Apple bulldozes Street: $1.26 EPS; Mac sales reach all-time high of 2.6m, 6.9m iPhones

Apple today announced financial results for its fiscal 2008 fourth quarter ended September 27, 2008. The Company posted revenue of $7.9 billion and net quarterly profit of $1.14 billion, or $1.26 per diluted share. These results compare to revenue of $6.22 billion and net quarterly profit of $904 million, or $1.01 per diluted share, in the year-ago quarter. Gross margin was 34.7 percent, up from 33.6 percent in the year-ago quarter. International sales accounted for 41 percent of the quarter’s revenue.

MacDailyNews Note: Analysts' consensus estimates for Apple's Q4 08 called for $1.11 EPS, on revenue of $8.05 billion, or 29.4% YOY sales growth. Peter Oppenheimer, Apple’s CFO, had provided guidance of "about $7.8 billion" and earnings per diluted share of "about $1.00.”

In accordance with the subscription accounting treatment required by GAAP, the Company recognizes revenue and cost of goods sold for iPhone and Apple TV over their economic lives. Adjusting GAAP sales and product costs to eliminate the impact of subscription accounting, the corresponding non-GAAP measures (more info) for the quarter are $11.68 billion of “Adjusted Sales” and $2.44 billion of “Adjusted Net Income.”

Apple shipped 2,611,000 Macintosh computers during the quarter, representing 21% unit growth and 17% revenue growth over the year-ago quarter. The company sold 11,052,000 iPods during the quarter, representing 8% unit growth and 3% revenue growth over the year-ago quarter. Quarterly iPhone units sold were 6,892,000 compared to 1,119,000 in the year-ago-quarter.

“Apple just reported one of the best quarters in its history, with a spectacular performance by the iPhone—we sold more phones than RIM,” said Steve Jobs, Apple’s CEO, in the press release. “We don’t yet know how this economic downturn will affect Apple. But we’re armed with the strongest product line in our history, the most talented employees and the best customers in our industry. And $25 billion of cash safely in the bank with zero debt.”

“We’re very pleased to have grown revenue 35 percent and to have generated $9.1 billion in cash in fiscal 2008,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead, visibility is low and forecasting is challenging, and as a result we are going to be prudent in predicting the December quarter. We are providing a wide range for our guidance, targeting revenue of $9.0 to $10.0 billion and earnings per diluted share between $1.06 and $1.35.”

MacDailyNews Take: Analysts' consensus estimates for Q1 09 call for $1.65 EPS, on revenue of $10.57 billion, or 10.0% YOY sales growth. It's nice to see Apple providing a "wide range" instead of harder guidance, but even the top end of EPS guidance doesn't come close to expectations. We'll see how the market treats this guidance. If history is any guide, it won't be pretty.

Apple will conduct a conference call to discuss the company's results today, Tuesday, October 21, 2008 at 2pm PT/5pm ET.

MacDailyNews will be covering the conference call via live notes at that time. The live coverage will appear at the top of our home pages shortly before 5pm ET.

Live notes from Apple’s Q408 Conference Call Tuesday, October 21, 2008 - 06:01 PM EDT

5pm EDT: Conference Call has begun
CFO Peter Oppenheimer: Record breaking results on a number of fronts
Apple posted revenue of $7.9 billion and net quarterly profit of $1.14 billion, or $1.26 per diluted share
These results compare to revenue of $6.22 billion and net quarterly profit of $904 million, or $1.01 per diluted share, in the year-ago quarter
Gross margin was 34.7 percent, up from 33.6 percent in the year-ago quarter
Apple shipped a record 2,611,000 Macs during the quarter, representing 21 percent unit growth and 17 percent revenue growth over the year-ago quarter
Apple sold 11,052,000 iPods during the quarter - the most of any non-holiday quarter - representing eight percent unit growth and three percent revenue growth over the year-ago quarter
13 million total iPhones sold as of September 27, 2008: Quarterly iPhone units sold were 6,892,000 - more than all other quarters since iPhone's release combined: 6.9 million units were sold, exceeding the 6.1 million first-generation iPhone units sold in the prior five quarters combined
"We are providing a wide range for our guidance, targeting revenue of $9.0 to $10.0 billion and earnings per diluted share between $1.06 and $1.35.”
Apple has already surpassed 10 million iPhones sold in calendar 2008 goal with a full (holiday) quarter remaining
30,000 iPhone distribution points worldwide, 3,100 in U.S.
Apple very enthusiastic about MacBook, MacBook Pro models released last week
3-4 weeks of Mac channel inventory at quarter end (9/27/08).
Apple share of U.S. market over 70% in September (NPD). Apple continues to gain share abroad.
iTunes Store: Over 65 million customer accounts, 8.5 million song library.
Apple Retail Stores: 31 new stores; 247 stores total. Over 50% of Macs sold in stores were to customers new to Mac.
Higher than anticipated mix of foreign (non-U.S.) earnings
Apple is a debt-free company with $25 billion in cash on hand
Apple sold more phones in the quarter than RIM (bloodbath).
Oppenheimer: "Apple headed in holiday season with best product mix ever."
Special Guest: Apple CEO Steve Jobs: Remarkable things happening at Apple.
Jobs: Non-GAAP financial result eliminate the impact of subscription accounting (spread impact of iPhone's contribution to income over 2 years)
Now that iPhone business has grown to 39% of Apple's entire business. That is why Non-GAAP financial results are offered.
Jobs" "Apple beat RIM." 6.9m iPhones vs. 6.1m RIM phones. RIM is a good company that makes good products. Beating them is remarkable.
Jobs also reported that, measured by revenue, Apple has become the world's 3rd largest mobile phone supplier:

1. Nokia, $12.7b
2. Samsung ,$5.9b
3. Apple, $4.6b
4. Sony/Ericsson , $4.2b
5. LG, $3.4b
6. Moto, $3.2b
7. RIM, $2.1b
200 millionth app will be download from App Store tomorrow (5,500 apps on store in 62 countries around the world)
Level of quality of new MacBooks, MacBook Pros: unique features, advanced products, greenest products APple has ever offered
Economy. Jobs, "We are not economists." "We have the best customers in the world." "They are more likely to delay purchases than switch."
Jobs: "I feel very good about our product lineup as we head into the holiday season and beyond."
Apple employees make some of the best products int he world: Macs, iPods, iPhones... None of our competitors can deliver products in this class.
Jobs: We have $25 billion in the bank, the best customers, the best products, and the best employees in the world.
Jobs: We may get buffeted around in the waves a little bit, but will emerge in good shape when the water's calm.
October and April are Apple's slowest in the year: Foggy months for us to predict.
Jobs: This economic downturn may present wonderful opportunities to companies with cash.
Oppenheimer: Aluminum unibody enclosures for MacBook family will initially have higher costs; volume will bring down the cost to Apple over time
Jobs on Mac pricing: The downturn is not creatign a market of cheaper computers. There are parts of that market that we choose not to play in. We are actually price competitive in the parts of the market in which we choose to participate. I think there are a tremendous amount of customers who would like and can afford to buy Apple products. We are not tremendously worried.
Jobs: Netbooks are a nascent category. iPhone is a pretty good solution for that category "and it fits in your pocket." We have some pretty good ideas if that category takes off.
Oppenheimer: 3-4 weeks Mac channel inventory, 4-6 weeks iPod, less than 6 weeks for 44 iPhone countries; about 2 million iPhones in total channel inventory. Oppenheimer: "We feel this amount of inventory is about right."
U.S. K-12 education sales down about 7% due to budget constraints.
Apple saw slowing of notebooks ahead of new MacBook family; saw "considerable rebound with release of new MacBook family.
Jobs: "Not likely" that I'll be special guest regularly on these conference calls.
Jobs on iPhone wannabes: "We are way out ahead of everybody and, with the most talented people in the world, we'll stay that way. We are committed to making iPhone the best value for customers."
Apple expanded iPhone sales from 6 to 51 countries.
Jobs: "We're just happy to beat them [RIM] on a number to number basis."
Oppenheimer: We will expand into over 70 total countries by the end of the year. "We are confident that year-over-year our sales will be up significantly."
Oppenheimer: "We are delivering state-of-the-art products at prices points that our competitors cannot match."
Jobs asked about acquiring companies: "I think there are going to be some significant opportunities."
Jobs: "We want to deliver an increasing level of value to our customers. We choose not to serve some customers. We don't know how to make a $500 computer that's not a piece of junk and our DNA will not allow us to ship products like that."
Peter Oppenheimer and Tim Cook virtually ignored due to Jobs' surprise presence on call.
Jobs: "Apple TV is still a hobby with us. I continue to believe it will be a hobby in 2009."
Cook on supply: Still filling channel with iPods; iPhone at right level of channel inventory; Macs show significant backlog of new products: Apple confident that Apple can produce "a lot," but if it's enough he does not know.
Jobs: "Babe Ruth had only one home run. He just kept hitting it over and over again." As software starts to become the differentiating technology of the [smartphone] product category. Hundreds of different hardware configurations are not going to be attractive to developers. MDN Note: Think Google Android, Windows Mobile, etc.
End of conference call.

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