September Quarter Results
Earlier today Apple reported results for the fourth fiscal quarter ended September 25, 2010 and the fiscal year ended the same day. The fiscal quarter's results were well above published analyst expectations. For the quarter Apple reported a 67% gain in revenue to $20.343 billion and a 67.5% rise in earnings per share to $4.64. For the fiscal year Apple reported a revenue gain of 52% to $65.225 billion and an earnings per share rise of about 66.9% to $15.15. These results are inline with my May forecasts for the fiscal year.
The iPhone 4 Goes To War
The fiscal fourth quarter's results were lead by strong sales of the Apple iPhone. The 14.102 million units sold represents a 91% increase in unit sales, tracking inline with the fiscal year gain of 92.9% or 39.989 million units sold. This compares with estimated global smartphone unit sales growth of 64% for the industry. Tim Cook, Apple's COO, called demand for the iPhone 4 "staggering."
In the conference call with analysts following the earnings release, Apple CEO Steve Jobs was impassioned in his comparison of the iOS and Android platforms calling the iPhone's platform, based on Apple's iOS, "integrated" and the Android platform "fragmented." This was the CEO's nomenclature in response to Google's claims the Android platform is "open" and the iPhone platform is "closed." Illustrating the fragmentation of the Android platform Mr. Jobs made reference to the many versions of Android with which app developers must contend and the proprietary interfaces some Android device makers will deploy to boost sales and create after-purchase revenue opportunities. This, he suggests, make the Android platform "fragmented."
Apple's iOS Versus the Competition
Mr. Jobs also noted in his comments that in Apple's September quarter the company sold more smartphones (14.102 million units) than Research In Motion sold more smartphones in its most recent fiscal period ended in August (12.1 million units). In comparing the success of iOS-based products to the reported success of Android-based products, he stated Apple activated in September on average 275,000 iOS-based devices per day compared to an average of about 200,000 Android-based devices as reported by Google. In comparing activations one must note iOS-based device activations include the Apple iPhone, Apple iPad and Apple iPod touch.
But perhaps his most most noteworthy comment during the conference call was about the iOS and the Apple iPad versus Android and Android-based tablet devices. Mr. Jobs made mention of the fact that Google has cautioned tablet device makers not to release tablets running the most recent version of Android but to wait for a version of Android specifically designed for tablets that will be released sometime next year. That's next year in contrast to the iOS-based iPad which is readily available today and will be available this holiday season at more than 10,000 retail outlets including Verizon, AT&T, Target and Walmart stores.
It's clear from his comments Mr. Jobs and Apple are bracing for battle with Google for supremacy in the smartphone market and the emerging market for tablet devices.
Gross Margins For The Quarter
In July, Apple CFO Peter Oppenheimer cautioned analysts to expect gross margins as low as 35%. For the September quarter Apple reported gross margins of 36.9% due to a better than expected mix of iPhones in the revenue total. For the December quarter Mr. Oppenheimer offered guidance on gross margins of 36%.
The Battle Lines Have Been Drawn
In this battle for mobile platform supremacy between Apple and Google, Apple is apparently willing to cut margins, price aggressively and fight for market share to promote what Mr. Jobs considers an "integrated" approach to platform development versus what Apple considers the "fragmented" state of the Android world.
I'll be back this weekend with a more comprehensive look at Apple's fiscal fourth quarter and fiscal year performances. In the meantime I reiterate my current price target for AAPL of $450 per share, despite the after hours sell-off due to analyst concerns about gross margins and in response to expectations for better sales of the Apple iPad than the 4.188 million units Apple reported today.
Robert Paul Leitao