A closer look at Apple's Q4 results

by Giles Turnbull

The release of Apple's fourth quarter financial results look great on the press release. It's the "best year in Apple's history," says Steve. You'd expect him to say something like that, and some of the big numbers published would make anyone happy: $3.68 billion quarterly revenues, profit of $430 million; 1.2 million Macs and 6.4 million iPods sold; "staggering" demand for the iPod nano.

But if you have an hour to spare, it's well worth taking some time to listen to the conference call Q&A session for business analysts to ask any question they like about the company's performance. Although the executives answering the questions are as tight-lipped as you'd expect them to be about forthcoming events, such as the Big Launch coming later today, a number of tiny interesting snippets emerge.

Firstly, the business community is not overly impressed with all of the results figures. Referencing iPod sales numbers, one analyst remarks: "Frankly, they're pretty weak."

Question after question comes about the transition from iPod mini to iPod nano. If Apple was winding down mini distribution in preparation (which it was), why weren't the nano sales even better? There is much talk of "constraints" on the iPod nano supply, but the Apple executives will not be drawn on what those constraints might be. Several analysts press them on the supply of iPod components - perhaps it's not as good as Apple hoped? But the executives always answer with the same "iPod nano demand is staggering; we cannot predict when supply will match with demand" mantra.

None of which is to say that the iPod does not continue to be a huge success. In August, 75% of all MP3 players sold in the US were iPods. Apple expects a third of new automobiles launched in 2006 to have direct iPod connectivity slots. As for digital music, Apple says it has 80% of the US market in legal music downloads.

Falling DRAM prices were an unexpected bonus for Apple during the quarter. While it's not stated explicitly, the implication is that this might be why some desktop models, notably the Mac mini, benefited from a default RAM boost to 512MB.

Back to school business has helped Apple along towards the end of the quarter. But the executives refuse several times to say how many desktop machines have been sold (although they're happy admit that a "normal seasonal decline" has had an effect). Growth in Europe has been impressive, up 92%.

Finally, as far as today's Big Announcement goes, a couple of things I noticed. In the official press release, Apple CFO Peter Oppenheimer is quoted saying: "Looking ahead to the first quarter of fiscal 2006 which will span 14 weeks, we expect revenue of about $4.7 billion." Compare that to the $3.68 billion for this last quarter. During the conference call, one of the executives admits that the prediction takes into account the new product launch. He also makes reference to the "announcements" (plural, not singular) and passing mention of PowerPC product improvements.

Based on which, I predict today's event will be about more than one product; not just "One more thing", but several, at least one of which is expected to be partially responsible for a huge sales boost (an extra billion dollars) between now and next spring. Also, we've yet to see the final PowerPC Mac released before the Intel switch next year.

The countdown has begun...


2005-10-12 04:47:17
comparing quarters of the same year?
Shouldn't you compare 2005Q4 with 2004Q4, not 2005Q?. Christmas only comes in Q4, so it's bound to inflate profits for the 4th quarter over the 3rd, with or without super-cool new products.
2005-10-12 04:48:15
comparing quarters of the same year?
Strike "2005Q?." replace with "2005Q3?" Sorry.
2005-10-12 09:08:31
comparing quarters of the same year?
This was Apple's 4th quarter. Christmas is in their 1st quarter.