The Economy May be Rotten But Apple Isn’t

If ever there was a good technology barometer for consumer sentiment,
Apple would have to be it. After all, if the country were truly on bad
economic ground, would people buy $300 MP3 players, $400 phones and $2,000

Well, they are, and in record numbers. Apple (NASDAQ: AAPL) reported on
Wednesday net profit for its fiscal second quarter ended March 31 rose 36
percent to $1.05 billion, or $1.16 per share. Analysts had been expecting
$1.07 per share. Revenue grew by 43 percent to $7.51 billion.

Despite rampant rumors of a 3G iPhone coming this summer, even iPhone
sales were healthy, with 1.7 million units sold. iPod sales were flat at
10.6 million units sold and computer sales topped 2.2 million, a 51 percent
increase over the same quarter in 2007.

“The only place I was expecting to see some weakness was on the iPod side
was because we’re seeing signs of saturation. But other than that it was a
stellar quarter for them,” said Rob Enderle, principal analyst for The
Enderle Group.

Ezra Gottheil, an analyst who follows Apple for Technology Business
Research, concurred. “They seem completely insulated from a down economy,”
he told “This is more of a comment on how the
downturn is affecting the U.S. and not Apple, because it could be that Apple
is gaining so much traction it isn’t going to be hurt.”

Enderle figures it might take another quarter or two before real economic
hardship starts to manifest for Apple, if at all. “The issue is how well
will they do in the second half of the year. It takes a while for economic
conditions to flow through the market and they are a premium class vendor. A
lot of people buy it not because they need it but because they can. They
could get hit inordinately hard as economic conditions turn down,” he said.

But so far, so good. Sales in the U.S. were up 40 percent and
international sales rose 47 percent, according to comments by Apple CFO
Peter Oppenheimer on a conference call with financial analysts.

Oppenheimer said sales in the company’s 208 stores were up 74 percent
over the prior year thanks in part to a 57 percent increase in visitors.
Half of those people buying Macs were new to computers, a very bad sign for
Microsoft (NASDAQ: MSFT), according to Enderle.

“Microsoft is not out there marketing Vista at all, and you got Apple
constantly popping up and pointing to problems with Vista. So people go into
stores and trying [Macs] and end up liking them,” he said.

A far better experience?

Gottheil said the stores and services offered within have helped quite a
bit. Apple offers one-on-one personal training to customers of Macintoshes.
“For anyone with any hesitancy about using a computer, that is such a
security blanket,” he said. “Going one to one is a far better experience for
the user than a class or book and they make enormous strides with that.”

With 51 percent growth year-over-year, Mac sales were 3.5 times that of
PC growth, according to Oppenheimer. Desktop Macs accounted for 37 percent
of sales and laptops accounted for 61 percent.

Apple said total revenue from the iPhone this quarter was $378 million,
but it will defer revenue from all iPhones sold after the SDK announcement
until the SDK ships. Tim Cook, chief operating officer of Apple, was also on
the conference call and reiterated Apple’s plans to hit 10 million units
sold this year.

Cook admitted he thought iPhone sales would drop this quarter but didn’t.
He said inventories are low in the U.S. because “a significant number” of
phones were being unlocked and used with other carriers.

Only once did the subject of the PA Semiconductor acquisition come up. Oppenheimer said “We
occasionally buy smaller tech companies from time to time but we don’t
comment on our purposes, so I can’t talk about it.”

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