On iPhones, Earnings & Wall Street

Ken Ray. No, really.Apple was all about the numbers this week: Record breaking iPhone 4S sales, record breaking earnings reports, and analysts that were disappointed because Apple didn’t break its records as much as they wanted. And the next iPad rumors are in full swing. That’s enough to keep Mac OS Ken’s Ken Ray going for more than a week.

iPhone 4S: The New King of the Hill
Holy crapping crap. The reported range of iPhone 4S sales expectations heading into the first weekend of sales for the device was between two-million and four-million units.

How many would have thought that both of those could be conservative?

Apple sent out a press release this week saying it had sold over four million iPhone 4Ses just three days after its October 14th launch.

In the release, Apple senior VP of worldwide product marketing Phil Schiller said, “iPhone 4S is off to a great start with more than four million sold in its first weekend — the most ever for a phone and more than double the iPhone 4 launch during its first three days … iPhone 4S is a hit with customers around the world, and together with iOS 5 and iCloud, is the best iPhone ever.”

Speaking of those, Apple said in the same press release that more than 25 million customers are already using iOS 5, just five days after its release, and more than 20 million customers have signed up for iCloud.

Try wrapping your head around the iPhone 4S sales, though. For help with that we turn to a piece from Wired which points out that four-million iPhone 4S in three days is “half as many units as the best-selling gadget in history (Xbox Kinect) sold in two months.”

So maybe look for that title to change hands soon.

Assuming a US$650 dollar subsidy, Asymco’s Horace Dediu figures Apple took in at least $2.6 billion in revenue from the four-million iPhones sold, though that number is probably a little low, party because that subsidy is based on 16GB phones, and there’s a good chance that the 32GB and 64GB phone command a higher subsidy. Additionally, Apple sold over four-million 4Ses, all of which leads Wired to think Apple probably took in closer to $3 billion in revenue.

According to the piece, that’s more money for Apple in one weekend than Google makes on mobile in a year, which makes sense since Google doesn’t make its own phones. At least not yet.

Want to widen that gap a bit more? Wired points out that the estimated $2.6 billion to $3 billon doesn’t include sales of new iPhone 4s or 3GSes, or AppleCare+ plans, or bumpers, or anything else customers bought to go with their new phones.

The Wired piece goes on to puzzle over how iPhones can take over a bigger portion of the worldwide smartphone market, especially where most countries don’t employ the same subsidy model employed by the first round of iPhone 4S countries… still… even with an eye on teh rest of the planet, Wired says “you can bet Tim Cook is happy to hit record numbers in the first post-Jobs iPhone launch.”

Wall Street Loves Apple. Kind of.
To people who don’t understand Wall Street and investing and the whack a day world that is the stock market, Apple’s numbers looked great for the fiscal fourth quarter of 2011.

To be clear, I am one of those people.

Apple trumpeted its quarterly revenue of $28.27 billion and quarterly net profit of $6.62 billion, or $7.05 per diluted share on Tuesday. That was much better than the same quarter a year ago, and beat its own guidance for this quarter, though that’s not such a big deal since Apple is usually conservative in its guidance.

Apple sold 17.07 million iPhones in the quarter, representing 21 percent unit growth over the year-ago quarter, though also representing a bit of a decline from the quarter before it.

Apple sold 11.12 million iPads during the quarter, a 166 percent unit increase over the year-ago quarter and piling up to more iPads than it’s ever sold in any quarter so far.

The Company sold 4.89 million Macs during the quarter, a 26 percent unit increase over the year-ago quarter — the 22nd consecutive quarter it’s beaten the PC sector as a while in terms of growth, and piling up to more Macs than it’s ever sold in any quarter so far.

Apple sold 6.62 million iPods, a 27 percent unit decline from the year-ago quarter, but that’s been happening with iPods for a while now, what with the iPhones and… iPhones.

Apple CEO Tim Cook says,

We are thrilled with the very strong finish of an outstanding fiscal 2011, growing annual revenue to $108 billion and growing earnings to $26 billion… Customer response to iPhone 4S has been fantastic, we have strong momentum going into the holiday season, and we remain really enthusiastic about our product pipeline.

How enthusiastic? So enthusiastic that Apple CFO Peter Oppenehimer said on the earnings call this week that Apple expects to establish a new company record for iPhone and iPad sales in the current holiday quarter. The company also expects to outgrow the PC market in Mac sales growth and it expects to report its 23rd consecutive quarter in so doing.

Did I mention the cash? Apple’s currently sitting on $81.5 billion dollars in cash, and it looks like they’ll probably keep doing that.

At the end of the prepared remarks on the call Apple did something it doesn’t usually do: Issue guidance that was above Wall Street’s expectations for the current holiday quarter.

“Looking ahead to the first fiscal quarter of 2012,” said CFO Oppenheimer, “we expect revenue of about $37 billion and we expect diluted earnings per share of about $9.30.”

Record iPad sales, record Mac sales, iPhone sales that managed to grow in a pretty healthy way despite rumor and speculation around a new iPhone at the end of last quarter, $81.5 billion in cash… Boom goes the dynamite, but not in a “hurray” way. More in a “exploded in Apple’s hand” kind of way.

Apple was down $28.19 in after hours trading, or just over 6.5 six percent. Even still, it opened on Wednesday at $394.05.

Sensible investors might have said the fault, dear Brutus, is not in our stars, but in ourselves. Or to bastardize that a bit more, it was not Apple’s performance or guidance that disappointed, but what we expected Apple to do.

A chart put together by Fortune has all but five analysts — from both the professional and unaffiliated crops — expecting Apple to make more in revenue and more per share. All but two of the 58 on the list expected Apple to sell more iPhones, and some thought they’d sell more iPads, while others thought they’d sell less.

Apple beat its own revenue guidance by $3.27 billion. It beat its own earnings per share guidance by $1.55. In short, Apple did what it almost always does: issued guidance that turned out to be fairly conservative, then beat the tar out of it.

An A-plus is nice, son, but I expected an A-plus-plus with a gold star in the corner. And so you must be beaten.

How did people who watch Apple, who are PAID to watch Apple, not think there was a chance that iPhone sales might slow toward the end of last quarter with the tech press posting article after article saying, “the next iPhone will be bigger and smaller and shaped just like iPhone 4 and a different shape and the point is — seriously — don’t buy an iPhone right now because we just know there’s a new one coming soon… even if it turns out we don’t know as much about the thing itself as we think we do.”

Quoting a piece from Fortune: “iPhones, in particular, came in considerably lower than expected. In a conference call with analysts, CEO Tim Cook and CFO Peter Oppenheimer attributed this to two factors: 1) The draw down in their retail partners’ iPhone 4 inventory that had been built-up in the previous quarters and 2) the effect of “pervasive rumors” of a new iPhone, particularly in the second half of the quarter, which slowed sales considerably.”

To be fair to analysts, both the Pros and the unaffiliated, Apple almost always guides low then beats in a big way. This time they guided low and beat in a decent-sized way, though not in as big a way as usual.

That same Fortune piece has Bullish Cross’ Andy Zaky pointing out that Apple usually beats guidance by somewhere between 15 and 18 percent. In the June quarter it beat its own guidance by 22-percent, then this week it only beat by 13-percent.

Seriously, how are you supposed to target that?

Let Me Tell You About the iPhone 4S iPhone 5. Or iPad.
A stunning number of analysts and investors missed the details of iPhone 5. I’m sorry, iPhone 4S, in such a spectacular way you’d think they’d want to wait a few more days before they start spouting off about unannounced products.

But they don’t know the meaning of the word “wait a few more days,” which is a few words.

Cool thing about Apple, there’s always something else about which to be wrong.

That may or may NOT have to do with this story. Time will tell.

Electronista has Ticonderoga Securities analyst Brian White saying he’s heard word of a cheaper iPad relatively close on the horizon. Meetings with Apple suppliers in China have White saying a sub-$499 iPad is in the works, nicknamed “iPad mini.”

Mini, he says, refers to price, not size. Quoting his note: “We believe this lower priced iPad could be priced in the mid-to-high-$200 range… We expect this will be followed by a much more powerful, feature rich standard-priced iPad 3 in 2Q12.”

I’ve gotta say this thing will go awesome with the iPhone nano and the extra large iPhone we got last week. And the one with no on-board memory. And the one with a touch panel on the front AND back.

White says Apple may go this way to counter Amazon’s Kindle Fire, which may not do half as much as the iPad, but will cost less than half as much coming in at $199 to the iPad’s starting price of $499.

If you find that unbelievable, now hear this: CNET has some unnamed someone from some unnamed place saying that the mini in the iPad-mini nickname DOES refer to size.

Quoting the piece: “An industry source who speaks with the Asia-based tablet supply chain told CNET that chatter is picking up for a 7-inch Apple tablet. Maybe not coincidentally, that’s the same size of Amazon’s $199 tablet that will ship on November 15.”

I guess if Tim Cook really wants to claim the company for his own —and freak everyone out — it could happen, though CNET harkens back to the words of Apple co-founder and then CEO Steve Jobs on the subject:

Apple has done extensive user testing and we really understand this stuff…There are clear limits on how close you can place things on a touch screen, which is why we think 10 inch is the minimum screen size to create great tablet apps.

It’s meaningless unless your tablet also includes sandpaper, so that the user can sand down their fingers to around one quarter of their present size.

Despite the Jobs dismissal of the 7-inch machines, CNET says, “the tablet market is changing. Apple may have to change along with it. Smaller 7-inch and 8.9-inch tablets from Samsung, HTC, RIM and others are prevalent now. And if the Kindle Fire approaches the iPad in sales - -which analysts say is possible — that would make smaller, cheaper tablets a category that rivals the 10-inch iPad in popularity.”

That just doesn’t sound like Apple to me.

Papermaster’s Job Roulette
And finally this week, former Apple exec for about ten minutes Mark Papermaster has landed another Silicon Valley gig.

MacNews says the former IBM exec, who ended up in court fighting for his right to work for Apple and stayed just a little bit longer than it’ll take me to write this entire sentence, has been named Senior VP and Chief Technology Officer at chipmaker AMD.

According to the piece, Papermaster will “oversee all of AMD’s engineering, research and development, and product development functions as the head of the newly-formed Technology and Engineering Group.”

Is it wrong for me to ask though, for how long?

Papermaster started at Apple in April of 2009 and left the company in August of 2010. While Apple would never say why he left, his departure came in the wake of the iPhone 4’s “Antennagate” issue, though secret so-and-so’s say he’d lost the confidence of then Apple CEO Steve Jobs.

So that’s a little less than a year-and-a-half at Apple, followed by a stint as VP of Silicon Engineering at Cisco.

Seriously, at most he could only have been there for 14 months, and now the good parking space at AMD.

Nice work if you can get it. And if you can get again, and again, and maybe a fourth time.

Papermaster? Or master of mind control?

We should take bets on where he’ll end up next.