Welcome Back, Apple

Hello there, old friend. Last quarter, I recall you needed to take a little bit of a breather. You had gone for years on end pummeling Wall Street estimates to a pulp, not missing a beat since 2004. A little R&R was justified; even the best need rest.

I don't blame you. You had a lot going on. You had just lost Steve Jobs (although technically after the fiscal quarter closed). The media kept hassling you about the delayed launch of the latest iPhone. These things happen. I knew you would make it up to me, Apple (Nasdaq: AAPL  ) .

And then some
Every single one of Apple's reported results was a bona fide blowout, in line with the hints we had picked up. Top-line revenue added up to an astonishing $46.33 billion, a 73% rise from the prior year's $26.74 billion. Gross margin jumped from 38.5% to 44.7%. Net income soared by 118% to $13.06 billion, which turns out to $13.87 per diluted share. That last bit is worth reiterating: The largest tech company on Earth is still putting up triple-digit profit growth.

The bottom line wasn't the only figure seeing triple-digit growth. iPhone and iPad unit sales both more than doubled, with 37.04 million iPhones moving, a 128% gain, and 15.43 million iPads being taken home, a 111% jump.

The iPhone explosion makes sense considering that Nielsen figures show the device catching up with Google (Nasdaq: GOOG  ) Android's market share. The 4-million-unit head start and expanded carrier distribution didn't hurt, either.

CEO Tim Cook said management had "made a very bold bet entering the quarter as to what the demand would be." Translation: We ordered up a mother lode of iPhones hoping they would move. Despite this "bold bet," Apple ended up with a backlog and was still short on supply in some areas. Cook said, "I think many of you would have thought [we were betting bold] if you would have known what we were doing," before saying Apple didn't bet high enough.

A matter of perspective
Some of these digits would benefit from additional perspective. The $46.33 billion cleared in sales in this single quarter exceeds the revenue that the entire company did as recently as fiscal 2009, which saw $42.9 billion in revenue. The iPhone segment alone rang up $24.4 billion in sales, topping Apple's total revenue from fiscal 2007, the year the original iPhone was introduced, which was $24 billion.

There's been talk recently of Apple taking the crown of top PC maker in the world from Hewlett-Packard (NYSE: HPQ  ) , measured by shipments, and assuming that the iPad counts as a PC. By this gauge, Apple sold 20.6 million Macs and iPads combined, trouncing the 14.7 million PCs that HP is estimated to have moved last quarter.

The iPad alone bested that total. Macs put up 26% unit sales growth, far outpacing the relatively flat broader PC market.

Win some, lose some
iPhone average selling prices continue to move higher, although at a slower pace than I had expected. While I had speculated iPhone ASPs could reach as high as $750 with the iPhone 4S price points, I thought it would actually end up just shy of $700. iPhone ASP ended up being $659 in the quarter, a healthy bump from the $645 a year ago, but short of my hopes. This oversight on my part was likely due to underestimating the impact of older models selling in emerging markets.

Source: investor.apple.com.

iPad ASP actually saw a drop from $629 last year to $593. This is likely due to lower pricing on first-generation iPads, which are still sold refurbished to clear inventory, whereas last year the first generation was the only generation. There could also be a product mix shift toward entry-level prices as adoption has clearly accelerated.

Apple: globetrotter extraordinaire
Of its international segments, Japan saw the most growth, with sales in the region jumping by 148%. Europe and Asia Pacific were neck and neck with 55% and 54% revenue growth, respectively. The Asia Pacific figure doesn't even factor in the iPhone 4S launch in China, which took place just this month. That region saw the highest growth in Mac units, though, rising 58%.

Overall, 58% of revenue came from abroad.

The gateway device
iPod was the only segment to contract, with units and revenue falling 21% and 26%, respectively. This is a continuation of an existing trend. The 15.4 million units sold were actually ahead of Apple's internal expectations.

More important, over half of those sales are iPod Touches, which notably run iOS. As Apple's most important OS, these devices act as a gateway device to the iPhone and iPad, particularly for youth.

Stupid rich
Apple is beyond stupid rich with the money mountain it has. Cash and investments now tower at $97.6 billion. With that figure steadily approaching 12-digit territory, it's a natural topic of discussion. On the conference call, CFO Peter Oppenheimer said, "we are actively discussing the best uses of our cash balance," refraining from elaborating further.

Cue dividend and acquisition speculation.

A dividend of some type is a distinct possibility under Cook, and we all know how I feel about Apple acquisition speculation. Either way, I've never been particularly concerned with the swelling bankroll of Benjamins, since Cook knows how to use it.

With a vengeance
Cupertino is starting off fiscal 2012 with a bang. It shows that last quarter's "miss" was meaningless, and that Apple is resuming its expectation-demolishing ways after stopping to catch its breath.

Welcome back, Apple.

Speaking of all these huge numbers, the mobile revolution is also set to become the next trillion-dollar revolution, with Apple leading the way. There are lots of companies that are set to cash in on it, but one in particular has excellent prospects. The company is one of a few players that will help power the mobile devices of the future, and it also has exposure to the explosive growth in China. As bullish as I am on Apple, I'm also bullish on this stock, and I've given it an "outperform" CAPScall. Get access to this 100% free report to find out what company I'm talking about.

Fool contributor Evan Niu assumes that Apple stashes its bankroll as $100 bills in mattresses, which would require 463,289 king-size mattresses. He owns shares of Apple, but holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of Google and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (24) | Recommend This Article (44)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 25, 2012, at 10:31 AM, bigtex79 wrote:

    Apple equals 'Made in China'.

    That moniker brings with it all the ideology- human rights abuses, worker exploitation, copyright infringement, etc.

    People should think twice about joining the 'Apple Express'- do you really want to contribute to this? If you are worried about a 'carbon footprint', think about the 'human rights abuse footprint' you make with the use of Apple products?

  • Report this Comment On January 25, 2012, at 10:49 AM, jdmeck wrote:

    Grow up. All tech is made in China. You can blame that on American, tax the rich socialist, and unions.

  • Report this Comment On January 25, 2012, at 10:53 AM, wlwccg wrote:

    @bigtex79, hmmm.. please let me know what kind of American made computer you are working on? Also, what car are you driving? Do you think any of the parts came from China? Microwave, refrigerator, oven, range, sink, shower? It's a globalized economy now, sir. Please enlighten me on which companies you are invested in, and what they do to avoid 'human rights abuse'. At least Apple puts out it's supplier list and makes somewhat of an effort to encourage better opportunities.

  • Report this Comment On January 25, 2012, at 10:54 AM, jordanwi wrote:

    Ugh, spare me bigtex. Let me know the life history of the device you used to post. Also, get together a short list of stocks that are morally justifiable, if PCs are out of bounds. For all those others that were long Aapl and not totally jealous, boom!

  • Report this Comment On January 25, 2012, at 11:00 AM, BertC2 wrote:

    @bigtex79

    So if you don't buy made in China, you'd be OK if it's made in Korea, Japan, India?

    I'm shopping for a a smart phone, where can I get one that's made in the USA?

    How about a DVD/Blue ray, flat screen TV, sound system... I suppose you don't use any of those then? What brand of computer are you using and where is it made? As far as I know, due to web/flash requirements, most computers made over 4 years ago are obsolete if you plan on using it to watch streamed video.

  • Report this Comment On January 25, 2012, at 12:31 PM, FutureMonkey wrote:

    Now now, settle down. Investors should consider the social implications of their investments and nobody should be attacked personally for expressing their opinions in a post. I avoided investing in NIKE for many years for similar reasons. NIKE came around and made changes in large part because of public and shareholder concern about their "sweatshop" practices.

    As others point out AAPL is hardly the only user of a Foxconn style manufacturing community. The fact that everybody is doing it doesn't automatically make it right, just like the fact that it takes place in China doesn't automatically make it wrong.

    There was an excellent NYTimes article on Foxconn recently and it was very illuminating. AAPL could not do in the USA what it does in China and not because of cost, Unions, Socialists (can we stop throwing that label on everything -- not even close to socialist in USA). Sure the cost would run up the manufacturing price on the iPhone by about $60/unit which is real, but the main advantage that AAPL gets at Foxconn is the rapidity of change on the assembly line. The first iPhone had a last minute change in the glass being used, just weeks before due on shelves. The new glass arrived at midnight. They woke up the workers gave them tea and biscuits and set them to work installing the new glass. Within 96 hours they were producing 10,000 iphones a day with the new glass. Try to do that on a USA manufacturing line. Is that abusive? Maybe, I haven't visited Foxconn to know. But if there is sufficient public pressure and shareholder concern to improve conditions, safety, and wages for international workers then that change will happen from within. It will take time. For now I haven't seen enough evidence of true human rights violations to justify avoiding Apple products or owning shares in the company.

  • Report this Comment On January 25, 2012, at 2:06 PM, jz1492 wrote:

    In Asia, labor moves faster because of the perception of work as national duty, enforced by peer pressure. What pretends to be a selfless society.

    In the West, the labor movement, unions, populist politics and pre-socialism envy (the worker's belief of entitlement), have made any loyalties for the company much harder to instill.

    It's not about the compensation.

    Steve Jobs' Apple had what is needed, namely, a noble cause, a loved true leader and a loyal following.

    Maybe Steve Jobs left us with his greatest invention of all, hidden in plain sight.

    Lets change all those silly mission statements to include something we can all stand behind, leaving the quest for shareholder's gains as a consequence, not as a goal.

    The future is for the committed.

    @bigtex79: Apple is doing what decades of foreign policy couldn't; they are at the forefront of the change in China's human rights acceptance.

    Plus, the carbon and toxins footprint of Apple's products is at the lowest you can find in it's industry. Thanks to Apple going to China, Apple products are overtaking dirtier PCs in the market.

    Which was to be expected --Apple is a company with a cause.

  • Report this Comment On January 25, 2012, at 3:23 PM, riwaterman wrote:

    Kahuna, thank you.

    that was my first reaction too.

    Also that quarter, the know it all analysts proved they really don't know what they are doing when they raised their expectations at the last minute - actually couple weeks - way above Apple's stated expectations.

  • Report this Comment On January 25, 2012, at 3:24 PM, sikiliza wrote:

    As an "Apple Lemming", I am hugely proud of a company that has figured out how to do a few things more successfully than anyone else out there. The products are great, reliable and they work. And for a Apple, with about $95B on its balance sheet, that's testament to serving your customers well.

    As for production in China, well, like someone else mentioned, we are in a global economy now. The NyTimes article clearly stated that Apple went for China because of the ultra-fast reaction times to product changes, dedication to meeting production goals and of course, the cost of doing so.

    The unions are American Industry's biggest enemy - look at the airlines, the auto manufacturers - always going bankrupt, no innovation, no competitive edge = unions.

  • Report this Comment On January 25, 2012, at 6:04 PM, Darwood11 wrote:

    I've avoided what I consider to be "socially irresponsible" businesses in my investment plans.

    That makes it easy to reject tobacco companies. But what about AAPL? Here's one recent report:

    "[AAPL] recently released a list of its suppliers, and the information was more troubling that most people had previously believed. According to its own records, 93 of its supplier facilities reported that more than 50% of its workers worked over 60 hours a week. In addition, and even more troubling, was news that 108 facilities did not pay proper overtime as required by law.......Apple insisted that it had mandated changes at the suppliers that were not following the law, but acknowledged that many lapses have persisted for years."

    And not to be outdone is Google, which paid a $500 million fine because it "improperly and knowingly assisted online pharmacy advertisers allegedly based in Canada to run advertisements for illicit pharmacy sales targeting U.S. customers." As reported in the Wall Street Journal.

    These revelations give me pause to invest in these supposedly "high flying" companies.

  • Report this Comment On January 25, 2012, at 6:34 PM, eldetorre wrote:

    "has figured out how to do a few things more successfully than anyone else out there."

    Yes work Chinese workers to exhaustion via contractors.

    Yes unions here are too fat and lazy, but Apple could still be profitable and contract with companies that will treat their workers better too.

  • Report this Comment On January 25, 2012, at 6:38 PM, zontar100 wrote:

    Not quite sure why we are blaming unions for all the troubles of the world. Most of what we expect from a decent job is a result of unions raising the bar and forcing old industrialists to give up a bit of spare change so life would be bearable for its workers.

    But, back to the topic. Chinese labor is certainly not the cheapest anymore. The demand for labor within China has pretty much taken care of that. Also, the Chinese are starting to crack down on the nasty industrial pollution which is the worst by product of this industry. What does all this mean? With time, workers naturally realize that they can have some control over their lives. It is good to make noise about poor wages, awful working conditions and environmental damage. To be silent is to accept it as "OK". Making noise gives hope to those who want to change their lives for teh better!

  • Report this Comment On January 25, 2012, at 6:40 PM, eldetorre wrote:

    "Plus, the carbon and toxins footprint of Apple's products is at the lowest you can find in it's industry. Thanks to Apple going to China, Apple products are overtaking dirtier PCs in the market."

    This is patently untrue. Apples entire product line, outside of workstations is designed to be disposed of in lieu of repair. Can't even easily change batteries in iPhones. Also, their iMacs are the antithesis of green. An all in one computers means the display gets replaced when the computer gets upgraded.

    Displays have a longer useful life than cpus. There is no midrange computer in Apple's line up, An iMac equivalent without a display.

  • Report this Comment On January 25, 2012, at 6:42 PM, eldetorre wrote:

    "The fact that everybody is doing it doesn't automatically make it right, just like the fact that it takes place in China doesn't automatically make it wrong."

    The difference of course is that Apple's enormous profits mean that there is financial room for them to do the right thing.

  • Report this Comment On January 25, 2012, at 6:47 PM, dennyinusa wrote:

    • The article said workers were paid 17 cents an hour, worked 12 hour days and lived in the factory dormitories. No factory in America union or no union can compete with slave labor. The last minute change was made because the material being used was easy to scratch. This would be a design or engineering error, but instead of taking the hit their departments it is pushed onto the grunt employees to make up time for management’s mistakes. So they wakeup slaves feed them a biscuit and a cup of tea and off to work they go.

    • “In Asia, labor moves faster because of the perception of work as national duty, enforced by peer pressure. What pretends to be a selfless society? In the West, the labor movement, unions, populist politics and pre-socialism envy (the worker's belief of entitlement), have made any loyalties for the company much harder to instill. It's not about the compensation. Steve Jobs' Apple had what is needed, namely, a noble cause, a loved true leader and a loyal following.”

    • What a bunch of crap. Labor does not move faster in Asia because of national duty, peer pressure, and have more loyalties. It is all about compensation. It works for 17 cents an hour, at that price you can move at a snail’s pace and still be cheaper to hire. I really doubt any of the slaves even know who Steve Jobs was, so you can throw out the noble cause, loved true leader and loyal following bull crap.

    • The slaves love their jobs so much, they throw themselves out the windows at such an alarming rate that they had to start hanging nets around the building. Suicide is always the best way to show how much you love something.

    These items could have been made in USA but then Steve Jobs would not have been a billionaire but only a multi-millionaire. Even better he only had to pay 15% in taxes since his money was from investments. Enjoy worshipping at the church of Steve Jobs.

  • Report this Comment On January 25, 2012, at 7:33 PM, xetn wrote:

    I will just step into the "worker exploitation" b.s. Having lived in China for almost 3 years, I can state that most Chinese don't feel any of the above. They are grateful for have a higher paid job than what most were making before the onset of the "explosion" in jobs from manufacturing, etc. following Dung's change in policy toward their version of capitalism.

    The workers are not slaves, and work where they choose. The can and do quit if they don't like their work environment or any work policies and there have been strikes for higher pay.

    China is certainly not perfect, far from it. But condemning them for producing cheap goods at the request of their buyers is not wrong. They do not set the standards for products, their customers do. They can and do produce some very high quality goods.

  • Report this Comment On January 25, 2012, at 9:00 PM, 78rpm wrote:

    This article is poorly written and in bad taste. The author can't write.

  • Report this Comment On January 25, 2012, at 11:48 PM, mikecart1 wrote:

    It's only a matter of time before the house of cards fall. Apple can't keep this up because if it did, it would defy the laws of reality. Apple is losing its edge because a lot of my friends aren't getting the new iPhones but instead are getting phones that run Android. Apple's computers have never been great and their mp3 players are being crushed by companies like Sandisk. The iPhone is the moneymaker and when the iPhone fails to impress, the company will start its decade of decline.

  • Report this Comment On January 26, 2012, at 6:03 AM, on2addict wrote:

    @mikecart1

    I can't believe you still post about apple after your past projections. If anybody listens to you they will lose a lot of money. You posted the following in Oct. 2010.

    "I have done nearly 3 years of analysis and my results show that AAPL will decline when the market is satuated with iPhones and iPods and sales of iPads get weaker. Look for AAPL to hit a high of around $340/share only to drop to $250/share or more by the end of 2011."

    Now you claim your are choosing Android over Iphone?? The latest stats do not back that up.

    Let me know what phone or computer is not being made in Asia.

    I would recommend people do the opposite of what you recommend.

  • Report this Comment On January 26, 2012, at 10:20 AM, mikecart1 wrote:

    @on2addict

    My record speaks for itself. I was right about NFLX, GMCR, SODA, and other stocks that have run up artificially. AAPL's ride is just a lot longer because they are still living on the momentum provided by Steve Jobs. Cook is nothing close to Jobs and when the designs become revisions instead of inventions, you will see this stock level off and slowly taper off like any leading company of the past.

  • Report this Comment On January 26, 2012, at 11:04 AM, ddammerman wrote:

    @mikecart1 You might enjoy reading *The Innovator's Dilemma* It captures your opinion pretty well. Historically, companies that grow to significant leadership positions often "grow themselves into a corner" where they find that growth opportunities are nowhere near as plentiful as they were during the rise. The book I mention posits a solution, however. It points out that a company that can cannibalize it's own offerings and continue to do so will be able to succeed. I honestly think Apple has a very good chance to continue leading the innovation curve for the next 3 - 5 years.

    As for your "house of cards" statement ... man, if you think $97 billion in cash and zero debt represents a "house of cards", then you are WAY harder to impress than I am.

  • Report this Comment On January 26, 2012, at 11:44 AM, BertC2 wrote:

    @mikecart1

    If you compare AAPL p/e & valuation to most stocks they would like look like a ponzi scheme. Can you point me to a better performing stock to invest that have zero debt and loaded with cash?

  • Report this Comment On January 26, 2012, at 3:35 PM, eldetorre wrote:

    " I can state that most Chinese don't feel any of the above. "

    China has billions of people. How many hundreds of thousands of people did you have personal interactions with to even consider making an outlandish inference like that? Are you fluent in Mandarin or Cantonese? Did you have extended conversations with the lower class "slave" labor outside the influence of managers? Or were you shuttled around for photo ops executive briefings etc.

    ://simply-american.net/2012/01/25/you-dont-deserve-to-assemble-...

  • Report this Comment On February 02, 2012, at 9:25 PM, MHedgeFundTrader wrote:

    Apple has become a monster cash flow generator. Apple now has the envious problem in that sales of several of its products are going hyperbolic at the same time.

    Apple announced net profits of $13.06 billion, or $13.87 per share, up 11% from the previous year. If the company just maintains that rate for the rest of the year, it will generate $55.48 in earnings, which at the current 11.5 multiple should take the stock up to $638, up 40%. If Apple makes it up to a market multiple, the stock should rise to $721, a gain from here of 58%.

    If the multiple expands to its pre-crash average of 35 X, that would take the stock to a positively nose bleeding $1,941, giving you a 424% return from current levels. Then the company would be worth $2.8 trillion and rank 5th in the world in GDP, more than France, and just behind Germany. Wow!

    It all reinforces my view that Apple shares will reach my long term target of $1,000 sooner than anyone thinks. Long term readers are well aware that I have been making this call for the past two years back when it was trading at a lowly $240. More recent subscribers will also recall that I predicted that Apple would be the top performing technology stock in my 2012 Annual Asset Class Review.

    I'm not saying that you should rush out and load up on stock today. But it might be worth taking a stake on the next wave of fear that strikes the market.

    The Mad Hedge Fund Trader

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