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Apple: "product transition" in Sept. quarter

updated 12:35 am EDT, Thu July 26, 2007

"Product transition" in Q4

Though cagey as usual, Apple CFO Peter Oppehnheimer did let slip an alluring statement during Apple's third-quarter earnings conference call. Responding to analyst questions about why Apple is guiding lower-than-expected earnings for next quarter (65 cents a share versus a consensus of 82 cents), Oppenheimer said that there are three expected factors: rising prices for components like NAND flash memory used in the iPhone and iPod, the high cost of back-to-school promotions, and a "product transition" on which he refused to elaborate. Apple is guiding for higher sequential revenue next quarter, $5.7 billion vs. $5.4 billion in the current quarter, which is not to be unexpected thanks to a typical, annual boost from education sales. However, the higher revenue guidance and lower earnings guidance could indicate a new product introduction with lower margins or a high capitalized R&D cost.

For its third quarter, Apple report yet another a record set of earnings, earning $818 million on revenue of $5.41 billion to mark the highest June quarter revenue in the company's history. Gross margin was 36.9 percent, higher than guidance primarily due to favorable commodity costs -- something that could change in the fiscal fourth quarter when Apple is expecting a gross margin of 29.5 percent. The earnings sent Apple's stock spiraling upward in after-hours trading, gaining nearly 10% before midnight.




by MacNN Staff

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  1. Spacemoose

    Joined: Dec 1969

    0

    transition which hurts?

    What kind of transition hurts the bottom line? It has to be something that hurts current sales. Therefore it has to be announced long before it's debuted. This is not something that they'd do with a new iPod/Apple TV. No with that, they'd just flip a switch from selling the old to the new with no lead-time.

    What sort of transition could it be? Not the transition to Leopard, again that's a swap-out with Tiger, not significant numbers of users are holding off buying Macs because of Leopards impending release...

    It's possible they will announce the new iMacs, but not have it ready for sale, but I'd doubt that. They'd wait until they could take orders that could ship in x-y weeks.

    The only thing that could logically be announced long before it's available for sale, thus cannibalizing current sales, is a phone device which needs 6 months of FCC clearance.

    There must be a lower cost iPhone on the way that will significantly impact sales of iPod Nanos and iPhones.

  1. Simon

    Joined: Dec 1969

    0

    bold guess

    No it's not due to the iPhone nano (which will certainly generate good profits).

    I'm guessing the profit hit could come from the new desktop Mac. After they drop the mini and further jack up the MP (octo core across the line) they have to introduce a new middle class desktop Mac.

    It will be a HEM with a very competitive price tag to start cranking up those lackluster desktop sales and increase the number of switchers. Now's a great time: Leopard will be clearly superior to Vista (which sells like c***), good ties to Intel to get high performance equipment at low price points, and finally Parallels/BC to help people make the switch.

    In order to compete with inexpensive PC desktops the margins will be very thin on this product. At the same time it will cannibalize some iMac and MP sales which previously drove margins up.

    And there you go: new product generates high revenue, but reduces earnings.

  1. ZinkDifferent

    Joined: Dec 1969

    0

    oh boy...

    ...you guys are funny.

  1. trbgln

    Joined: Dec 1969

    0

    transition which hurts?

    I'd agree it might have to do with the desktop macs. If they indeed drop the 17 inch, they'd have to lower the price points of the new imac models coming along, they might have a smaller profit marging. Especially if they need to offer something at the same price point as the 17 inch model in the education market. And the mini? I am still waiting since > 1 year for a more cabable mini (normal harddisk, graphic card) at reasonable price point.

  1. wings_rfs

    Joined: Dec 1969

    0

    Why does this hurt?

    "the high cost of back-to-school promotions" is one reason profits are going to be lower. Mmmmmm. Let me think about that for a minute.... is he saying that due to increasing advertising costs that they will make less money than if they did no increase in advertising? I would think that if too much advertising is ultimately going to result in lower profits, that you would scale it back so that doesn't happen.

    But then again, I'm no financial analyst, so all I can do is read words and look them up in dictionaries that normal people use.

  1. jokell82

    Joined: Dec 1969

    0

    Back to school

    "is he saying that due to increasing advertising costs that they will make less money than if they did no increase in advertising?"

    No, he's saying giving away free iPods will cause them to make less money.

  1. hudson1

    Joined: Dec 1969

    0

    It was in the article

    "... high capitalized R&D cost".

    That cost goes against earnings starting from when the new product becomes commercial.

  1. davesmall

    Joined: Dec 1969

    0

    My take

    The product transition has to be the new high-end iPod with WiFi. I'm betting it will be bigger than the iPhone with twice the screen area, a large hard disk (more video capacity), and a considerably bigger battery. I see it having all the functionality of the iPhone including web browsing and email over WiFi but no cell phone connectivity. Of course it will have the touch screen, rotate to change to landscape view, and YouTube connectivity. If they price it at $399 they'll sell 1 zillion the first year. It's a product that will also make Zune and Sandisk disappear in their rear view mirror.

    The reason for increased costs would be a very high advertising budget for the launch. They learned from the iPhone launch just how much consumer interest and product buzz they were able to generate with those TV commercials.

    I think they probably see back to school sales as a window of opportunity and a price sensitive market. So they're willing to take a lower margin to grab a bigger share of that market during the short time that the window is open. Free iPods and reduced prices support that point of view.

    But then, as my wife constantly reminds, what do I know?

  1. testudo

    Joined: Dec 1969

    0

    Its a transition!

    The talk is of a product 'transition'! Not releasing a new product. An iPod with wifi isn't a transition. A new iPhone nano would not be a transition. You don't have to pre-announce a product 6 months in advance because of the FCC (and apple's not much to preannouncing even if rumors suggest something is coming). Also, because of how the iPhone is charged (over 24 months), the effect would be limited. How much were iPod numbers affected by the iPhone? Additional advertising for a product isn't a transition, either.

    A better take (and its testudo, so you know its gots to be correct!) would be:

    - Changing the sales of certain products, like the iPod, to the amortization schedule. This would really s**** up profit numbers. This would go along with the consensus that an iPhone without the phone is wanted by the public. If the high-end iPod is changed to this, and its 'subscribed', there you go.

    - Announcing a round of OS X licensing, which would allow the Dells of the world to sell computers that run OS X. This would really cut into Mac sales, and would be a continuation of a 'transition' from Apple Computer to Apple, Inc.

  1. hokizpokis

    Joined: Dec 1969

    0

    spiraling upwards??

    this is the worst choice of words yet...

    how about rocketing upwards??

    spirals are usually reserved for failures...

    Apples stellar quarter financial results should gain a bit more respect from this writer... perhaps even more so if he just made some booyah on the bump

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