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Steve Jobs’s Home Run With the iPhone
By SAUL HANSELL
Apple generates so much hype and gratuitous superlatives that it can be hard to distinguish when it has done something that is truly remarkable. But going over what Apple said in its earnings release and conference call Tuesday, it’s clear that the dimensions of its cellphone business — its sales, profits and market share — deserve the strongest words of praise that can be summoned.
Steve Jobs and Apple’s iPhone (Credit: Shaun Curry/AFP/Getty Images)
Less than two years after saying it would enter the business, Apple now says it is the third-biggest maker of cellphones in the world by revenue, after Nokia and Samsung. And it sold more phones than Research In Motion, the maker of the iconic BlackBerry.
The numbers are stunning. In the quarter ended in September, Apple said iPhone sales represented 39 percent of the company’s $11.6 billion in revenue (adjusted for some accounting technicalities). That means Apple sold $4.5 billion worth of iPhones in the quarter.
Apple said it sold 6.9 million iPhones in the first quarter in which it sold the new iPhone 3G model, more than it sold of the first model in a year. That represents average revenue of $652 per handset. Since the price of the phone in the United States is $199 to $299, it appears that carriers are kicking in well over $300 in subsidy per phone, a bit more than is typical with other handsets.
Even at this early age, the iPhone is rather profitable. Apple doesn’t normally disclose how much profit it makes on different product lines, but some accounting wrinkles give us a clue about the margins on the iPhone.
When Apple sells an iPhone (or an Apple TV), accounting poobahs have ruled it can’t simply report the revenue right away. The reason is that the company expects to spend money to write software updates for those products in the future. So to match income and expenses, it spreads the revenue over two years. While this has a theoretical purity, in reality it confuses anyone who wants to read Apple’s financial statements to figure out how much it sold.
In an unusually helpful move, Apple has decided to publish an alternate version of its income statement that is more like what investors and others are used to. The money that comes in from selling products (minus a reserve to cover future warranty costs) is called revenue.
Even more helpful, since the difference between the two versions of the financial statement only relates to the iPhone and Apple TV, it gives a window into the economics of those products. In particular, the net income shown on the new alternative financial statement is $1.3 billion higher than the standard version.
That gives an interesting, if imprecise, view of the profits on the iPhone. That $1.3 billion includes the profit or loss from Apple TV. It excludes a portion of the iPhone profit that would have been attributed to the current quarter. And there are other peculiarities I don’t pretend to understand fully.
Nonetheless, from a distance, to say that Apple is making more than $1 billion in quarterly profit from a product line it didn’t even sell two years ago seems rather remarkable.
Here’s another stunner: Apple’s $4.6 billion in revenue from phones is more than its sales of computers. Analysts expected Apple to sell about $4 billion in Macintosh computers and $1.6 billion in iPods in the quarter. (By unit, Apple was a little light of estimates for computers and right on target for iPods. The analysts are still crunching their numbers to turn the unit count, which Apple discloses, into revenue estimates.)
Of course, in many ways the iPhone is more computer than telephone. As John Markoff noted, Mr. Jobs responded to a question on a conference call with analysts about netbooks — tiny laptops that some argue are the next new product trend — by saying that the iPhone is Apple’s entry into that category.
In another question, Mr. Jobs was asked whether Apple needs to make more variations of the iPhone to match the wide range of shapes, sizes, features and colors that other handset makers create to tap into every possible pocket of demand.
No, Mr. Jobs said. Again, he compared phones to computers, saying that in the future they will be differentiated more by software than hardware design.
“From everything I’ve heard,” Mr. Jobs said. “Babe Ruth only had one home run, and he kept hitting it over and over.”
Call that hubris. It wouldn’t be the first time. But for this quarter at least, Mr. Jobs can boast he hit one out of the park.
http://bits.blogs.nytimes.com/2008/10/22/steve-jobss-home-run-with-the-iphone/
Sales of the iPhone were 39% of revenues and is the fastest growing segment. I'm guessing 17 million in the next year.
Jobs during CC, The non-GAAP financial results are truly stunning. By eliminating subscription accounting, adjusted sales for the quarter were $11.68 billion, 48% higher than the reported revenue of $7.9 billion, while adjusted income was $2.44 billion, 115% higher than the reported net income of $1.14 billion. Adjusted net income that is more than double our reported income -- if this isn't stunning, I don’t know what is, all due to the incredible success of the iPhone 3G.
It looks like non-GAAP eps would be $2.56 versus the $1.25 reported. The deferred revenue tsunami will continue to grow with accelerating iPhone sales, making the current P/E metric less useful in valuing the stock.
Reversal; Buy the news.
ask Cringley
The killer...
"Looking ahead, visibility is low and forecasting is challenging, and as a result we are going to be prudent in predicting the December quarter. We are providing a wide range for our guidance, targeting revenue of $9.0 to $10.0 billion and earnings per diluted share between $1.06 and $1.35."
That's well below Q1 08
iChat > AAPLTalk - eom
AAPL -Buy the news?
Apple ads woof on Vista ads
http://www.apple.com/getamac/ads/
OT: SOX SKIPPER TO LEAD MCCAIN BATTLE
In a surprise move, Red Sox manager Terry Francona last night accepted an offer from Senator John McCain to supervise every aspect of his faltering campaign for the Presidency in the period remaining before November 4th, Election Day. The move came less than an hour after Francona’s club had scored eight runs in the last three innings of Game Five of the American League Championship Series, doing away with a seven-run lead by the Tampa Bay Rays, who had appeared to be on the verge of a pennant and a berth in the 2008 World Series. Francona will supplant the incumbent McCain campaign director, Rick Davis. “I’m a maverick, too,” Francona declared in a press conference.
http://www.newyorker.com/online/blogs/tny/2008/10/sox-skipper-to-lead-mccain-bat.html
OT: Bosox in great comeback win.
As if by wizardry:Migration and DVD/CD Sharing Update
http://support.apple.com/kb/HT3174
Last hour - either up down big.
Mutual funds?
How about Paperless "Paper"
http://news.bbc.co.uk/2/hi/technology/7631596.stm
Bye, bye KINDLE
Switch paves way for super iPods
The largest iPod currently available can hold about 40,000 songs
A breakthrough in technology could see the memory capacity of devices such as the iPod increase by 150,000 times, Glasgow University researchers claimed.
Two experts said they had developed a molecule-sized switch which means that data storage could be boosted without having to increase the size of devices.
The biggest MP3 player currently available can hold about 40,000 songs.
However, new nanotechnology could theoretically allow users to store millions of video and music tracks.
Professor Lee Cronin and Dr Malcolm Kadodwala, from the university's chemistry department, said their work could see 500,000 gigabytes squeezed into a microchip no bigger than a two pence piece.
http://news.bbc.co.uk/2/hi/uk_news/scotland/glasgow_and_west/7350281.stm
2.5 GHz MacBook Pros at Amazon for $1644
Amazon has the old MacBook Pros on sale at a steep discount — $1794 with a $150 rebate. This machine sold for $2499 at the Apple Store two days ago.
http://www.amazon.com/exec/obidos/asin/B0013FLTNS/ref=nosim/daringfirebal-20
re dongles; Apple believes DisplayPort is the digital-display-interface standard.
DisplayPort Versus HDMI
http://www.edn.com/index.asp?layout=article&articleid=CA6594089
Paulson speaks; Bernanke goes for his gun
http://graphics8.nytimes.com/images/2008/10/14/business/14cnd_paulson_600.jpg
Sub $1000 MacBook for only...
$999 !
Live from Apple's "spotlight turns to notebooks" event
http://www.engadget.com/2008/10/14/live-from-apples-spotlight-turns-to-notebooks-event/
For $899 you'll get a
$899 24-inch LED Apple display. : (
and AAPL is red.
The oracle of Seattle
Bill Gates said the U.S. economy is headed for a ``fairly significant recession,'' and that the unemployment rate may peak at more than 9 percent.
http://www.bloomberg.com/?b=0&Intro=intro3
Quite the "White" Monday you wanted and nice green Apple.
Strange partners?
Wal-Mart next to carry Apple's iPhone - report
By Slash Lane http://www.appleinsider.com/
Published: 10:00 AM EST
Discount department chain Wal-Mart may become the second independent US retailer to carry Apple's vaunted iPhone 3G next month, according to an unconfirmed report.
Citing one of its "ninjas," BGR claims to have it on good authority that the big-box retailer will join Best Buy as the only other third-party iPhone reseller ahead of the holiday shopping season.
Specifically, the gadget blog believes an announcement is scheduled for Saturday, November 15th, approximately two weeks before Black Friday -- traditionally the start of the US holiday shopping season and busiest shopping day of the year.
BGR had previously joined AppleInsider in accurately predicting (1, 2) that Best Buy would become Apple's first authorized third party sales channel for the iPhone. However, it added in those reports that Radio Shack was also poised to carry the device.
The gadget blog said its uncertain whether Radio Shack is still in the running to receive the iPhone, but suggests that Wal-Mart "has swooped down and stolen" its thunder for the meantime.
Wal-Mart is the world's largest public corporation and private employer, operating over 3500 Discount and Supercenter locations in the United States alone. The retailer is also one of Apple's highest volume iPod resellers worldwide.
OT: Did roni take a second job?
Neel Kashkari reveals a coder's plan to save the world
http://valleywag.com/5060601/neel-kashkari-reveals-a-coders-plan-to-save-the-world
The broker usually borrows the stock from institutions, pension funds, endowments, etc. For a small fee. I don't think any serial numbers are recorded in the transactions.
Mr. Kashkari is actually a rocket scientist, having worked at NASA before joining Goldman.
OT cash for equity
...Paulson not only confirmed his intention to buy stakes in banks but gave the idea central billing. “We can use the taxpayer’s money more effectively and efficiently, get more for the taxpayer’s dollar, if we develop a standardized program to buy equity in financial institutions,” Mr. Paulson said.
Treasury officials said they hoped to make the first capital investments within the next two weeks. That would be earlier than any government purchases of unwanted mortgage-backed securities. One reason for Mr. Paulson’s rapid reconsideration was that global financial markets have been going downhill faster than anyone had seen before.
http://www.nytimes.com/2008/10/12/business/12imf.html?hp
Paulson went the cash for equity route plus interest with AIG.
re equivalent rules for shorting
Overstock CEO Patrick Byrne Sends Open Letter to President Bush
1. Enact a market-wide mandatory pre-borrow requirement for all short
sales;
2. Put in place a market-wide hard-delivery requirement on T+3 for all
sales;
3. Require that for any failure-to-deliver, broker-dealers must force a
mandatory buy-in;
4. Track each trade cradle-to-grave, so that prosecutors can go after
naked short sellers;
5. Require regular and timely disclosure by naked short sellers of when
and how many shares they are failing to deliver; and
6. Enforce these rules, including significant monetary penalties and jail
time.
George Soros video
http://www.pbs.org/moyers/journal/10102008/profile.html
Have you ever been involved in a complicated deal?
There is so much misinformation flowing over the net right now, it is hard for anyone to get a handle on what is really happening in the financial markets. And it is not because the issues are easily understood. It is for the lack of transparency that the world seems to be in the dark as to the cause and effect relationships surrounding this financial crises. But I bet almost every investor here that is older than the age of 50 has a story about when he/she got caught up in a deal where investment and ownership got confused. This situation is certainly a nightmare all by itself but when the investment starts to sour, the problems multiply a hundred fold.
This global financial crises hasn't been cause by sub-prime lending!!!!! Let me repeat that. It is not a sub-prime problem. However, sub-prime mortgages contributed to this problem because of the way they created the real problem. SIV's are the real problem. No one wants to talk about SIV's. But for the uninitiated, they are Structured Investment Vehicles. And even SIV's by themselves aren't the real problem. It is the way they sold SIV's and then insured those same investments that created this overwhelmingly complicated problem that no one can find a way of undoing.
So, you have three things working in tandem that each by itself could easily be resolved. But all together, they have created an asset class that has lost a marketable value. Add in the mark to market rule and we now have the complete picture of the financial chaos that is now gripping the world. Everyone wants to find someone to blame so I will outline a list of guilty parties quickly.
Rating agencies should be at the head of the list primarily because without their erroneous ratings, these things could never have made it into the portfolios of many sound financial institutions.
Wall street bankers who invented a package of complicated legal entanglements.
Brokers who sold various rights to separate parties concerning these complicated instruments.
Investors who bought instruments that they didn't fully understand and without "due diligence"
Insurance and other financial institutions for writing CDS on instruments without any real world actuarial information on performance over time.
Hedge funds who utilized this asset class to leverage.
Banks and other financial institutions that relied on this asset class for underlying capitalization.
And now that the blame has been distributed, we can get to the heart of the problem.
Complexity!!!! Complexity!!!! Complexity!!!!
Every time I have seen a complicated deal, I walk away. You only have to walk that street once and you know never to walk it again. Somehow, we forgot the old adages that our parents lived with like:
Bankers are the worst business people or
Never trust your money with total strangers or
If it doesn't make sense to you it may not make sense to anyone
The reality of the SIV asset class is that it has real underlying value with little market value because of so many complicating factors and hidden "got you"s.
The only way we can work out of this problem is to provide those institutions holding this asset class the time necessary to unwind a complicated deal.
If the SEC doesn't step in here to stop the financial terrorism being heaped upon the market by naked shorting, rumor mongering and dumping, we won't have a prayer of finding the time of unlocking the underlying asset value in these instruments.
This is becoming a self fulfilling prophesy and feeding frenzy for white collar criminals that utilize sophisticated tools to scam the system.
via IV
October 14th
And to think that Apple is tying to grab headlines from Election Day in Canada. : )
re U.S. will buy banks equity
This is what George Soros has recommended.
JPM Fed, CitiFed, Bank of Feferica :D
re short selling
The SEC should reinstate the uptick rule, as well.
The Day the S.E.C. Changed the Game
http://www.nytimes.com/interactive/2008/09/28/business/20080928-SEC-multimedia/index.html
Taking Hard New Look at a Greenspan Legacy
“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan, former Federal Reserve chairman, 2004
George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.”
And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street.
“What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.
http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html?hp
Apple's Brick: A Radical New Laptop?
The latest whispers are that Apple will announce a notebook made from a solid brick of aluminum
http://www.businessweek.com/technology/content/oct2008/tc2008106_898999.htm?campaign_id=techn_Oct8&link_position=link31
OT: Meg Whitman CEO, of eBay, as McCain's choice for Sec. of Treasury.
Yikes, foreclosures on eBay? Yeah that's the ticket...