MacOS KenDensed: Apple Q3 Earnings & Plugging App Store Holes

| MacOS KenDensed

The amazing Ken RayApple made bucket loads of money during its third fiscal quarter, but not enough to make financial analysts happy. The company started patching up a flaw that let hackers help iPhone owners steal in-app purchases, there are more appeals in Apple and Samsung’s patent fight, and Steve Jobs was named one of the most influential people in U.S. history. All that, and it turns out Mac OS Ken’s Ken Ray knows his limericks.

Apple Q3 Earnings Call: Show Me the Money
At the end of the second quarter Apple said, for the third quarter, it expected “revenue of about $34 billion and diluted earnings per share of about $8.68.”

And how did Apple do? According to its press release, Apple on Tuesday announced financial results for the third quarter that included revenue of US$35 billion — one billion more than Apple’s guidance — and quarterly net profit of $8.8 billion, or $9.32 per diluted share, or 64-cents more than Apple’s guidance.

On the planet I’m from, that would look like a win from all sides. But here on planet Earth, not so much.

The LA Times: Apple shares plunge after disappointing earnings report.

The Wall Street Journal: Rare Miss For Apple as iPhone Sales Cool.

And the San Jose Mercury News: Apple’s third-quarter earnings miss expectations, stock falls… leaving one to wonder why Apple bothers issuing guidance at all. I mean it’s tradition, at the very least… and being publicly traded they may even be required to issue guidance.

I’m not sure. Still it seems they’d be as well served reciting a dirty limerick or picking lottery numbers in the short time it takes to issue guidance for the next quarter for as little attention as Wall Street seems to pay to that guidance.

Okay. That is a tiny bit out of my system.

Apple sold 4 million Macs during the quarter, up 2 percent versus the same quarter a year ago and representing a new record for Mac sales in a June quarter. The company also saw its best-ever quarter for Mac sales into U.S. education institutions.

Apple sold 6.8 million iPods, down 10 percent from the same quarter a year ago, but that’s pretty much to be expected at this point. Despite the drop, Apple CFO Peter Oppenheimer says the number of iPods sold still beat Apple’s expectations. The device still commands 70 percent of the MP3 player market in the states.

iTunes took in $1.8 Billion dollars for the quarter, thanks to strong ales of music, apps and other content.

Apple sold 26 million iPhones in the quarter, rising 28 percent from the same quarter a year ago and setting a new record for iPhone sales in a June quarter. That was also more than Apple expected to sell. With the addition of a number of regional carriers in from April to June, Apple says the iPhone is now available on 250 carriers in over 100 countries.

Apple: Seller of iThings, maker of moneyApple sold 17 million iPads during the quarter, representing unit growth of 84 percent versus the same quarter a year ago and setting a new record for quarterly iPad sales, period. iPad is now available in 97 countries. The iPad is going gangbusters in U.S. education, with just under one million going to U.S. education institutions last quarter. The reduced price iPad 2 has been particularly popular with K through 12 institutions, and while Apple saw its best-ever quarter for Mac sales to education, the company sold over twice as many iPads to E-D-U last quarter.

Adding up iPhone, iPad, and iPod touch, Apple has now surpassed 410 million iOS devices sold, with 45 million of those selling last quarter. The company has paid out over $5.5 billion to developers, and — shifting our focus to the skies — the company now boasts over 150 million users of iCloud services.

Apple Retail stores saw revenue of $4.1 billion, up 17 percent from the same quarter a year ago. Apple’s brick-and-mortar face sold 791,000, nearly half of which were to people who’d never owned a Mac before. The quarter ended with 327 Apple Stores around the globe, 123 of which were outside the U.S.

And the cash pile continues to grow. Apple’s cash stood at $117.2 billion at the end of the June quarter, up from the $110 billion upon which it was sitting at the end of March.

For people who actually own Apple shares, or who plan to soon, “Apple’s Board of Directors has declared a cash dividend of $2.65 per share of the Company’s common stock. The dividend is payable on August 16, 2012, to stockholders of record as of the close of business on August 13, 2012.” The company plans to announce quarterly dividend plans on each quarterly earnings call going forward.

“Looking ahead to the fourth fiscal quarter,” said Oppenheimer, “There once was a man from Nantucket…”

Not really. He actually said the company expects revenue of about $34 billion and diluted earnings per share of about $7.65.

Oppenheimer summed up the opening statements on the call saying how excited Apple was to launch Mountain Lion tomorrow, which happened to be Wednesday, how excited the company is to launch iOS 6 in the Fall, and how excited Apple is about the new products it has in the pipeline, about which the company will talk down the road.

And with that, he opened the call to questions.

Morgan Stanley analyst Katy Huberty was curious why Gross Margin is expected to be lower for the September quarter than it has been for close to two-years now. Oppenheimer says this is mostly due to a product transition in the fall, but also due to strength of the U.S. dollar and a full quarter of Apple’s back-to-school promotion.

In short, new iPhone. And maybe iPad mini. But definitely new iPhone.

Goldman Sachs analyst Bill Shoppe wanted to talk about individual segments, which CFO Oppenheimer was happy to do, saying they expect to sell more iPhones for the September quarter of 2012 versus the September quarter of 2011. They expect to sell more iPads for the September quarter of 2012 versus the September quarter of 2011, and they expect to sell more Macs for the September quarter of 2012 versus the September quarter of 2011.

And revenue. That’ll grow year-over-year as well.

As to iPhone, weekly sales are influenced by rumors of new products. So I guess everybody has a calendar and reads DigiTimes.

Barclays Capital analyst Bill Reitzes wanted to know about that fall transition. Basically what’s gonna be hurt and how much of it will you make back in the December quarter? Oppenheimer’s answer was, basically, to say anything would be saying too much. So they weren’t going to talk about it at all, but they couldn’t be more confident in their product pipeline.

Follow up question: How much are new iPhone rumors and speculation hurting current iPhone sales? Tim Cook says there is, obviously, huge anticipation for future products, and while he cannot say the degree to which that’s affecting current iPhone sales, he would say it’s a “reasonable amount.”

Shannon Cross of Cross Research wanted to talk Mac: How much of slower growth was thanks to transition of MacBook Pro and Air lines versus iPad cannibalization of Mac? CEO Cook says a lot of it had to do with updating the portable line with just three weeks left in the quarter.

Could Cook talk about wireless carriers and subsidies, especially in light of the product transition that’s coming? That got a laugh from Cook who said he would avoid talking about any product transition, but generally Apple’s role is to make the very best smartphone in the world. At the end of the day the carriers want to provide their customers with what they want to buy. From the carrier side, the subsidy they pay is small versus what they get paid by consumers over a 24-month period. Churn is lower. Apple will keep focusing on making the best product, and Cook thinks carriers will be motivated to provide that to their customers.

Sanford Bernstein analyst Toni Sacconaghi wanted to know where execs were disappointed. Oppenheimer pointed out how happy the company was with record Mac, iPhone, and iPad sales, though there were some things that affected Apple in the quarter.

Weakness in the European economy. Weakness in “natural resource-based” economies including Australia, Brazil and Canada. New iPhone rumors. Timing of availability of Ivy Bridge processors and rumors of new Macs likely hurt Mac sales in April and May. New iPad and new portables did not launch in the third quarter in China. The strength of the dollar versus other global currencies also ate into the company’s bottom line.

Follow up for Tim Cook: Can you talk about smartphone growth in emerging markets? Namely the sub $200 to $300 price being paid by large segments of the population in emerging markets. What can Apple do to grow there?

According to Cook, it’s not about share. Apple wants to make the best products. If they do that, then they’ll have a good business.

Piper Jaffray analyst Gene Munster: What’s the what with Apple TV?

Señor Cook says the company sold 1.3 Million Apple TVs last quarter and has sold 4 million units so far in fiscal year 2012. While they’d still call Apple TV a hobby, they believe in it, they continue to invest in it, they want to see where it’ll lead, and they think it will lead somewhere. Cook acknowledged that 4 million is a small number compared to iPhones and iPads, but it’s not a small number and a lot of people at Apple believe in Apple TV.

JP Morgan analyst Mark Moskowitz wanted to know whether “Passbook” the sort of ticketing thing coming in iOS 6 might eventually lead to a payments and NFC solution from Apple. Mostly CEO Cook did not want to address that, except to say that Passbook will be helpful to people as far as pulling passes and tickets and such into one place on an iOS device.

Was there more said on the call? Sure there was, and you can hear it for yourself a few ways. The easiest of which is, likely, grabbing the podcast of the call through iTunes. Get ready for 59 minutes and 48 seconds of financial analytical fun.

App Store Lock Down
If there’s one guy Apple likes less than anyone else, right now, it’s probably Russian developer and ne’er do well Alexey Borodin. You remember Lex, the guy who a week or so ago came up with a way for people to buy iOS in-app purchases without actually making purchases? Simple really. All they had to do was trust the guy with the treasure trove of information riding around on their iOS devices and be cool stealing from developers, which is decidedly uncool.

Apple pulled out all sorts of stops to get him off the grid, including blocking requests directed at his servers, appealing to his hosting company to have his site shut down, and getting his demo-video on how to do the stealing thing pulled down as a violation of copyright.

And he was back within a day or two.

Now iMore says Apple has a quick-fix, with a more permanent block coming this Fall with the release of iOS 6. The most interesting bit of the quick-fix, iMore says Apple has basically opened up a private API to developers, the use of which will normally get an app booted from the App Store. Seems like a pretty strong indication of how seriously the company is taking the Russian developer developments.

Alexey Borodin says Apple has defeated his in-app purchase stealing system, or it will have done so when iOS 6 is released. CNET has Borodin saying,

Currently we have no way to bypass [the] updated APIs … It’s a good news for everyone, we have updated security in iOS, developers have their air-money.

Makes him sound like a white hat, until he points out that his exploit allowed somewhere in the neighborhood of $8.4 million in-app purchases to be made without any actual purchases being made. At a minimum of $0.99 each, that means developers lost out on a minimum of $5.82 million in purchases, while Apple missed its 30 percent cut to the tune of $2.49 million.

But that’s in the past now, or will be when Apple releases iOS 6. Quoting the hacker again, “By examining last Apple’s statement about in-app purchases in iOS 6, I can say, that currently (the) game is over.”

Quick aside, that’s apparently true for iOS devices, though over the weekend we heard he’d donned whatever color hat he wears and turned his attention to the Mac App Store. CNET has Borodin pointing out that “a modified version of the hack targeted at Apple’s Mac App Store is still up and running,” with the developer/hacker saying, “We [are] still waiting for Apple’s reaction … We have some cards in the hand.”

That sounds less white hat.

Another Apple Appeal. Must be Tuesday.
Why did Judge Richard Posner dismiss the Apple versus Motorola Mobility suit with prejudice last month? Because if either of the companies wanted to appeal his ruling, he wanted to make sure that he wouldn’t have to hear it. But someone may still have to.

Computerworld says both companies have appealed Judge Posner’s dismissal of the case. The piece cites a post from Florian Mueller’s FOSS Patents, that says, “Apple and Google subsidiary Motorola Mobility have both decided to appeal every single decision that Judge Posner made that wasn’t in their favor.”

I’m like “Dark Willow” with this: Bored now.

Also I’m currently re-watching “Buffy the Vampire Slayer.” Which is more than you need to know.

Steve Jobs: Big-time Influencer
And finally this week, late Apple co-founder Steve Jobs has earned another honor. Apple Insider says Jobs has been named one of Time magazine’s 20 most influential people in American history.

“Jobs was a visionary whose great genius was for design,” says the magazine. “He pushed and pushed to make the interface between computers and people elegant, simple and delightful. He always claimed his goal was to create products that were ‘insanely great.’ Mission accomplished.”

Crazy to think of the company he keeps. Other names on the list include George Washington, Thomas Jefferson, Thomas Edison, Henry Ford, Franklin Delano Roosevelt, Louis Armstrong and Martin Luther King Jr.

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3 Comments

mrmwebmax

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I?m like ?Dark Willow? with this: Bored now.

One of, if not the, best revenge scenes on television ever. Certainly one of the most gruesome.

Another great line: “Axe. Not gonna cut it.”

jmmx

Great article. A lot of detail.

For another take I found this one interesting:
http://beta.fool.com/jaans/2012/07/29/apple-fiscal-q3-earnings-accentuate-negative-ignor/8321/

Neil Anderson

“and being publicly traded they may even be required to issue guidance.”

I don’t think RIM offers guidance anymore. raspberry

ps I’m all for the dirty limerick though.

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