Cupertino (CA) – Apple Computer started focusing on the “Computer” part of its name during its fiscal third quarter 2006 earnings call this afternoon, reporting quarterly profit up 47% annually to $472 million from $320 million. Revenue was up 24% over the fiscal third quarter of 2005, to $4.37 billion – about 54¢ per share – and 55% of the reasons for that, said Apple CFO Peter Oppenheimer, were the iMac and the new MacBook.
“We continue to be very happy with our progress, and our developers’ progress, in the transition to Intel,” Oppenheimer told investors this afternoon. “We’ve now introduced the iMac, MacBook, MacBook Pro, and Mac mini with Intel processors, and we’re solidly on track to transition the PowerMac and Xserve by the end of this calendar year.”
While the iMac generally takes the passenger seat during quarterly conference calls of late, this time it took center stage. The new iMac ad campaign, featuring former “Ed” TV star Justin Long as a human incarnation of the iMac, and John Hodgman as his stodgy PC counterpart, is really paying off for Apple, Oppenheimer said. It’s helping to account for 12% annual shipment growth and 11% annual revenue growth; and half of the 1.327 million iMacs sold in Q3 through Apple’s own chain of retail stores were to new customers, not existing Macintosh owners.
But that message is definitely not getting through to power users and enterprises, where the PowerMac and Xserve lines (yes, Apple makes a server, did you know that?) are still bound to Power G5 processors. That will apparently change, but until it does, there’s a whole segment of Apple’s customer base that isn’t purchasing new units, as COO Tim Cook admitted: “In the Pro markets, we were slow,” he said, “and we were slow because we believe that customers are delaying purchases, waiting on a PowerMac with an Intel chip in it, and in some cases waiting for applications such as Adobe Creative Suite.” Meanwhile, sales to the education market are booming, he added, growing 11% annually in Q3, with the higher education segment alone growing 31% annually.
So what’s happening with the little music player thingy Apple sells? It’s still moving along, selling another 8.11 million units in the quarter just ended. That’s down a bit from the prior quarter, but spring just ended, Cook reminded investors, and the tapering off of sales is in keeping with the seasonal curve. Shipments of iPods rose 32% year-over-year, said Oppenheimer, with inventory on hand staying within the 4- to 6-week channel that retailers like to hear. Later, though, in response to a question from a Lehman Bros. analyst, he admitted that iPod sales were relatively flat this quarter, contributing to a slight decline in revenue per customer in Apple’s retail outlets. Another reason for that decline, he added, was that those stores had 50% more traffic this year over last.
“We continue to be very enthusiastic about iPod,” Oppenheimer recited like an oft-repeated tune. He cited NPD data which states the iPod accounts for over 75% of the US MP3 player market. Yes, that’s big; but yes, that’s down, from NPD numbers in the 90s in 2002, and the 80s in 2004. Revenue from “other music ventures” – a big chunk of which is iTunes – skyrocketed 90% year-over-year to $457 million in Q3, mainly due to the creation of demand for downloadable videos. (Maybe they should call it “iShows.”)
Apple did give a little guidance for its fiscal Q4: Revenue should come in at a range between $4.5 – 4.6 billion, with earnings per share at between 46 – 48¢. That’s a little bit of a drop in earnings as revenue rises, with margins tightening from about 30% in the prior quarter to about 28.4% next quarter.
The month “September” kept creeping up in discussions, and Apple executives were clear about what they couldn’t say, why they couldn’t say it, and when they could probably change their tune: September. How innovative does Apple plan to get with its nano, one analyst asked meekly? Oppenheimer knew that was a coded message, and responded that he’ll have more to say…in September. Does “Leopard,” the new version of MacOS, factor into guidance that looks a little upbeat despite declining margins? Can’t talk about Leopard, came the response. Check back in September. If there are any remaining analysts believing Apple may plan to delay its fall releases, they could also be changing their tune today.