On multiple occasions during Apple's earnings conference call yesterday, CFO Peter Oppenheimer cited a "future product transition" as one of the reasons the company expected somewhat lower gross margins for the September quarter.
That any Apple executive would hint at an imminent new product in a public forum is extraordinary. It means whatever is coming will make a big splash, though probably not of the magnitude of the iPhone.
But what is it? It's likely that the mystery product or products – or as Oppenheimer put it, "state-of-the-art new products that our competitors just aren't going to be able to match" – will involve a touch screen.
I believe it could be the long-rumored Mac tablet PC. In any case, Oppenheimer's remarks about it affecting the September quarter tells us it will arrive soon. He also hinted at other products in the pipeline that might shave gross margins in 2009.
As for Apple's earnings, they were routinely spectacular. Apple made a profit of $1.07 billion in the June quarter on revenue of $7.46 billion. The earnings per share of $1.19 beat Wall Street estimates by 11 cents.
Strong Mac sales led the way. Apple sold nearly 2.5 million Macs, its highest quarterly Mac total ever. According to Oppenheimer, the 41 percent year-over-year growth is three times the overall PC market growth rate.
That would seem to jibe with last week's market share reports from research firms IDC and Gartner, both of which showed Apple gaining more ground in the U.S. IDC had Apple's 2Q share rising year over year from 6.2 percent to 7.8 percent; Gartner's data had Apple increasing from 6.4 percent to 8.5 percent.
The biggest surprise was the iPod, which despite a woozy economy and two years of predictions that the product had peaked, pulled out a 12 percent increase in sales year over year, although iPod revenue was up only 7 percent because of a February reduction in the price of the Shuffle models to $49 and $69.
The iPhone numbers were predictably low – a mere 717,000 -- since Apple cut off the supply of the original iPhone mid-way through the quarter to prepare for the launch of the iPhone 3G on July 11.
Some other clues, news and tidbits from the conference call:
Steve Jobs' health Ben Reitzes of Lehman Brothers apologized for asking the question, but a story in the New York Post yesterday almost guaranteed the subject would come up. Oppenheimer's response was less than reassuring: "Ben, Steve loves Apple. He serves as CEO at the pleasure of Apple's board and has no plans to leave Apple. Steve's health is a private matter."
Geez Louise, Peter. How about something like "We're confident Steve will be leading Apple for a long time to come"? Oppenheimer's stilted, non-committal answer will only serve to fuel more speculation on Wall Street that Steve is very seriously ill, and probably contributed to the 10.8 percent walloping AAPL took in after hours trading last night.
Margins are everything The other reason AAPL shed $18.04 last night almost surely was the lower guidance Oppenheimer gave for the company's gross margins – from 34.8 percent in Q2 to a still robust 31.5 percent for Q3. You'd think the booming Mac and iPod sales driving record revenues and profits might count for something. Oh, and Apple did sell 1 million new iPhones in three days. And the company always beats its guidance numbers anyway. But noooo. SELL AAPL!!!
The international factor Apple saw significant growth overseas in the June quarter, which could become insurance against a slowdown in its rate of growth in the U.S.
For example, international sales of the iPod grew 15 percent (compared to 10 percent in the U.S.) While the iPod's U.S. MP3 player market share has stabilized at about 70 percent, Oppenheimer said it has been increasing elsewhere and now stands at over 60 percent in Canada and over 50 percent in the U.K., Japan and Switzerland.
Apple is adding more retail stores overseas as well. One just opened in Beijing with more expected to open in Switzerland and Germany later this year.
Piggy bank full Oppenheimer blew off a question about what Apple plans to do with its ever-swelling cash hoard – now up to $20.8 billion. Sooner or later shareholders are going to demand Apple use it for something, be it stock buybacks, acquisitions of other companies or dividend payments. Even Microsoft is sitting on a mere $24 billion in cash these days.
The iPhone rollout The iPhone 3G is now shipping in 22 countries, with 20 more coming on Aug. 22. Oppenheimer reiterated that Apple expects to have the iPhone 3G available in 70 countries by year's end. Also, COO Timothy Cook re-confirmed Apple's confidence that it will sell 10 million iPhones in calendar year 2008.