By by Ed)

I keep thinking of “The Thing” going “Its clobbering time!” as I look at the 3rd Quarter numbers from Apple. It is a new game as Apple continues to write the most fascinating business story ever. It was funny to watch people freak out over the news from AT & T earlier in the week that they had “only” activated 146,000 iPhones in the first 30 hours. Apple stock plunged and there was even a story saying that iPhone sales had gone soft. The truth was revealed when Apple announced that it had sold over 270,000 iPhones in the first 30 hours and projected to sell 1 million iPhones in the first 3 months! Well, I’m going to “do the numbers” but suffice it to say that Apple recovered nicely after releasing their financials and now has a market capitalization in excess of Hewlett-Packard!

The $818 Million dollar profit for Apple on $5.41 Billion of sales for the three months ending in June were not about the iPhone. These results were first about a surging market for the Mac and OSX and had something to do with the nearly 10 million iPods sold in the quarter. Apple is firing on all cylinders and is hoarding about $13.8 BIllion in cash in the bank. Here’s some highlights from Apple’s 3rd Quarter results:

  • Most profitable June Quarter ever!
  • Third quarter profits ballooned 73 percent to $818 million, or $0.92 per diluted share, on sales of $5.41 billion.

The Mac Side

  • Apple shipped 1.764 million Macs during the quarter, representing 33 percent yearly growth. This included 1,130,000 notebooks and 634,000 desktop systems.
  • Notebook sales grew 42 percent year-over-year and accounted for 64 percent of Macs sold during the quarter. Their sales generated $1.58 billion in revenue.
  • Desktop sales accounted for 36 percent of the Macs sold during the quarter, rising significantly from the year-ago quarter. Desktops accounted for $956 million of quarterly revenue.
  • The Mac and related services represented 60 percent of Apple’s third quarter revenues – this is huge and is driving Apple. iPod & iPhone brings them in the door, and the Mac and OS X makes them buy!
  • The Mac growth was 2 1/2 times the industry growth rate for computer sales during the quarter.

iTunes, iPods and the Music Side

  • iPod sales and the music-related business accounted for 40 percent of Apple’s third quarter revenues.
  • Apple shipped 9,815,000 iPods during the quarter, representing 21 percent growth year-over-year, and accounting for $1.57 billion in revenue. Wow, that is one ton of iPods in 3-months! Hey, we’ve got accessories for everyone of those!
  • The rest of Apple’s Music Related business, which include iTunes and iPod accessories, generated $608 million in sales , an increase of 33 percent year-over-year.
  • Apple’s Consumer Electronics Side
  • Apple sold 270,000 iPhones during the final 30 hours of the quarter.
  • They expect to sell its 1 millionth iPhone by the end of the current quarter, which ends September 29th. By comparison, it took Apple nearly seven quarters to sell its first million iPods!
  • For the June quarter, iPhone and Apple TV-related sales combined for $180 million in deferred revenue. Remember that Apple is recognizing revenue from AppleTV and iPhone over a 24 month period for accounting purposes. Its earnings would be even higher if it recognized that revenue upon sale. However, they made the accounting change to account for product updates over the two-year life of the product. This is a correct and conservative approach to recognizing revenue.
  • Today, almost all AT&T and Apple stores have iPhone in stock.

Apple’s Retail Side

  • Apple’s retail store revenues for the quarter totaled $915 million, climbing 33 percent from $688 million during the same period in 2006.
  • Mac sales at Apple retail rose 53 percent to 330,000 units.
  • Over 50 percent of customers buying Macs at Apple retail stores are new to the Mac platform. We find this to be true at our own retail stores, as well.

Analysts who last week were starting to panic a bit, some even issuing “hold” and “sell” recommendations are now tripping over themselves to set new stock price targets for the next 52 weeks that predict AAPL to hit as high as $225/share. Which only goes to show you that analysts really are lemmings.

The genius of Apple is a whole systems approach to virtually every product they make. It is not just innovative design, it is user interface, ease of use and the intuitive nature of Apple’s products. This was the iPod story. When the iPod was released you could put it into anyone’s hands and they immediately “got it” and figured out how to make music play. It served as bait then and it is bait now to bring people into our stores to look around and see that that same innovative approach is also present in the Macs and especially in Mac OSX. With the move to Intel processors, with BootCamp and Parallel Systems and with the inherent security of Mac OSX, selling Macs has never been easier. The huge yawn that accompanied the release of VIsta didn’t hurt either, but without the strength of Mac OSX and the attractive and incredibly functional design of the Mac hardware platform, there would be yawns in Cupertino, too, instead of a bulging bank account, record sales and profits and the brightest future of any public US company.

All of us at Small Dog salute the Apple team for the continued string of success. Those of us that are independent Apple resellers appreciate these successes perhaps more than any other group as we stuck with Apple during the darkest of times and are now enjoying Apple’s string of hits. We are going to continue to do our part to promote the best computing platform, the best music platform and the best emerging consumer electronics platform. This is fun and as our friends over at Ben & Jerry’s say – “If it’s not fun, why do it?”


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