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Wednesday, Jan 23, 2013 9:41pm
Cook: don't put a lot of stock in AAPL rumors
Both CEO Tim Cook and CFO Peter Oppenheimer took time in today's conference call with analysts to specifically (or by inference) debunk a number of recent rumours about the company, and to suggest to analysts that they rely too heavily on bad information -- and that even when they do get a bit of gossip that turns out to be true, they are unable to see the information in the broader context, which may change its interpretation. It was a rare direct assault on the market-manipulation and other forces that have plagued the company and its stock.

Though Apple barely met expectations on revenue, and squeaked past estimates on EPS, the company nevertheless had an all-time record quarter. In fact, Apple recorded the most profitable year not just in its own history, but in the history of all companies ever. The calendar fourth quarter alone was the fourth most-profitable quarter of all time, and the company is still the most valuable publicly-traded company on earth, even in light of the mysterious after-hours drop in the stock price.

Mac and iPod sales were down from the year-ago quarter, but everything else was up significantly, most importantly the doubling of revenue from what the company calls "greater China" -- the mainland, Taiwan and Hong Kong, now emerging as the second-largest market region Apple competes in. The company also offered record sales of iPhones through the US carriers, so much so that Apple's three iPhone models outsold the 300-plus models of Android-powered smartphones in the US for the second month running.

Analysts, however, continue to sour on AAPL for unclear reasons. They believe that increased competition will hurt the company's market-leading position, though Cook directly addressed this by saying that the company believes that "truly great" products sell themselves, and that Apple is not concerned with "revenue for revenue's sake."

Cook told the pundits that Apple "could put its name on a lot of things and sell a lot more stuff" -- but that his focus and the company's vision was to try to make the best products possible, confident that the innovation and workmanship would always win over a comfortable (and more importantly, profitable) segment of the market.

Cook also directly commented on rumors of cuts in parts orders for the iPhone 5, which many analysts (incorrectly, as it turns out) interpreted as a sign of weakening demand. He unusually revealed that sales for the latest iPhone had actually increased as the quarter went on, in part due to improving supply. Oppenheimer added that the company expects "normal" growth of iPhone sales in the forthcoming quarter, putting paid to the notion that iPhone demand would drop unusually in the second fiscal quarter.

Cook also returned to the issue of rumors generally, bolding telling analysts that they should spend more time "question[ing] the accuracy" of reports that detail Apple's future plans -- particularly as the company has a long history of keeping most of its workforce in the dark, particularly about big changes. He also said that even if someone revealed a detail that turned out to be true (such as the widely-reported iPhone 5 shells that circulated weeks ahead of its launch), that it was "impossible to accurately interpret the datapoint as to what it means to our business." A number of recent Apple-related rumors have turned out to be without merit, from the alleged drop in iPhone 5 and iPad parts orders to the quickly-dismissed report of a forthcoming "iPhone Math" that bizarrely gained traction in many tech media outlets, even when the original source retracted its own claim.

Apple's guidance for the March quarter also may have inadvertently addressed some rumors, particularly those regarding an early launch of new iPads or iPhones (fueled by a misguided belief that Apple needs to keep up with the more furious release schedule of endless new Android models). The new guidance -- which, to some analysts' complete bewilderment, Oppenheimer repeatedly had to explain was now being given as a broader estimate the company believes is more accurate -- projects the usual post-holiday drop in revenue but still forecasts a modest 10 percent or so increase from the year-ago quarter (about $41-43 billion projected). Operating expenses were also predicted to drop slightly.

The small growth margin in next quarter's estimates puts a damper on rumors of spring refreshes of Apple's most profitable products, the iPad and iPhone or any significant new products that would impact the company's financials. It also reinforces warnings from Apple that its iMac and iPad mini products may continue to be scarce across the quarter, with supplies improving only towards the end. It doesn't, however, exclude the possibility of minor software or hardware refreshes over the next three months.

Cook also answered an analyst question about the large number of revised products last year, and appeared to say that customers should not expect revisions to 80 percent of the product line as was seen in 2012, also limiting the idea that Apple might introduce new hardware in the near-term. With his admission that iPad sales may be cannibalizing some Mac (and PC) desktop and notebook sales, Cook may also have intimated that Mac sales will continue to be lower than last year's average. He reiterated his belief that the tablet market would eventually overtake the PC market, a prediction that appears to be getting closer to reality with each passing quarter.

Cook was asked on more than one occasion if the company was sure of its iPhone strategy with regards to the increasing differentiation in screen sizes between some Android flagship phones and its own iPhone 5. While he didn't explicitly rule out larger iPhones in the the future, he reminded the analysts that the Retina display is still an industry-leading technology that remains a strong selling point for the iPhone, and stressed that the company believes the ability to use the phone fully with one hand is an important factor in its overall ease-of-use.

The CEO hinted that the pre-holiday time frame had turned out to be a strong window for launching new iOS products, as the company did this year -- inferring that the late summer-early fall window may again be a time to expect revisions to the iPhone, iPad and some or all of the iPod line as was the case this year. The "reset" of iOS product launches to the latter portion of the year also frees up earlier months to focus more on Mac, software, Apple TV and perhaps new-product type launches.

When asked about Apple TV (both the current set-top box and the notion of an Apple HDTV), Cook reiterated previous statements that TV was "an area of intense interest" and that the Apple TV set-top box continues to slowly grow in popularity. He refused to be drawn out any further than that.

Oppenheimer may have inadvertently confirmed the notion of a late-season iPad refresh by revealing that the company expects a large year-over-year increase in iPad sales, but a decrease in iPad sales in the March quarter. The company is still catching up to demand for the iPad mini.

The last question of the conference call was in regards to the perceived "need" of Apple to create a "cheaper" iPhone (meaning an inexpensive no-contract version, which is one of the main reasons Android phones outsell the iPhone in countries outside North America, where prepaid phones are much more dominant). Cook essentially ignored the question and reiterated the growth in China (which doubled during the quarter) and other markets where prepaid is dominant, suggesting that the iPhone itself is changing those markets into being more accepting of postpaid options.

He did not, however, explicitly block the idea that Apple may produce a contract-free version of the iPhone at some point. If tradition holds, however, any prepaid low-cost iPhone is likely to look at lot like the current low-end postmaid models rather than the "see through" and "plastic" cheap iPhone bandied about amongst the rumor-mongers.