Posted Jul 12th 2007 2:12PM by Georges Yared Filed under: Forecasts, Consumer experience, Competitive strategy, Apple Inc (AAPL), Wal-Mart (WMT), iPhone
So much has been written about Apple (NASDAQ: AAPL) as we witnessed the long lines to buy the iPhone on June 29. Numbers were circulating that Apple sold 700,000 units of the new, revolutionary device in the first weekend. Apple has yet to confirm that, but the anecdotal evidence is certainly pointing toward blow-out numbers. Apple stated a goal of 10 million units sold by year end 2008, now I am hearing from several sources that the goal will be raised to 13-14 million. What does all this mean for the stock and its march to $200?
Apple is such a unique company because it transcends the typical technology company profile. With its massive retail store system, 180 strong, Apple has DIRECT contact with its customers: soup to nuts, it controls the sale. Apple controls not only the principal purchases of iPhones, iPods, Macs, etc., but controls the accessory sales and is building its own database of customer names and critical information. That list is worth its weight in gold. It's called future add-on sales with very low sales and marketing expenditures.
With all the moving parts to the Apple story, analysts intuitively know that forward numbers are quite conservative and going higher. The question is do we wait until July 25 for the release of the June quarter results or take a gander right here, right now? The June quarter consensus estimates call for revenues of $5.28 billion and earnings per share (EPS) of $0.72 versus last year's June results of $4.3 billion and EPS of $0.54. For the September 30 fiscal year 2007, expectations are for total revenues of $23.7 billion and EPS of $3.56. September 30, 2008 fiscal year expectations call for revenues of $29.2 billion and EPS of $4.13.
Apple Earnings Are As Expected; Share Reaction's On the Strong Side
Before I talk about the outlook for the June quarter, I�d like to provide a little more information about our strategy for the iPhone and Apple TV and how we plan to account for them. We believe the iPhone is a revolutionary device that is years ahead of the competition. At Macworld, we demonstrated a number of the iPhone�s breakthrough features, including its pioneering multi-touch display and user interface, visual voicemail, desktop class e-mail and web browsing, and of course, the best iPod ever.
We plan to build on this incredible foundation by continuing to develop new software features as well as entirely new applications and incorporate them into the iPhone. Since iPhone customers will likely be our best advocates for the product, we want to get them many of these new features and applications at no additional charge as they become available. Since we will be periodically providing new software features to iPhone customers free of charge, we will use subscription accounting and recognize the revenue and product cost of goods sold associated with iPhone handset sales on a straight line basis over 24 months. So while the cash from iPhone sales will be collected at the time of sale, we will be recording deferred revenue and costs of goods sold on our balance sheet, and amortizing both of them into our earnings on a straight line basis over 24 months. We will continue to expense our iPhone engineering, sales and marketing costs as we incur them. This accounting policy will have no impact on cash flow or the economics of our business.