Apple’s Holiday Quarter Results: Insights Part 1

Apple has once again blown away Wall Street analysts with the results of its recent holiday quarter (Apple’s fiscal first quarter). Apple reported record profit of $6.43 billion US dollars on record quarterly revenue of $26.7 billion. Details of its financial quarter can be found here and here so we won’t cover those results but instead focus in on some highlights we feel are significant.

Mac Growth

Last October after Apple’s fourth quarter results for 2010 we noted that Mac unit growth remained strong despite all of the iPad hype and growth. Mac unit shipment had essentially reached 3.9 million units prior to the big holiday season and we anticipated that the company would break the 4 million Mac units per quarter barrier this holiday. Apple did indeed do that, shipping 4.13 million Mac units, but that number fell short of the number we were hoping for.

We had anticipated that Apple would ship 4.4 million Macs this first fiscal 2011 quarter based on a 14 percent sequential growth quarter-to-quarter growth rate. The street consensus was 4.3 million Macs. The big news here is that Apple’s impressive Mac growth rate–while still very sizable–is slowing down, likely due to the rise of the iPad.

Looking on the Bright Side

While there is a definite slow-down in Mac unit growth rates the company did still ship 23 percent more Macs this quarter than it did a year ago. This compares to a 3 percent growth rate in the general PC market, according to Apple. All of this means that Apple’s Mac growth is 8x stronger than the general Windows PC industry.

Furthermore, Apple’s Asian Mac growth is extremely impressive at over 50 percent in Japan and Asia Pacific. Also, while Apple sold just shy of 1 million Macs through its own retail stores about half were sold to people who had never owned a Mac before. The percentage of people buying a Mac through other channels, including Apple online, who have never owned a Mac before is unclear to us.

The bottom line is that Apple busted the 4 million Macs per quarter barrier this quarter, signaling a future where the company will ship more than 16 million Macs per year.

Second Insight – Cash

Apple made over $6 billion in profit this past quarter and the company is now sitting on nearly $60 billion in cash and short/long term assets. This is a staggering amount of money and the best way to illustrate this is to compare it to some valuable companies.

• Adobe – market capitalization is presently at about $17.4 billion
• Autodesk – market cap is presently at about $9.5 billion
• Nvidia – market cap is presently at about $13 billion
• AMD – market cap is presently about $5.4 billion
• ARM Holdings – market cap is presently about $11 billion

All five of those companies above total less than $57 billion in market capitalization. Interestingly, they were chosen for this story because they all have something valuable to Apple’s future growth. ARM designs the main processor architecture behind Apple’s smaller devices and is the market leader. AMD and Nvidia dominate the graphics industries for computers, supercomputers and increasingly will play a role in smaller devices as well. And Autodesk and Adobe have been discussed targets for an Apple acquisition and their software assets compliment the Apple brand, story and its creative customers.

While is is unlikely Apple will ever buy any of these companies in the short term we feel it is interesting to point out their present street value compared to Apple’s available war chest in cash.

Third Insight – Cash Growth

Apple’s future growth is very much primed because of iPhone and iPad it is interesting to point out that the company is now making more than $1 billion from its iTunes Store alone, with an increasingly amount of TV and movies being a big part of the revenue picture. This means Apple is renting more than 4.5 million movies per month. And nearly three times that in TV shows. We feel there is massive upside in Apple media opportunities, and while everyone is focused on its “devices” and concentrating on competing with them the company is quietly building up momentum in media consumption markets where its primary competitors are Amazon and Netflix.

And speaking of Netflix, that company is worth $10 billion presently, an easily digestible amount given Apple’s cash horde.

And related to this insight about cash growth opportunities in media consumption is the new Mac App Store. In the conference call Tim Cook admitted that Apple’s own software does best. This is interesting because if the Mac App Store becomes as huge an opportunity as the App Store for iPad and iPhone then perhaps Apple should be developing and selling more of its own software? After all, Microsoft primarily makes its money on its Windows OS and Office franchise and the company’s margins are greater than Apple’s own. More interesting, if Apple were to acquire a significant software player, say Adobe, it could sell those design applications via the Mac App Store and eliminate the cost of selling that software the traditional way and thereby decrease costs and increase profit margins.

It will be interesting to see what Autodesk has to say in the near future about its Apple App Store experience…if it chooses to say something detailed.