Once again Apple has beaten analysts expectations in their 3Q11 financial performance, showing a net income of $7.3 billion compared to $3.25 billion in the same quarter of the prior year. Once again the company’s fortunes were raised by one region and one product being the hero. Which may be why the analysts have found this company hard to predict.
The hero product this time around was the iPad, which overcame the prior quarter’s production bottlenecks to deliver a 97% gain in units sold and a 113% increase in revenue. Last quarter’s hero, the iPhone, showed a 9% increase in units and a 8% increase in revenue for the quarter. Not bad by itself but compared to the 133% increase in units and 142% increase in revenue over the prior three quarters it represents a considerable loss in momentum. Of course, if Apple had followed the pattern of prior years, this would have been the quarter that a new iPhone model would have been released. Clearly the customers are waiting for the next model.
A second surprise in the product segment data was the complete reversal in fortunes between the desktop and portable product lines. Desktop units sold increased 14 percent in the quarter for a 10 percent increase in revenue. Over the prior three months desktop, sales had increased only 1% in units and 11 percent in revenue. Meanwhile portables, which rescued the Mac product numbers in the previous three quarters, only showed a one percent increase in units and less than one percent decrease in revenue.
The product numbers also showed the continued nosedive in player-only device sales. This quarter, the decline was not masked by strong sales in the iPod Touch. The iPod Touch represents more than half of the iPod product line sales, but bears more in common with the iPhone than the rest of the iPod line. Clearly, a lot of customers looked at the better processor and larger screen in the wi-fi iPad2 and stepped up. One step that Apple might take is to release an A5 powered iPod Touch at the same time it releases the A5 powered iPhone. On the other hand, there are rumors that Apple might release an iPhone connected to a pay-as-you go service for calling at essentially the same price. Or they could make a iPhone that can only make voip calls via wi-fi. Either would likely spell the end of the iPod Touch.
Looking at the regional results, Asia-Pacific (particularly China) stands out with a 34% increase in revenue for the quarter. That might be regarded as a cooling though, considering the 213% increase over the three prior quarters. While North America remains Apple’s strongest region, it showed one of the weakest revenue growths at 9% for the quarter. Oddly this was on an increase of 22 percent in unit sales, the strongest in the company.
Apple’s guidance for the current quarter was for limited growth, which is exactly what they said three months ago regarding the just released record breaking quarterly results. In addition the company is widely rumored to be preparing announcements for the next iPhone and for processor and peripheral upgrades to the MacBook Air line. That is part of the dance of the Apple earnings call. They can’t say ‘we expect the quarter to be fantastic because of the products we are going to announce next month’. Apple’s new product announcements are always top secret.