Intellectual Property Law

Revenues and Profits Soar at Apple...For Now

By Cynthia Brumfield

Apple issued its fiscal Q1 08 earnings report this afternoon and the news was outstanding. But, the recession's storm clouds rained even on this high-performing star. In after-hours trading, Apple's stock was down 11%, sliding to around $137 per share as of 8:40.

During the quarter, Apple generated revenue of $9.6 billion, up 35% year-over-year as iPod sales held their own and Macs continued to show very robust sales growth and the iPhone proved to be the hit product for the company that everyone expected it to be. Apple's net income soared by 57 to $1.5 billion.

So, why has Wall Street shoveled the company's shares out the doors in after-hours trading? First, Apple's guidance for Q2 08 suggested revenue of $6.8 billion and net income per share of $.94, which would reflect roughly 28% growth over Q2 07 levels. However, Apple's year-over-year quarterly revenue and income growth has typically hovered in the mid-30% range, so analysts saw the signs of consumer spending cutbacks in Apple's guidance.

Secondly, investors think Apple's phenomenal iPod product line is about to hit a growth wall, although sales of the iconic devices stayed relatively strong during Q1 08. Apple sold 22.1 million iPods during the last three months of 2007, the biggest quarter for iPod sales, up 5% year-over-year. Revenues jumped 17% year-over-year, as the more expensive iPod touch product line helped to bolster per unit prices.

Meanwhile, the iPhone could make up for any slack in a slow-down in iPod sales. Apple sold 2.31 million iPhones during the quarter, more than double the iPhones sold in the preceding quarter. Yet, Apple is going to have to pick up the pace of iPhone shipments if it is to meet its year-end 2008 goal of 10 million iPhones sold.

Because Apple is vulnerable to recession-driven consumer spending cutbacks, even the merest hint of anything less than meteroic growth is clearly upsetting investors. But, really, if even Apple is a disappointment, what's going to happen when mere mortal companies issue their earnings reports? Jitters, not necessarily rational investing, will make mincemeat out of less-than-Apple performers.

Full post as published by IP Democracy on January 22, 2008 (boomark / email).