Listening to an Apple
It's not what he said, but how he said it
The businesslike atmosphere of last night's call, where questions were handled mostly by stand-in CEO Tim Cook, certainly lent a dignified air to the proceedings. Earnings stayed about flat from last year at $1.78 per share, $0.02 above the year-ago figure, on GAAP sales of $10.2 billion. Remove the dampening effects of subscription accounting for Apple TV and iPhone sales, and revenue stops at $11.8 billion.
Either way, we're comparing sales to $9.6 billion from last year, which means healthy growth despite a nervous herd of consumers. And we still didn't get any offhand jokes or hearty belly laughs from either management or analysts.
Substance over style
The tone of a conference call is a lousy basis for an investment strategy, of course. There were other grown-up things going on in this report, though:
- Apple moved a net $8.2 billion out of cash and into short-term investments, perhaps taking advantage of opportunities in securities cheapened by global panic.
- Cook and CFO Peter Oppenheimer talked about hedging against currency exchange risks, so Apple "has not seen the full impact of the U.S. dollar strengthening" yet. More traditional "mature companies" like IBM
(NYSE:IBM) have not been quite as lucky -- or perhaps not quite as smart. - If currency hedging weren't enough, Apple also made sure to lock in long-term supply contracts for some items like computer memory, or the aluminum it needs for those spiffy new MacBooks. Knowing that the market abhors uncertainty, Apple is doing everything in its power to make business as predictable as possible.
While hedging reduces downside risks, it also means taking some growth opportunities off the table. Aluminum prices are falling like a skydiver with a broken parachute, and Micron
Quotable clips
Still want more proof? Okay. Cook dropped all of the following pearls of mature wisdom last night. Ponder how they set Apple apart from growth gurus like Research In Motion
- "We believe that we need to own and control the primary technologies behind the products that we make, and participate only in markets where we can make a significant contribution. We believe in saying no to thousands of projects, so that we can really focus on the few that are truly important and meaningful to us."
- "Our objective is not to be the unit share leader in the cell phone industry. It's to build the world's best phones."
- "Considering the commodity environment and the stronger dollar, we are also continuing to focus on delivering state-of-the-art products at price points our competitors can't match."
The last two points should resonate particularly strongly with investors in Microsoft
The Foolish takeaway
With a P/E of about 17 times trailing earnings, and growth expectations around 19% a year over the next few years, Apple is priced about right for a regular old value stock -- and management is behaving like adults, too. Maybe these guys will follow Microsoft's lead and start paying dividends in a year or two. And there's absolutely nothing wrong with that.