How did Apple Ship 220k iMacs in Q2?

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By montashigi
May 2, 2002

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I love the way Plato90s works the innuendo levers. He's saying Steve Jobs did nothing illegal; he just lied to investors. News flash, Plato: That's illegal. He's also saying Apple booked revenues for 40,000 iMacs that were not actually shipped in the quarter. That too would be an SEC violation and land Apple in the corporate pokey. So Steve and Apple did nothing wrong. All they did was break the law in a million ways.

I think the real issue here is that Plato and the analysts got skunked on their holy revenue projections and Plato wants someone to blame. Let us flash back to the end of February when the great Steve Fortuna of Merrill Lynch came out with a research note that said there is no way Apple will ship 200,000 iMacs in the March quarter. Where did he get the 200,000 number? He made it up. How did he know iMac production was in trouble? He had independent sources in factories overseas. In other words, Fortuna made his projections entirely without guidance from Apple. Apple didn't come out and say he was wrong, but they are under no obligation to refute every random rumor out there.

So using Fortuna's call on Feb 27, Plato made the following revenues prediction on Feb 28:

"At this point, I think it's almost a certainty that Apple's original projection of $1.5B of sales for this quarter will not be met. The only question is whether Apple will fall short by $10M or $50M or $100M."

Notice Plato made his call three weeks before Jobs's announcement at Macworld Tokyo. In other words, Plato did not rely on Steve's supposed guidance. Dude, you got skunked. Just be a mensch and admit it.

So how did Apple ship 200k iMacs in Q2, when Jobs said they only shipped 125k as of March 21? 4aapl put me onto the answer. Yes, the conference call from April 17 is still online:

At the 15 minute mark, Daniel Kunstler of JP Morgan asked our precise question. Fred Anderson said the last 10 days of the quarter saw daily units shipped averaging about 9k. Over the 10 day period, they shipped 90 to 95k units. He said specifically that there are no manufacturing limitations at their contractor factories. The only limitations were in component availability. In response to Kunstler's followup, Anderson said it is not guaranteed that Apple will be able to ship that many units in the future. He hinted that once the current backlog is depleted, there wouldn't be enough demand to ship that many units per day.

So how should we imagine what happened in the final 10 days of the quarter? We knew Apple had a huge order backlog, which meant they could sell every single machine they could ship. We also knew they were air freighting, and that certain components were in short supply, specifically flat panel displays and memory. What probably happened was that the contract manufacturer had several tens of thousands of machines already assembled lacking only either a display or memory or both. A bunch of trucks pull up from the Taiwanese memory factory down the street. The contractor cranks up the assembly lines and hundreds of workers pop in the memory units, screw down the bottom plate, and drop it into the shipping box.

Then they drive them down to the industrial airport where the air freighter is warming up. A FedEx MD-11 air freighter (just an example; I don't know that they used FedEx) has a carrying capacity of 190,000 lbs. My iMac's shipping box says the thing weighs 14.71 kg, or 32.43 lbs all in. That means they can carry 5,858 iMacs per flight. Over the 10 day period, Apple would have to send out 16 full flights of iMacs to make 90 to 95k units shipped, or better than one and a half flights per day. Difficult? Yes. Impossible? Obviously not.

So what we saw last quarter was outstanding execution, overcoming early setbacks in component availability. Plato is saying it is impossible that Apple could have performed that well, and therefore they must be lying. I guess that's why he's a bear. I like to believe in the occasional appearance of human excellence in the face of challenging conditions. Notice that the iMac shortage disappeared in the last week of March, and every retail outlet had plenty in stock. That wouldn't have happened if Apple were shipping phantom iMacs.

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