5 Things You May Have Missed in Apple Earnings Last Week

With Apple (NASDAQ: AAPL  ) investors still bruised from last week's post-earnings pummeling, there are some data points that may have been overlooked amid the carnage. Here are five things you may have missed in Apple earnings last week.

400 and counting
As Apple expands its global retail footprint, the company's retail strategy has reached a new milestone, hitting over 400 stores. Apple closed the quarter with 401 retail stores, and most of that expansion has been internationally. The company's retail focus has rightly shifted abroad, and its domestic footprint still hovers around 250. Of the 11 stores opened last quarter, 10 of these were international locations.

Source: Earnings conference calls.

In the third quarter, Apple opened 17 stores, with only 1 of those being in the U.S. Over the past six quarters, the vast majority of retail store openings have been international.

Hey, big spender
When Apple filed its 10-K last quarter, it said it was expecting to spend $10 billion in capital expenditures in fiscal 2013. To put that figure into context, that's almost as much as the $13 billion that Intel (NASDAQ: INTC  ) is planning to spend in 2013, a company that operates the most advanced chip foundries known to man.

Only $850 million of that $10 billion is set aside for retail stores, with most of the remainder allocated to product tooling and manufacturing gear that will sit within manufacturing partners' facilities. However, keep in mind that Apple overspent its forecast capital expenditures in 2012 by 29%. It was originally planning on spending $8 billion last year, and it ended up spending $10.3 billion.

Last quarter alone, Apple spent $2.4 billion on cap ex, which is close to the $2.5 billion that Intel spent. Intel's heavy spending has caused anxiety among investors, since most were expecting it to spend less on capacity expansion amid the downturn in the PC market. Instead, Intel is betting big on new cutting-edge factories that can accommodate 450-millimeter silicon wafers.

Apple has faced supply constraints with several of its key products, so its investment to boost capacity is one of the better things to spend its $137 billion on.

Foreign cash is king
Speaking of that $137 billion money mountain, $94.2 billion of it now sits overseas, held by foreign subsidiaries. That's a total sequential increase of $15.9 billion, with most of that cash being generated abroad.

Cash

Q2 2012

Q3 2012

Q4 2012

Foreign

$81.4 billion

$82.6 billion

$94.2 billion

Domestic

$35.8 billion

$38.7 billion

$42.9 billion

Total

$117.2 billion

$121.3 billion

$137.1 billion

Source: SEC filings.

That's a sequential increase of $11.6 billion in foreign cash, again showing how important international sales are to Apple. Some of this relates to Apple's practice of shifting some sales to international subsidiaries as part of its tax strategy, but a lot of it is still generated by international sales that accounted for 61% of revenue last quarter.

Since most of Apple's manufacturing partners are abroad, having all those international dollars comes in handy.

I'll take a RIM's worth of components
That brings us right to Apple's manufacturing and component purchase commitments. I noted a huge sequential increase heading into the fourth quarter. While that didn't translate into the blowout that I was expecting, those third-party commitments remain elevated relative to historical levels. At the end of December, those commitments stood at $18.9 billion.

Source: SEC filings.

These types of commitments typically cover Apple's requirements for what it thinks it will need for up to 150 days based on projected demand information. While investors fret about growth deceleration, Apple still feels confident enough about its prospects to be on the hook for manufacturing and component commitments that total more than some entire companies are worth. These commitments are worth more than either Nokia or Research In Motion's entire respective market caps.

Holiday shopping season 2.0
China has become so important to the business that Apple now reports it as a separate geographical operating segment. If you include retail, Apple's "Greater China" revenue totaled $7.3 billion, which was up 62% from $4.5 billion a year ago. The thing to remember in China is that the fourth quarter is not the busy holiday shopping season. That comes during the first quarter along with Chinese New Year in February. The $7.9 billion in sales in Q1 2012 is currently Apple's record in the region.

Greater China Revenue

Q4 2011

Q1 2012

Sequential Increase Into Q1 2012

Q4 2012

With retail

$4.5 billion

$7.9 billion

76%

$7.3 billion

Without retail

$4.1 billion

$7.6 billion

87%

$6.8 billion

Sources: Earnings conference calls and SEC filings.

Apple posted monster sequential increases heading into the first quarter last year. Part of this jump was due to the iPhone 4S launch that took place in January 2012. This time around, Apple launched the iPhone 5 in December with 2 million unit sales but with only two weeks to go.

Last quarter, Apple posted several new records, including revenue, net income, iPhone units, and iPad units. This current quarter, Apple could easily post another record: Greater China revenue.

Apple took a big hit on earnings last week. Emotions aside, Apple's growth story is far from over, and the company still has massive opportunities ahead. We've outlined them right here in The Motley Fool's premium Apple research service, and it may give you the courage to be greedy when others are fearful. If you're looking for some guidance on Apple's prospects, get started by clicking here.


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Comments from our Foolish Readers

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 29, 2013, at 7:56 PM, TheRealRacc wrote:

    I really appreciate all the hard work that most MF writers put into keeping the website moving.

    However, I continuously find myself cringing when Apple is compared to other companies, i.e. INTC, or even worse, IBM.

    You start the article on the right track - pointing out Apple's store growth. How many stores does Intel have? The answer to that question is the same as the answer to this question: How much does AAPL (the stock) have in common with INTC (the stock)?

    Apple is slowing forcing its way into Intel's industry but quite frankly, the only value in Apple is found in consumers pocketbooks. Intel has penetrated every market you can imagine, from the consumer up to the enterprise.

    Valuating AAPL should not involve these other technology companies.

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