Apple Has an Amazing Quarter

The day was progressing quite well. All signs were pointing in the right direction for Apple before the earnings call began at 2PM Pacific Time on Wednesday. The SEC stock options brouhaha seemed to be turning into simply a bad memory as the stock had risen 2% during the day and an hour before the call. The board had issued a vote of confidence in Steve Jobs with a carefully worded statement:

The SEC investigated the matter thoroughly and its complaint speaks for itself, in terms of what it says, what it does not say, who it charges, and who it does not charge. We have complete confidence in the conclusions of Apple’s independent investigation, and in Steve’s integrity and his ability to lead Apple.

They also refused to enter into a public debate with Fred Anderson. Fred Anderson, you may recall, had made statements to the effect that Jobs was aware of and had probably sanctioned the stock options predating that the SEC had cleared him of.

Big deal, said the board. The SEC cleared him, the stock is up, the sun is shining, and we’re about to sell a quadrillion iPhones. So yay Jobs, boo Anderson, and let’s never speak of this again.

In terms of sheer numbers, the second fiscal quarter of 2007 was magnificent for Apple. The company shipped 1.5 million Macs and 10.5 million iPods; Mac shipments actually grew at a faster rate than iPods. Also, according to Jobs, Mac sales grew at three times the pace of the PC industry which is especially amazing considering the launch of Vista. Many analysts had speculated that PC sales had slowed last year in anticipation of Vista, which implied that they would grow faster with its introduction. Of course, the advent of Vista may have also pushed users away from Windows.

Apple attributed the majority of its iPod sales growth to the multi-colored shuffles. Also, the company seemed to attribute most of their Mac sales growth to sales from their own stores.

For the Apple TV and the iPhone, Apple is going to defer earnings over the life of the product. This means that though Apple takes the money for an iPhone upfront, they support it with free software updates for its life. Due to the subscription type usage model of the iPhone, Apple will report earnings of the product averaged over its expected life, i.e. 24 months. This means that in future earnings reports, unit sales of iPhones and Apple TVs may be of more interest than simple revenue.

Generally, Apple’s earnings beat analysts’ expectations—which was interesting—but they also beat their own lofty expectations from three months ago by a lot. Their revenue came in at a quarter of a billion higher ($5.26bn) than their own expectations, as did their financial-ubergeeky gross margin and EPS.

On that note, their predictions for the next quarter were rather low (revenue: $5.1bn), compared to what the revered analysts predicted, which may point to a pre-Leopard slowdown or Apple wanting to be able to surprise themselves next quarter the way they did this time. Of course, their officially stated reasons included things regarding commodity prices, a supply-demand balance, and the recently lowered prices on their displays. The part about displays aside, all I heard was economics-fu!

Twice, they hinted at other influential products in their pipeline. Which could mean anything and nothing. After hours, the Apple stock rose 8%, in addition to the 2% it added while the market was open.