Apple reported strong sales for the fourth fiscal quarter of 2008, including sales of $7.9 billion and a record 2.6 million Macintosh computers. But company executives, including Steve Jobs in a first-ever conference call appearance, failed to say how many retail stores would open during fiscal 2009, and no analyst asked during a question-and-answer session. The new store figure, which has been in the 35 to 40 range in previous years, would have provided a measure of Apple’s forecast for the economy in 2009. The retail stores reported record sales of $1.72 billion for the quarter, up 37 percent from the same quarter of 2007, and a profit of $301 million. The retail stores sold a record 596,000 computers, over one-half to those who have never owned a Macintosh. The number of store visitors hit a new record of 42.7 million, beating the previous record of 38.4 million set in Q1 2008. During the conference call, CFO Peter Oppenheimer noted the change in iPhone buying procedures at Apple’s stores, which he said has reduced the purchase time to just one minute longer than buying an iPod. Otherwise, the retail stores were just briefly mentioned in passing during the conference call. Check the Charts & Graphs for full quarter-by-quarter results.
The company reported particularly strong sales of iPhones, with sales of 6.8 million sold worldwide, surpassing the total sales in all previous quarters.
Oppenheimer gave a forecast for the first fiscal quarter of 2009, saying it was a “wide” one because of the economic turmoil: $9 to $10 billion in sales for the quarter.
In an unprecedented appearance on a conference call, Steve Jobs commented on the company’s results and its future in an uncertain economy. Oppenheimer introduced him as a “special guest,” and Jobs said it seemed like a good time to make a few remarks and answer questions in light of “this global economic slowdown.” He explained how Apple is releasing additional measures of its financial performance, to make it easier for analysts to judge the company. The changes were primarily made because the iPhone now constitutes 39 percent of the company’s revenue.
Jobs was obviously happy that the iPhone outsold RIM during the latest quarter, 6.9 million mobile phone vs. 6.1 million, after just 15 months with the iPhone on the market. Apple also has become the world’s third-largest mobile phone supplier measured by revenue (behind Nokia and Samsung, and ahead of Sony/Ericsson, LG, Motorola and RIM). ”I know this sounds crazy, but it’s true,” Jobs told the analysts.
Jobs was just as enthusiastic about the App Store, saying that the 200 millionth download will occur on October 22nd–after just 102 days–and that there are now over 5,500 applications available.
Jobs then tackled the economy, and ticked off a list of considerations when evaluating the effects the slowdown might have on Apple and sales. “First, let me say that we are not economists,” Jobs told the conference call listeners. “Your next-door neighbor can likley predict what is going to happen as accurately as we can.” He then listed:
- “We have the best customers in the world. I wouldn’t trade our customers for any other company’s customers in the entire world,” Jobs said. He surmised that while these customers might postpone purchases in tough times, “They are unlikely to abandon the quality and seamless integration which they have personally experienced and become accustomed to in Apple’s products.” In a downturn, Jobs said, these customers would delay instead of switch.
- Jobs noted that Apple has a minority share of the PC market and a “miniscule” share of the mobile phone market. “The percentage of PC customers that we need to attract in order to significantly increase our market share isn’t that many,” he said. He noted that 250 Apple stores are already selling one-half of their Macintosh computers to new-to-Mac customers.
- “We have the best product line-up in history,” Jobs said. Laptops, in particular, should trigger a “serious upgrade cycle,” he noted.
- “We have the most talented and creative employees in the world,” he said, pointing to their work on the new laptops, the iPhone, “and on and on.”
- Apple has almost $25 billion “safely in the bank and zero debt,” Jobs noted. “This provides us tremendous stability and the ability to invest our way through this downturn,” he said, just like during a previous downturn, when Apple’s retail stores were created. He cryptically added, “This downturn may also present some extraordinary opportunities for companies that have the cash to take advantage of them, like Apple does.” He didn’t explain what those opportunities might be, either at the time or when questioned later by an analyst. Jobs said the cash is “not burning a hole in our pocket,” and declined to speculate on what Apple might do with the money–buy back shares, purchase a company, etc.
In summary, Jobs said, “We may get buffeted around by the waves a little bit, but we’ll be fine and stronger than ever when the waters calm in the future.”
Oppenheimer said that U.S. K-12 education sales were down seven percent during the quarter because of budget issues at school districts, cities and counties. He said there was a slow-down in portable sales before the recent introduction of new models, but afterwards the company saw a “considerable rebound” in portable sales.
The aluminum uni-body for the new portables was the break-through technology that Oppenheimer mentioned during last quarter’s conference call. During this call, he said the process had been expensive to ramp up, especially because of the required precision. However, he said the company intends to improve the manufacturing process over time, and to reduce its cost per unit.
In response to a question about netbooks, Jobs wasn’t enthusiastic, saying the iPhone is a “pretty good solution” for that category, “and it fits in your pocket.” He surmised that an economic downturn probably wouldn’t force Apple customers to purchase from the less-expensive netbook category. “But we’ll wait and see how that nascent category evoles. And, uh…got some pretty interesting ideas if it does evolve,” he said.
In a very telling answer to an analyst’s question, Jobs explained his philosophy of products. The analyst wondered if Apple would continue to provide “more affordable price-points across the Mac product family,” especially the balance between price and features.
“I think what we want to do is deliver an increasing level of value to these customers,” Jobs said. “There are some customers which we choose not to serve. 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 that. But we can continue to deliver greater and greater value to the customers that we do choose to serve. And there’s a lot of them. And we’ve seen great success by focusing on certain segments of the market, and not trying to be everything to everybody.
“So, I think you can expect us to stick to that winning strategy, and continuing to try to add more and more value to those products in those customer bases that we choose to serve.” He then asked the analyst, “Does that make sense to you?” The seemingly startled analyst replied, ‘Ahhhh, yes it does.”
The Apple TV category is still a “hobby,” Jobs said in response to a question, and will be through 2009. He noted that several companies which had been working on similar devices had already faded away.
An analyst wondered if Jobs might appear regularly on the financial conference call. Jobs said simply, “Not likely, I’m sorry.”
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