updated 12:30 pm EST, Thu January 19, 2006
Music dominates earnings
Apple's December earnings were driven by record sales of iPods and its strong music business. The company posted a profit of $565 million, which was driven by sales of nearly 14 million iPods, and revenues of just over $5.7 billion--both of which were historic milestones for the company, surpassing all other quarters in its history. The 207 percent year-over-year increase was fueled by demand across the globle from over 35,000 points of sale and along with over 2000 accessories, generated 59 percent of the company's overall revenue. Apple also previously announced it had sold 850 million songs and 8 million videos via the iTunes Music Store, which operated at just above "break-even" for the quarter. Despite the historic earnings, the company's stock price fell due to a conservative forecast, in part driven by Mac sales pause as people waited for the new Intel. Analysts noted Apple's conservatism and offered higher guidance, but some saw Apple's stock expenses weighing down earnings for the 2006 fiscal year, while others increased estimates, but cut their target price.
Other music-related highlights from Apple's earnings:
- Apple has over 2000 accessories for its iPods--the vast majority of which the company itself does not make. "People are coming back to add their next accessory."
- There are now over 35,000 iPod retail distribution outlets, however not all models are sold at all outlets. iPod gross margins in the quarter were above 21 percent, and the company also would not say whether component pricing helped sustain margins or whether a greater mix of high-end iPods had pushed margins on the player higher.
- The iTunes Music Store once again operated at above "break-even" during the quarter, and Apple sold many iTMS gift cards throughout the quarter which accounted for a significant portion of sales.
- During the quarter, Apple experienced lower-than-expected iPod inventory, but during second half of December iPod inventory increased. iPod inventory was below the 4-6 week expected inventory for the December quarter, but within the 4-6 week inventory levels expected during the seasonally-lower March quarter. The 4GB model of the iPod nano is still 'lean' in some locations and the company is working to stabilize inventory levels.
- The second half of December saw iPod shipments improve significantly by nearly 550k compared to earlier in the quarter as supply improved, but still below Apple's projected 4-6 week levels for the December quarter. Much of the inventory at the end of the quarter was still in transit, but inventory was in inline with the company's expected levels for the March quarter (because of seasonal sales decline).