Full Report - Apple Posts Profit Of US$44 Million, Sales Up 19% Over Last Year

by , 6:45 PM EDT, October 15th, 2003

Apple has beat analyst expectations with its Q4 results. Announced today in a conference call (see TMO's live coverage for more information), the company posted a profit of US$44 million, or 12 cents a share. Sales were up 19% over last year's US$1.44 billion, coming in this year at US$1.715 billion. Apple shipped some 787,000 Macs, up 7% from the year-ago quarter. Apple also shipped 336,00 iPods, up 140% from last year.

For the year, Apple showed a profit of US$69 million on revenues of US$6.21 billion. In fiscal 2002, Apple showed a profit of US$65 million on revenues of US$5.74 billion. That's the first significant increase in revenue Apple has shown in years.

Apple offered guidance of US$1.9 billion for the December quarter. The company has not offered such specific guidance since the technology bust began in 1999. If Apple can deliver, it would represent one of the best quarters the company has had in many years.

US$15 million of Apple's profits came from one-time investment gains, an "accounting transition adjustment," and other stock repurchasing issues, leaving US$29 million from operations and regular investment gains. Until the company makes its SEC filings, we don't know how much of that profit specifically came from operations alone. In its press release, Apple did say that "Management believes that presentation of results excluding these items provides meaningful supplemental information regarding the Company's operational performance." This indicates a strong operational showing.

Apple is one of two PC companies that regularly runs a profit on operations, with the other being Dell.

In the Q4 conference call, Apple CFO Fred Anderson revealed that Apple shipped 221,000 Power Macs, including both the G4 and G5 model, up 75,000 units from the prior quarter. Mr. Anderson also said that Apple expects to be able to sustain tower shipments of 200,000 per quarter in the near future.

Mr. Anderson also said that higher education had the best quarter in 7 years, saying that student and institutional demand were both up. Apple's laptops accounted for 47% of all higher education sales. This was offset by lower K-12 education sales, however, as Mr. Anderson said that Apple saw reluctance from schools to spend this early in their school years. He also said that while we won't know for sure until IDC releases its market share numbers for the quarter, he expects sales to have been lower for other vendors, as well.

Gross margins were up to 26.6%, from last year's 26.4%, and Apple expects to see margins increase to 27% during the December quarter. Mr. Anderson said that gross margins on Power Mac G5s were hurt by the cost of air-freight required to meet the backlog of Power Mac G5 orders. According to the CFO, there is still an extensive backlog of the dual-processor Power Mac G5 model, and that demand remains high.

Apple Store sales were up to an average of US$3.1 million per store, up from US$2.6 million per store last year, despite the fact that Apple has opened many more stores during the last year. The company expects to have 73 stores open by Thanksgiving (a US holiday that kicks off holiday buying), up from 50 stores open at that time last year. Apple saw some 4.3 million people in its stores during the September quarter.

Apple grew its cash holdings by another US$25 million during the quarter. For the year, the company added US$229 million to its cash on hand.

Due to Apple's planned media event tomorrow, Fred Anderson refused to offer more details on performance at the iTunes Music Store, despite repeated requests from analysts for more specific information.

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The Mac Observer Spin:

In short, this was a terrific quarter for Apple. Fantastic sales, a strong profit, and unit sales that showed the best increases in recent memory. The guidance for the December quarter is even more exciting, and considering Fred Anderson's exceedingly conservative and careful approach to guidance, shows that Apple is confident about the quarter.

Add the company expected iTunes/iTMS for Windows announcement tomorrow, and things look good. That, of course, means that the Death Knells should begin anew in earnest.