Apple Takes A Bite Of Rim

Apple, which recently topped my list of Top 5 Handset Stocks, reported fourth quarter results yesterday that beat profit estimates but missed revenue estimates. Despite the tough market, Apple sold 6.9 million iPhones in the quarter and beat its sales target of 10 million iPhones in calendar year 2008.

Another significant milestone that Steve Jobs highlighted in the earnings call was that Apple outsold RIM, which had sales of 6.1 million BlackBerry devices in its recent quarter. Apple shares have soared about 12% in after-hours trading.

Revenue in the fourth quarter grew 27% to $7.9 billion versus analyst estimates of $8.05 billion and the company’s own guidance last year of $7.8 billion. Net income grew 26% to $1.14 billion or $1.26 per share. Analysts estimated earnings of $1.11 per share.

During the quarter, it generated $3.7 billion in cash, ending with a $24.5 billion reserve. Gross margin improved from 33.6% last year to 34.7% mainly due to better component pricing. In our last earnings coverage, we observed that despite the price cuts, the new 3G iPhone still manages a respectable gross margin of about 60%.

Apple’s Mac shipments increased 21% to 2,611,000 and Mac revenue grew 17%. Last week, the company introduced its new MacBook and MacBook Pro line, for which some consumers delayed purchasing Macs. Revenue from iPods grew 3% and shipments grew 8%.

Apple sold 6.89 million 3G iPhones in the quarter versus 1.12 million last year and 6.1 million first generation iPhones. It is currently selling the iPhone in about 51 countries; by December the phone should be available in about 70 countries.

Recognized revenue from sales of the iPhone, its accessories, and carrier payments was $806 million, up from $118 million last year. As per the new subscription accounting system, iPhone revenue is distributed over two years, but it allows Apple to provide free software updates. Deferred revenue from iPhone and Apple TV sales grew to $5.8 billion, up $3.8 billion since the last quarter. That makes iPhone revenue about $4.6 billion, or 39% of total revenue had it not been deferred. And that makes it the third-largest mobile phone vendor by revenue.

As for fiscal 2008, revenue was $32.5 billion, up 35% and Apple generated $9.1 billion in cash. For the first quarter of fiscal 2009, Apple expects revenue between $9 and $10 billion. EPS is expected between $1.06 and $1.35. Analysts estimate earnings of $1.65 on sales of $10.57 billion. The stock is currently trading around $98 after recovering from its 52-week low of $85 on October 10.

Steve Jobs sums up Apple’s situation well: “We have the strongest product lineup in Apple’s history, the most talented employees, and the best customers and $25 billion in the bank. We may get buffeted around by the waves a little bit, but we will be fine and stronger than ever when the water is calm in the future.” I have to agree!