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Apple Overtakes Nokia In Revenue

Posted on Friday, Apr 22nd 2011

Apple reported yet another stellar quarter this week driven by the momentum of its iPhone which was recently released on the Verizon network. It recently released its iPad 2 and sold every piece it made. Steve Jobs is on medical leave but the company’s products have gathered such good momentum that he is not needed to sustain it.

Financials

Apple reported record second quarter revenue of $24.67 billion, up 83%. Net profit was up 95% to $5.99 billion, or $6.40 per share from $3.07 billion, or $3.33 per share last year. Gross margin was 41.4% versus 41.7% last year and 38.5% last quarter. More than half of this difference came from better product mix than planned, particularly higher iPhone sales. The company ended the quarter with $65.8 billion in cash for short-term and long-term marketable securities.

Apple sold 3.76 million Macs during the quarter, up 28%, and 9.02 million iPods, down 17%. It sold 4.69 million iPads compared to the analyst estimates of 6.1 million. It has distribution in 59 countries and in March, it launched iPad 2 in US and 25 additional markets. Apple is ramping up the production as it plans to ship to an additional 13 countries this month.

The Verizon launch helped Apple sell 18.65 million iPhones, up 113%. Recognized revenue from iPhone handset and accessory sales was $12.3 billion compared to $5.45 billion in the year ago quarter, an increase of 126%. Launching the Verizon iPhone has led to the U.S. geography growing 155% y-o-y. Another region that was outstanding was China with Greater China iPhone sales up about almost 250%. Apple also added SK Telecom in Korea, as well as Saudi Telecom in Saudi Arabia. It ended the quarter with iPhone distribution through 186 carriers in 90 countries. Apple ended the quarter with about 5.2 million iPhones in channel inventory, a sequential increase of about 1.7 million to support new carrier launches and existing channel partners.

The App Store, which has been a cornerstone for the success of the iPhone now has over 350,000 apps and well over 10 billion downloads. In February, the company announced a new subscription service for all publishers of content-based apps, including magazines, newspapers, video and music.

For the third fiscal quarter of 2011, Apple expects revenue of about $23 billion and EPS of about $5.03. Analysts predicted profit of $5.25 a share on sales of $23.8 billion. It is currently trading around $351 with market cap of about $323 billion. It hit a 52-week high of $360 on February 10.

Apple and Competition

In the smartphone market, Apple faces increasing competition from Samsung, Motorola, and HTC which use the Android OS. According to IDC, Samsung and HTC showed a growth of 318% and 165% in global smartphone shipments,  respectively while Apple’s global smartphone shipments grew 89.2% in the calendar year 2010. Apple at No.3 has a market share of 15.7% while Samsung at No. 4 has 7.6% and HTC at No.5 has 7.1%. IDC forecasts that Android will account for 39.5% of global smartphone shipments this year, compared with 15.7% for Apple.

Apple has recently sued Samsung for infringing its patents. Samsung has denied the accusations. Samsung is also a component supplier for Apple but COO Tim Cook says its strong relationship with Samsung will continue.

During the earnings call, COO Tim Cook said:

“iPhone’s integrated approach is materially better than Android’s fragmented approach, where you have multiple OS on multiple devices with different screen resolutions and multiple app stores with different roles, payment methods and update strategies. I think the user appreciates that Apple can take full responsibility for their experience, whereas the fragmented approach turns the customer into a systems integrator and few customers that I know want to be a systems integrator.”

Apple seems to winning with its integrated approach as the recent results show, the demand for iPhones and iPads seems to be unsatiable. Android might well gain more market share with its fragmented approach, but Apple is winning the game that really counts – revenue and margins. Research firm Strategy Analytics recently reported that Apple now leads the market in terms of revenue, overtaking Nokia.

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