Apple cuts 1600 from Apple Stores

The quarter wasn’t all roses for Apple.  Turns out, it has been reducing employee hours at the Apple Store to the tune of 1600 equivalent jobs.  We say ‘equivalent’ because not all workers were full time.  Currently Apple Retail employs 14,000 full-time equivalent workers, down from 15,600 at the end of Apple’s first fiscal quarter, according to a filing with the SEC.  The reduction of numbers wasn’t a result of any particular directive or massive layoff, Apple just slowed hiring as the normal high turnover of retail lowered job numbers.

The per store revenue fell to to $5.9 million from $7.1 million year over year.  Overall, revenue increased just 1 percent to $1.74 billion, yet 45 new stores having opened last year.  So, Apple wasn’t immune.  

While Apple is reducing numbers, they might want to consider some "turnover" in their iTunes Apps Store approvers.



Google Product search for iPhone (and Android)

Google today announced their Google Product Search for iPhone.  It looks like a very useful product to compare specs and pricing as well as reading product reviews.  There is certainly overlap with this application and Amazon’s iPhone application.

Does anyone else wonder if Google uses its own engineers to advertise products to make it seem more geeky and less…evil?

Billionth App just downloaded[Updated w/winner]

Who got the new MacBook Pro and Time Capsule?  Anyone?  Please let the billionth app be iFart.  Big ups Apple.

Update: From Apple’s PR:  The one billionth app, Bump created by Bump Technologies, was downloaded by Connor Mulcahey, age 13, of Weston, CT. As the grand prize winner of Apple’s one billion app countdown contest, Connor will receive a $10,000 iTunes® gift card, an iPod® touch, a Time Capsule® and a MacBook® Pro.


Microsoft reports first drop in quarterly earnings EVER

Bad economy, or Vista really sucks? Maybe both.

Microsoft today reported a 6% drop in year-over-year revenue for the quarter ending March 30, 2009. Microsoft’s drop in net income was larger, falling 32% to $2.98 billion. Microsoft said that the Client, Microsoft Business Division, and Server & Tools divisions were "negatively impacted by weakness in the global PC and Server markets." In other words, PC sales are down. Microsoft expects "the weakness to continue through at least the next quarter."

One note of good news, for the economy at least: Microsoft says revenue from enterprise customers "remained stable".

Oh, and one other point of interest.  Microsoft’s COO, Kevin Turner, said:

…Windows 7 operating system, which remains on track for a fiscal year 2010 launch… (July 1, 2009-June 30, 2010).

In the recent past, they’ve been talking about a late 2009 release, this statement indicates that Microsoft is leaving the door open to a release in the first half of 2010.

Seeking Alpha has the earnings call transcripted, interesting choice of words on Netbook play

They’ve done a machine traslation.  Our favorite part?

Tim Cook on the possibility of Apple joining the Netbook game:

And then of course, if we find a way where we can deliver an innovative product that really makes a contribution, then we will do that and we have some interesting ideas in the space. The product pipeline is fantastic for the Mac.

Interesting that the product pipeline is "Mac" and not "iPod" for Apple’s netbook/tablet play.  Compare this with Steve Jobs remarks six months ago:

As we look at the NetBook category, that’s a nascent category. There’s as best as we can tell not a lot of them getting sold. You know, one of our entrants into that category, if you will, is the iPhone for browsing the Internet and doing e-mail and all the other things that a NetBook lets you do, and being connected via the cellular net wherever you are, an iPhone is a pretty good solution for that, and it fits in your pocket. But we’ll wait and see how that nascent category evolves and we’ve got some pretty interesting ideas if it does evolve.


Deconstructing Tim Cook's remarks on Netbooks

Tim Cook was pretty harsh on the Netbook world yesterday with his comments:

“When I look at what is being sold in the notebook space today, I see cramped keyboards, terrible software, junky hardware, very small screens — just not a consumer experience, not something we would put the Mac brand on, it’s a segment we don’t play in….I think it’s a stretch to call it a personal computer.”

But we know Apple likes to harsh on a market it is about to dive into (See Steve Jobs’ comments on video iPods) and destroy.  Perhaps Cook, and Jobs before him, are laying the groundwork for the differentiating factors in their entry into the Netbook world?

So, what do Cook’s statements mean for a prospective Tablet/Netbook?

Cramped keyboard – This means one of two things:  Apple will have either a full sized keyboard or no physical keyboard.  A full sized keyboard would be a great addition but unless it is an IBM Butterfly model (remember those?) it will stretch out the size of the device to near MacBook Air proportions.  Technically, you need 11.5 inches diagonally to include a full sized keyboard.   That would put it very close to the MacBook Air’s 13-inch display.

Apple also has a fantastic full-sized, yet portable Bluetooth keyboard already.  Incorporating that Bluetooth keyboard into a tablet would be the best of both worlds.  See more on an Apple Netbook keyboard here.

Terrible software = Windows XP.  XP is now on 90% of Netbooks after Linux had originally been the default OS (Microsoft lowered its prices to $15)   It is a 7 year old OS and has been plagued for years with security holes and virus issues.  It also wasn’t designed for a netbook – though ironically, most of the displays back in 2002 were about the same resolution as Netbook screens – they were just 17 inch CRTs.  – or like the 17 inch display that Lauren picked.

Intrestingly, Microsoft is toying with the idea of putting a three application limit on Windows 7 as well.

Junky hardware – not much to be said here.  What can be expected for $300?  Apple will come in with some indestructible design that could double as a piece of art…but at what cost?  Apple could even the playing field a bit by using a cheaper, in-house ARM/PA Semi processor/mobo and allowing the extra money to be spent on design/materials/build. 

All of that being said, we are perfectly happy with the hardware on the ASUS Eee 1000HE.  Some Netbooks aren’t really that bad.

Small screen - This is interesting because the top end of the netbook world is sitting on some solid 10.2 inch LCD screens.  Apple is either implying that it will go with a bigger screen or it is pointing the finger at the smaller Netbook screens which are in the 8-9 inch range.  Apple has, on many reports, been ordering up some 10 inch touch displays.  We are thinking that resolution independence will allow you to do more with less.  Frankly, we’d love to see a 720P screen like the new Dell Mini 10 sports.  That would really be a good tie in with iTunes/differentiator to the rest of the market.  Then there is OLED.

All of that being said, Apple could just introduce something like we showed you last month and many of us would be very happy.

Is Forbes magazine anti-Apple?

That’s the theory posted over at Valleywag on the heels of the Forbes cover story on Jobs’ options backdating deposition.  It looks like Forbes might have had some help finding the three hour deposition from someone formerly inside Apple.  To break it down:

- Forbes is partially owned by Elevation Partners as of 2006

- Yes, the same Elevation Partners that invested heavily in the Palm Pre

- Elevation Partners includes Fred Anderson (former Apple CFO and Board member – who left Apple amid backdating scandal) who isn’t the biggest SJobs fan.  Little known fact: He was the CEO that Jobs replaced because he replaced Gil Amelio temporarily while the Apple Board talked Jobs into coming back.

- Obviously Jon Rubenstein, former Apple exec is part of Elevation partners and now chairman of Palm.

- Daniel "Fake Steve" Lyons wrote his often critical Apple views while at Forbes.  He now works at Newsweek.

The question is: Can Forbes "rescue itself" from being critical of Apple in light of the fact that it is actually under the same umbrella organization as Palm? There is absolutely no hard evidence to suggest that Forbes is biased and they have written many pro-Aple articles in the past.  Perhaps they should mention in their Palm and Apple stories that they are under the same umbrella organization as Apple competitor, Palm.



Earnings call highlights

Today’s earnings call beat most analyst expectations.  With the exception of snapping over five years of Mac growth with a 3% downturn, you’d have to rate Apple’s performance as exceptional. Some notes:

  • iPhone sales blew everyone away.  Although Apple reported iPhone sales of 3.8 Million (Called it!), they measured only until March 17th, the date of the 3.0 Beta release.  That means the rest of the quarter’s sales haven’t been tabulated and won’t be until 3.0 is released this summer.
  • Apple’s Mac Sales were down 3% largely due to 11% decline in educational sales.  However last year they had just released the MacBook Air which generated extraordinary amounts of sales.  Also the PC industry in general saw double digit losses on mostly low margin netbooks.
  • Music sales were up 3% – even in this economy
  • iPod marketshare – over 70% in the US and growing overseas
  • NetBook?  Same answer. We can’t build a product that they’d be proud of.  "For us it’s about doing great products. When I’m looking at what’s sold in the Netbook market, I see cramped keyboards, junky hardware, very small screen, bad software. Not a consumer experience that we would put the Mac brand on."  "We offer the touch and iPhone" "If we find a way to deliver an innovative product that really makes a contribution, we’ll do that. We have some interesting ideas. The product pipeline is fantastic for the Mac."- Tim Cook
  • Steve Jobs’ return? Status Quo – end of June (misses WWDC)
  • Why stay with AT&T?  CDMA is dead and Apple wanted one phone for the world.
  • China?  Apple hope to have an iPhone there within a year.


Apple announces good financial results

Apple Reports Second Quarter Results – I’ll be liveblogging here.

Best March Quarter Revenue and Earnings in Apple History

CUPERTINO, California—April 22, 2009—Apple® today announced financial results for its fiscal 2009 second quarter ended March 28, 2009. The Company posted revenue of $8.16 billion and a net quarterly profit of $1.21 billion, or $1.33 per diluted share. These results compare to revenue of $7.51 billion and net quarterly profit of $1.05 billion, or $1.16 per diluted share, in the year-ago quarter. Gross margin was 36.4 percent, up from 32.9 percent in the year-ago quarter. International sales accounted for 46 percent of the quarter’s revenue.

In accordance with the subscription accounting treatment required by GAAP, the Company recognizes revenue and cost of goods sold for iPhone™ and Apple TV® over their estimated economic lives. Adjusting GAAP sales and product costs to eliminate the impact of subscription accounting, the corresponding non-GAAP measures* for the quarter are $9.06 billion of “Adjusted Sales” and $1.66 billion of “Adjusted Net Income.”

Apple sold 2.22 million Macintosh® computers during the quarter, representing a three percent unit decline from the year-ago quarter. The Company sold 11.01 million iPods during the quarter, representing three percent unit growth over the year-ago quarter. Quarterly iPhone units sold were 3.79 million representing 123 percent unit growth over the year-ago quarter.

“We are extremely pleased to report the best non-holiday quarter revenue and earnings in our history,” said Peter Oppenheimer, Apple’s CFO. “Apple’s financial condition remains very robust, with almost $29 billion in cash and marketable securities on our balance sheet. Looking ahead to the third fiscal quarter of 2009, we expect revenue in the range of about $7.7 billion to $7.9 billion and we expect diluted earnings per share in the range of about $.95 to $1.00.”

Apple will provide live streaming of its Q2 2009 financial results conference call utilizing QuickTime®, Apple’s standards-based technology for live and on-demand audio and video streaming. The live webcast will begin at 2:00 p.m. PDT on April 22, 2009 at and will also be available for replay for approximately two weeks thereafter.

*Non-GAAP Financial Measures
During fiscal 2007, the Company began selling the iPhone and Apple TV. Because the Company may provide unspecified features and additional software products to iPhone and Apple TV customers in the future free of charge, in accordance with GAAP the Company recognizes revenue and cost of goods sold for these products on a straight-line basis over their economic lives, with any loss recognized at the time of sale. Currently, the economic lives of these products are estimated to be 24 months. This accounting treatment, referred to as subscription accounting, results in the deferral of almost all of the revenue and cost of goods sold during the quarter in which the products are sold to the customer. Other costs related to these products, including costs for engineering, sales, marketing and warranty, are expensed as incurred. Further, the costs to develop any future unspecified features and additional software products that may eventually be provided to customers also are expensed as incurred. In contrast, the Company generally recognizes revenue and cost of goods sold for its other products, such as Macs and iPods, at the time of sale, as the Company does not provide future unspecified features or additional software products to those customers free of charge.

In July 2008, the Company began selling iPhone 3G, the second-generation iPhone, and at that time significantly expanded distribution by establishing carrier relationships in over 70 countries. Unit sales of iPhone 3G have been significantly greater than sales of the first-generation iPhone. During the first quarter of iPhone 3G availability ended September 27, 2008, 6.9 million units were sold, exceeding the 6.1 million first-generation iPhone units sold in the prior five quarters combined.

Unit sales of iPhone 3G continued to be significant in the quarter ended March 28, 2009, with 3.79 million iPhones sold. As a result, the amount of revenue and product cost related to those iPhone sales that the Company deferred for recognition in future periods under subscription accounting was substantial. While the GAAP results provide significant insight into the Company’s operations and financial position, management continues to supplement its analysis of the business using financial measures that look at the total sales, related product costs and resulting income for iPhones and Apple TVs sold to customers during the period. The presentation at the end of this press release includes the following non-GAAP measures: “Adjusted Sales,” “Adjusted Cost of Sales,” “Adjusted Gross Margin,” “Adjusted Operating Margin,” “Adjusted Net Income” and “Adjusted Diluted Earnings per Share.” These financial measures are not consistent with GAAP because they do not reflect the deferral of revenue and product costs for recognition in later periods. The above-mentioned non-GAAP measures are generated by adjusting the related GAAP measures solely to reverse the effect of subscription accounting. The Company uses these financial measures, along with other measures discussed below, to provide additional insight into current operating and business trends not readily apparent from the GAAP results.

Management uses Adjusted Sales to evaluate the Company’s growth rate, revenue mix and performance relative to competitors. Given the impact of iPhone unit sales during the quarter ended March 28, 2009, Adjusted Sales provides a meaningful measurement of the Company’s growth by reflecting amounts generally due to Apple at the time of sale related to products sold within the period. Further, eliminating the effects of deferred revenue (current sales deferred to future periods and prior sales being recognized currently) provides more transparency into the Company’s underlying sales trends. Management uses the non-GAAP measures of “Adjusted Cost of Sales,” “Adjusted Gross Margin” and “Adjusted Operating Margin” to measure the Company’s operating performance based on current period iPhone and Apple TV sales and to facilitate ongoing operating decisions. Additionally, because the Company recognizes engineering, sales, and marketing expenses as incurred, including expenses related to iPhone and Apple TV, management uses Adjusted Sales to evaluate returns on those costs, to manage year-over-year operating expense growth, and to budget future expenses. Furthermore, because they are considered meaningful indicators of current business performance, the non-GAAP measures “Adjusted Sales” and “Adjusted Operating Margin” are metrics that factor into the determination of management compensation beginning in fiscal year 2009. Finally, management uses the non-GAAP measures of “Adjusted Net Income” and “Adjusted Diluted Earnings per Share” to measure the Company’s operating performance based on current period iPhone and Apple TV sales, to facilitate ongoing operating decisions, and compare performance relative to competitors.

Management believes that these non-GAAP financial measures, when taken together with the corresponding consolidated GAAP measures and related segment information, provide incremental insight into the underlying factors and trends affecting both the Company’s performance and its cash generating potential. Management believes these non-GAAP measures increase the transparency of the Company’s current results and enable investors to more fully understand trends in its current and future performance.

Cautions on Use of Non-GAAP Measures
As noted previously, these non-GAAP financial measures are not consistent with GAAP because they do not reflect the deferral of revenue and product costs for recognition in later periods. These non-GAAP financial measures do not adjust for the costs associated with the Company’s intention to provide unspecified new features and software to purchasers of iPhone and Apple TV products. These costs are expensed as incurred under GAAP’s subscription accounting model, and are not adjusted in these non-GAAP financial measures. As such, these non-GAAP financial measures are not intended to reflect in a given period all of the costs of sales made in that period. Rather, the non-GAAP financial measures presented below are intended for the limited purpose of presenting performance measures that include the total sales, related product costs, and resulting income for iPhones and Apple TVs in the period those products are sold to customers.

Management believes investors will benefit from greater transparency in referring to these non-GAAP financial measures when assessing the Company’s operating results, as well as when forecasting and analyzing future periods. However, management recognizes that:

these non-GAAP financial measures are limited in their usefulness and should be considered only as a supplement to the Company’s GAAP financial measures;
these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the Company’s GAAP financial measures;
these non-GAAP financial measures should not be considered to be superior to the Company’s GAAP financial measures;
these non-GAAP financial measures were not prepared in accordance with GAAP and investors should not assume that the non-GAAP financial measures presented in this earnings release were prepared under a comprehensive set of rules or principles;
these non-GAAP financial measures are not presented with comparable non-GAAP financial measures for prior periods, although management intends to continue to track and present these non-GAAP financial measures for future periods; and
until management presents comparable non-GAAP financial measures for additional periods, these non-GAAP financial measures do not provide any information regarding trends in the Company’s performance and, as such, investors should not assume that the presentation of these non-GAAP financial measures reflects any positive or negative trends in the Company’s performance.
Further, these non-GAAP financial measures may be unique to the Company, as they may be different from non-GAAP financial measures used by other companies. As such, this presentation of non-GAAP financial measures may not enhance the comparability of the Company’s results to the results of other companies.

A reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure or measures appears at the end of this press release.

This press release contains forward-looking statements including without limitation those about the Company’s estimated revenue and earnings per share. These statements involve risks and uncertainties, and actual results may differ. Risks and uncertainties include without limitation the effect of competitive and economic factors, and the Company’s reaction to those factors, on consumer and business buying decisions with respect to the Company’s products; potential litigation from the matters investigated by the special committee of the board of directors and the restatement of the Company’s consolidated financial statements; continued competitive pressures in the marketplace; the ability of the Company to deliver to the marketplace and stimulate customer demand for new programs, products, and technological innovations on a timely basis; the effect that product transitions, changes in product pricing or mix, and/or increases in component costs could have on the Company’s gross margin; the inventory risk associated with the Company’s need to order or commit to order product components in advance of customer orders; the continued availability on acceptable terms, or at all, of certain components and services essential to the Company’s business currently obtained by the Company from sole or limited sources; the effect that the Company’s dependency on manufacturing and logistics services provided by third parties may have on the quality, quantity or cost of products manufactured or services rendered; the Company’s reliance on the availability of third-party digital content and applications; the potential impact of a finding that the Company has infringed on the intellectual property rights of others; the effect that product and service quality problems could have on the Company’s sales and operating profits; the Company’s reliance on sole service providers for iPhone in certain countries; war, terrorism, public health issues, and other circumstances that could disrupt supply, delivery, or demand of products; the continued service and availability of key executives and employees; unfavorable results of other legal proceedings; and the Company’s dependency on the performance of distributors and other resellers of the Company’s products. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the SEC, including the Company’s Form 10-K for the fiscal year ended September 27, 2008, its Form 10-Q for the quarter ended December 27, 2008, and its Form 10-Q for the quarter ended March 28, 2009 to be filed with the SEC. The Company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market with its revolutionary iPhone.

Press Contacts:
Steve Dowling
(408) 974-1896
Investor Relations Contacts:
Nancy Paxton
(408) 974-5420
Joan Hoover