environment. We generated net income of $818 million, which was up 73% over the prior June quarter's results, and translated to earnings per share of $0.92.
I'd like to talk first about our Mac production and services, which represented 60% of our total quarterly revenue. We're extremely pleased to have shipped 1.76 million Macs setting an all-time quarterly record for Apple and representing 33% growth over the year-ago quarter. Mac shipments in the U.S. grew by 32% year over year, representing over four times IDC's latest published growth estimate for the U.S. market in the June quarter. On a worldwide basis Apple's growth rate was more than 2.5 times IDC most-recently published market growth rate for the quarter. We announced and began shipping the new MacBook and MacBook
Pro during the quarter. The MacBook Pro includes the industry's first LED display and demand for both products was strong.
Sales of Mac notebooks grew 42% year over year during the quarter and accounted for 64% of total Macs sold. We began and ended the quarter with between three and four weeks of Mac channel inventory.
Now I'd like to discuss our music products and services which accounted for 40% of total revenue during the quarter. We sold 9.8 million iPods, representing 21% over the year ago quarter. We began and ended the quarter within our target of four to six weeks of iPod channel inventory. We remain very pleased with iPods strong leadership position and its 71.5 % share of the U.S. market for MP3 players based on the latest data published by NPD. Other music revenue grew 33% year over year, once again fueled by very strong iTune store sales. NPD reported that iTunes became the third largest overall music retailer in the U.S., surpassing Amazon and Target. We also launched iTunes plus DRM-free music tracks in the quarter. The iPhone was on sale for the last 30 hours of the quarter ending June 30th. During the quarter we sold a total of 270,000 iPhones to AT&T and through our Apple retail stores, and 146,000 iPhones were activated by Apple and AT&T. We did have some activation problems during the first week or so, and we would like to apologize to those customers who had less than perfect activation experience. Since then AT&T has corrected the most common cause of these difficulties and we are now experiencing a very high percentage of problem-free activations.
Customers are clearly loving their iPhones. You may have read some of the surveys that have been conducted by independent research firms. One of them quoted in the USA Today on July 12th stayed that 90% of iPhone owners surveyed said they were extremely or very satisfied with their phone, and 85% said they were extremely or very likely to recommend the device to others.
Based on surveys like this and other overwhelmingly positive feedback we continue to receive, customers clearly agree withus the iPhone is a revolutionary product. It took Apple seven quarters, almost two years, to sell our one millionth iPod. We hope to sell our one millionth iPhone by the end of its first full quarter, ending September 29th. We are on track to begin selling the iPhone in Europe during the fourth calendar quarter of this year starting with a few major countries and expanding the number of countries throughout 2008. We will announce our initial plans with our European partners later this quarter. And finally, we reiterate our goal of selling ten million iPhones in calendar 2008.
As we discussed previously, we plan to build on today's tremendous iPhone foundation by incorporating new software features and applications into the iPhone over time at no charge to customers. As a result, we have adopted subscription accounting for the iPhone handset sales and are recognizing the associated revenue and cost of goods sold over 24 months. Total revenue recognized from iPhone and iPhone accessory sales during the June quarter was $5 million. We did not recognize any revenue related to payments from AT&T during the June quarter, but will begin to do so in the September quarter. As we also discussed previously, we are using subscription accounting to recognize revenue from Apple TV sales. Total deferred revenue related to iPhone and Apple TV sales was $180 million at the end of the June quarter, as shown in the schedule included with today's earnings press release.
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