updated 01:20 pm EDT, Thu October 19, 2006
Mac, iPod sales
Apple's fourth quarter financial results, which the company released yesterday and discussed via a conference call, caught analysts by surprise with higher than expected Mac and iPod sales. "On the strength of the Mac's forthcoming ability to run Windows applications, we thought 2007 would be a breakout year for Mac sales," said Needham & Company analyst Charles Wolf. "We were wrong. The breakout appears to be already occurring." Apple's revenues of $4.837 billion were up 32 percent year-over-year, easily beating the analyst's estimate of $4.612 billion, as did GAAP earnings per share of $0.61 vs. Wolf's estimate of $0.49 -- which was partially due to a $0.06 lower tax rate. As Apple Store Mac sales rose to 323,000 units, up from 202,000 a year ago, Needham & Company cites Apple's note that over half of the sales were to first-time Mac owners. The firm raised its 2007 earnings per share estimate from $2.50 to $2.60 on a $22 billion revenue estimate.
"The migration appears to be resulting from dynamics unrelated to the Windows-on-Mac phenomenon," the analyst said. "Mac sales should be higher than we previously forecast but iPod revenues should be lower because of an anticipated mix shift to the new $70 iPod Shuffle."
Wolf points to a possibly more "tepid" response on the part of Windows users than anticipated with regard to the Mac's ability to run Windows applications as the major potential risk to Apple investors moving forward.
UBS also taken off-guard
UBS Investment Research was also surprised by Apple's positive performance for its September quarter, admitting that those results were well above expectations. "Upside was driven by better than expected sales of Macs and iPods and a $0.06 benefit from a lower tax rate. Revenues of $4.8 billion were $218 million above our estimate driven by solid sales of new iPod and Mac products," wrote UBS analyst Ben Reitzes in a research note obtained by MacNN.
Reitzes believes iPod sales were the big surprise, versus Needham & Company's assurance that Apple's "blowout" Mac sales took center stage, but notes that Mac sales also beat expectations. "Despite concerns, Apple sold 8.7 million iPods (vs. our lowered estimate of 8.1 million) representing 35 percent growth year-over-year, driven by solid reception to the new line announced [in] September," Reitzes said. Most industry watchers agreed that Apple would report below its guidance on iPod sales due to NPD data released this month, suggesting a slump below expectations. "Mac unit sales of 1.61 million (up 30 percent year-over-year) also beat our optimistic estimates of 1.48 million units, as the MacBook saw solid demand during the back to school season and the "multiplier effect" seems to be taking hold."
UBS is maintaining its 1Q07 earnings-per-share estimate of $0.78 on revenues of $6.3 billion -- up 10 percent year-over-year and up 30 percent quarter-over-quarter. The firm is raising its revenue estimate for Apple's fiscal year 2007 to $23.2 billion (which was $23.1 billion) based on growth of 20 percent, and is also raising its earnings-per-share estimate to $2.75 (which was $2.70), reflecting higher Mac and iPod unit sales. UBS estimates fiscal year 2008 earnings-per-share of $3.15 -- previously $3.10 -- to reflect revenues of $26.7 billion -- up from $26.4 billion. The firm reiterated its "Buy 2" rating ahead of Apple CEO Steve Jobs' Macworld keynote in January of next year, and raised its price target to $95 from $92.