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ATPM 15.11
November 2009


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by Robert Paul Leitao,

Welcome to the November issue of About This Particular Macintosh! October brought good news to the Apple investor community and new products for Mac users around the globe. Apple is in a renaissance era. The company has raised product development and design to an art form with the user experience specifically in mind. This year’s holiday season should be a celebratory one for members of the Apple product user community, as the iPhone continues its global rollout and Macintosh computers are being sold in numbers not seen before. Let’s get started with a quick look at the company’s most recent results.

Apple by the Numbers

For the three-month period ended in September, Apple reported GAAP revenue of $9.87 billion and a net quarterly GAAP profit of $1.67 billion, or $1.82 per diluted share. The non-GAAP results (eliminating the impact of subscription revenue accounting used for the Apple iPhone) were $12.25 billion of revenue and non-GAAP or adjusted net income of $2.85 billion.

During the September quarter (Apple’s 4th fiscal quarter) the company sold 3.05 million Macs, 10.2 million iPods (including the popular iPod touch), and 7.4 million iPhones. The Mac numbers are all the more impressive because of the 17% increase in units sales over the prior-year period and an equally impressive 17% sequential gain in unit sales as well. Although reported iPhone unit sales rose only 7% over the prior-year period, sell through (or sales to consumers) was significantly higher this year than last year.

Last year’s numbers included sales of two million handsets to fill what’s called channel inventory—units considered sold when shipped to service providers but held in inventory for sales to consumers. This buildup occurred following the release of the original 3G handset to meet anticipated global demand. This year during the same calendar quarter ended in September, AT&T alone reported 3.2 million iPhones activated on its network in the United States.

The “.05” million Macs sold represent a 50,000 unit shipment of MacBooks to the state of Maine for use in their state-wide student computing initiative, extending the use of state-provided Macintosh computers from middle schools to high schools throughout the state. The program, called the Maine Technology Learning Initiative or MTLI, is designed to close what some call the Digital Divide among students and improve the computer literacy of all middle school and high school students in the state.

The iPod unit sales in the quarter reflect an 8% year-over-year decline in unit sales, as music playing smartphones (in particular the iPhone) reduce demand for standalone digital music players. No matter the drop in unit sales, the iPod remains the most popular digital music player in the world and the popular iPod touch muted a bit of the corresponding decline in revenue from iPod sales.

The New iMacs

It came as a bit of a surprise the day following Apple’s quarterly conference call with Wall Street analysts to discuss the September quarter’s results when the company announced new iMac desktop computers. Now in 27″ and 21.5″ screen sizes, the new iMacs offer a quad-core chip available in the 27″ model and a wireless keyboard and mouse as standard equipment.

During the conference call with analysts on October 19th, the company suggested product costs would rise during the company’s first fiscal quarter (this quarter ending in December) due to an anticipated increase in air shipping costs for products as well as slightly lower gross margins (the difference between the sale price and the cost of manufacture) on products. The new iMacs resolved the mystery of the source of the increase in air shipping costs, and we expect the new iMacs to have slightly higher manufacturing costs than the iMacs they replaced. Feature for feature, the new iMacs are a value proposition for consumers in the market for a new computer.

AAPL Sets a New All-Time High

Investors responded positively to Apple’s quarterly results, pushing the company’s share price (ticker symbol: AAPL) to a new all-time high of $208.71 during intra-day activity on October 21st and a new all-time closing high of $205.20 on October 23rd. By the end of October, the share price had settled to a closing price of $188.50, following a broad market sell-off on the last trading day of the month.

Closing the Gap on Market Cap

No matter the late-month retreat in Apple’s share price, at the closing price on October 30th Apple had earned the distinction of being among the three highest valued technology companies in the land. With a market capitalization (the sum value of all outstanding shares) of about $170 billion, Apple’s market cap is on par with that of Google, as both companies trail their common nemesis Microsoft, which had a market capitalization of about $246 billion at the end of the same day of trading. Although the difference in market capitalization between Apple and Microsoft may at first seem large, Apple has been closing the market cap gap steadily over the past few years. It may not be long before both Apple and Google surpass Microsoft’s market capitalization and duel with one another for the title of the most highly valued technology company traded on Wall Street.

Closing the Gap on GAAP

Because Apple offers iPhone owners free OS upgrades for two years from the time of purchase, the company has deferred recognition of iPhone revenue and costs of manufacture over the same period of time. This deferred revenue recognition is consistent with the GAAP (Generally Accepted Accounting Principles) rules that had been in place.

Recent accounting rule changes will allow Apple to recognize all iPhone revenue at time of sale, with the exception of the cost of the OS that’s included on the device. This will virtually close the gap between Apple’s GAAP and non-GAAP quarterly results. As noted at the top of this column, Apple had significantly more non-GAAP than GAAP revenue and earnings in the September quarter. The non-GAAP numbers reflect the company’s performance had deferred revenue accounting not been in place.

Apple has until the beginning of its next fiscal year (beginning October 2010) to use the new rules in its financial reports. By closing the gap on GAAP and non-GAAP results, Apple may come closer to closing the market cap gap with Microsoft as Apple’s total revenue and earnings are reflected in its earnings reports, boosting the company’s reported performance.

Our November Issue

Each month the editors of ATPM seek to close a gap of another kind. Between issues of ATPM, much happens in the world of personal computing. We pride ourselves on providing the most interesting news and product reviews to assist our readers in closing the knowledge gap. Our mission is to celebrate what we call “the personal computing experience” with you, our readers.

Our November issue includes:

MacMuser: Chasing the Dragons

Mark Tennent compares broadband speeds to Formula One racing.

MacMuser: iPhoniness

Mark Tennent shares his iPhone acquisition tale.

How To: Making Your Own Speakable Items

Mac OS X has a rather powerful speech recognition tool built-in, and Sylvester Roque is here to tell you how to make the most of it.

Desktop Pictures: Mt. Shasta

This month’s photos of Mt. Shasta were provided by GeekBrief.TV’s Cali Lewis.

Out at Five

Matt Johnson’s new series, Out at Five, looks at the workplace and its boundaries from all angles, revolving around many of the same characters from his former series, Cortland.

Review: AutoPower and ACpower

Lee Bennett weighs in on RadTech’s contribution to the plethora of USB charger choices.

Review: LogTen Pro 5.1.4 and LogTen Mobile 2.4.1

Still an indispensable part of any pilot’s electronic flight bag.

Review: Loop Leather Sleeve

A Texas-style leather belt case for your iPhone.

Review: ShareTool 1.3.1

With ShareTool, you can now enjoy being in two places at once with your Mac.

Review: Voyager Q

Provided that wear on a hard drive’s connector pins don’t become an issue, the Voyager Q is a useful tool for accessing data on hard drives without the need of buying dedicated enclosures for each of them.

Also in This Series

Reader Comments (2)

Charles Wilkes · November 7, 2009 - 12:15 EST #1
This is the first issue I've seen, and I LIKE IT. How can I subscribe? Couldn't find anything telling me how.

Also I like the presumedly links almost at the bottom, but they were not links, and I want to read them. How do I get to them?

I have an iMac from 18 months ago, which I will soon convert to a Snow Leopard Mac Server in my garage, and a new MacBook 13" pro which I really love, and is the only one I use for working. It is a wonderful workstation -- all i need. Even the smaller screen is easier on my eyes.
Charles Wilkes · November 7, 2009 - 12:29 EST #2
All is forgiven -- I found everything I had asked about. The subscribe info had scrolled off the top of the screen. The links I was missing were in the left column -- not in the review of the content where I had expected them. This is a wonderful letter -- I cannot believe I have just learned about speech recognition on my MacBook 13" Pro I just bought in addition to my 24" iMac. I also just got delivery of a new Magic Mouse. I am in my 2nd year of Apple's one-to-one program, which although I am no amateur, has been very helpful in building my Mac Knowledge, coming after my long time (now retired) IBM career where I helped introduce the then new IBM PC into Europe while on a 6 year foreign assignment in Paris. I am now a total Mac Supporter, and cannot believe how Microsoft has lost so much ground in PC support.

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