Apple Earnings Shrug Off Economy’s Bite

Apple earnings and the iPhone

Apple blew away Wall Street estimates for its second fiscal quarter of 2009, posting above-average earnings and revenue despite the economic slump.

Apple (NASDAQ: AAPL) said earnings totaled $1.21 billion, or $1.33 per share, on revenue of $8.16 billion. Financial analysts had expected Apple to post a profit $1.09 per share on revenue of $7.95 billion, according to Reuters Estimates.

The performance tops Apple’s numbers a year ago, when it posted revenue of $7.51 billion and earnings of $1.05 billion, or $1.16 per share. On a non-GAAP basis — which factors in revenue and costs for iPhone and Apple TV over their estimated economic lives — the company’s revenues soared to $9.06 billion, while earnings increase to $1.66 billion.

The numbers signal Apple’s continued staying power amid a troubled economic climate and looming competition from rivals. CFO Peter Oppenheimer called the performance Apple’s “best non-holiday quarter revenue and earnings in our history.”

Industry watchers had been looking for signs that Apple’s iPhone business was being hurt by consumers holding off on purchases until a new iPhone model ships, and from mounting threats from competitors like BlackBerry maker Research in Motion (RIM) and the upcoming, hotly anticipated Palm Pre.

But during a conference call today with analysts, Apple execs said they weren’t worried.

“We think that we’re in a great position,” said Tim Cook, Apple’s chief operating officer. “We think we’re years ahead. We very much … see [this business] through a software platform lens, and that has benefited us and our customers very well. The breadth of apps on the App Store are mind-boggling … The power of the device and the ecosystem are enormous, and we are just scratching the surface now on its opportunity.”

There were early indications to be optimistic. AT&T, Apple’s exclusive U.S. carrier for the iPhone, which reported its first-quarter earnings earlier today, saw strength in its wireless data business due in large part to demand for the Apple iPhone and its mobile apps.

Apple also hasn’t been idle during the past months. In March, the company unveiled a new lineup of Macs and a new talking iPod Shuffle. It also showed off the upcoming 3.0 version of its iPhone software, which is slated to introduce a slew of long-sought improvements.

iPhone and Mac still standing strong

Still, not every portion of the company’s business was in the black. Apple’s Mac unit suffered slightly on what appear to be slowing sales — at least on paper. Apple said it sold 2.22 million Macintosh computers during the quarter, down 3 percent from a year earlier.

But during today’s conference call, Apple executives said the Mac’s performance of a year ago would have been tough to top considering the boom experienced by the then-newly launched MacBook Air. In reality, the company’s Mac unit sales remain quite strong, especially in comparison with the rest of the industry.

Meanwhile, quarterly units sales of the iPhone — Apple’s most recent runaway success story — were up 123 percent from last year, topping out at 3.79 million.

That shouldn’t be surprising considering the strength the smartphone market in general. RIM (NASDAQ: RIMM) itself continues capitalizing on brisk demand for the devices, posting better-than-expected results earlier this month.

[cob:Special_Report]The iPod also continued growing during Apple’s second fiscal quarter, showing a 3 percent increase in the number of units sold, to 11.01 million.

Apple also said its iPhone and iPod Touch App Store remains strong, even as Microsoft, Palm and RIM are ramping up efforts to promote their own mobile application marketplaces.

“The App Store continues to be an unparalleled success with developers and consumers and we now have over 35,000 applications compared to the 15,000 available at our last conference call,” Cook said.

Cook and Oppenheimer also said Apple expects the App Store’s billionth download to occur sometime tomorrow.

Looking ahead

Oppenheimer said Apple expects third-quarter revenue to be between $7.7 billion to $7.9 billion and earnings per share of between $0.95 to $1.00.

Those figures might seem low considering the amount of buzz around expected new products. For months, Apple has been rumored to be planning updated versions of the popular iPhone, and its entry into the market for ultra-mini PCs or touchscreen PCs — all of which have been widely expected by close Apple-watchers.

But Apple’s execs had little to announce on the new product front.

“We are … very excited about the other products in our pipeline,” Cook said in response to questions about upcoming products during the call with analysts.

Oppenheimer also said Apple has almost $29 billion in cash and marketable securities. However, Apple execs declined to comment in detail about any plans for that cash horde, nor did they provide an update on construction of Apple’s new headquarters.

Page 2: Questions about Steve Jobs, and sounding off on a Mac netbook

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Mac netbook? Don’t hold your breath

The lack of news about an Apple netbook may seem especially surprising considering the relative strength of the market segment compared to traditional notebooks and desktop PCs.

Yet despite the potential allure of netbooks, and the surging rumors around Apple’s entry into the space, Cook stuck to the company line — that Apple’s not interested in diluting its brand by playing in low-cost systems.

“When I look at what is being sold in the netbook space today, I see cramped keyboards, terrible software, junky hardware, very small screens and just not a consumer experience … that we would put the Mac brand on, quite frankly,” he said. “So it’s not a space, as it exists today, that we’re interested in, nor do we believe customers in the long term [are] interested.”

“If we did find a way that we can deliver an innovative product that really makes a contribution, then we’ll do that — and we have some interesting ideas in this space,” he added.

He also reiterated that Apple already has low-end “computer” offerings for mobile browsing and e-mail: the iPod Touch and iPhone.

“We have other products to accomplish some of why people buy netbooks … so, in that particular way, we play on an indirect basis.”

Cook also couldn’t help pointing out that most of Apple’s competitors in the PC space have jumped on the netbook bandwagon, which today accounts for one of the industry’s strongest segments — but which Apple hasn’t had to rely on to boost its numbers.

“For 17 of the last 18 quarters … we’ve exceeded the market rate of growth and to exceed it in this economy is quite an accomplishment, especially when you look at these very low-priced netbooks — that I think is a stretch to call them a personal computer — is really propping up the unit numbers of the industry as a whole.”

Keeping tight with AT&T

Apple observers were also watching closely to see whether Apple would indicate that its relationship with AT&T might be souring, enabling Apple to go elsewhere — like to Verizon Wireless.

However, Apple’s executive said they’re not likely to leave AT&T.

“We view AT&T as a very good partner,” Cook said. “We believe they’re the best wireless provider in the U.S. and we’re very happy to be doing business with them. They have been doing a very good job with the iPhone — they have put the full force of their company behind it. We’re very happy with the relationship that we have and do not have a plan to change it.”

He also added that one reason to stick with AT&T is that the iPhone uses GSM wireless technology — rather than the competing CDMA technology favored by Verizon Wireless and others, but which has limited uptake outside of the U.S.

“We chose from the beginning of the iPhone to focus on one phone for the whole of the world — and when you do that, you go down the road of GSM,” he said.

Return of Steve

Apple also faced questions on the condition of its CEO, Steve Jobs. While ostensibly on medical leave until June, Jobs remains closely involved with the company’s product decisions, according to reports.

Again, however, Apple brass had little to reveal.

“We look forward to Steve returning to Apple at the end of June,” Oppenheimer said in response to questions seeking an update on Jobs during the call.

Update adds comments from Oppenheimer and Cook.

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