MacOS KenDensed: Apple's Killer Earnings & Proview's iPad Sort-of Win - The Mac Observer

Apple knocked everyone’s socks off this week with its second quarter earnings report figures, the iPhone alone brings in more money for Apple than most other companies make, Proview may have a claim on the iPad name after all, and we may be seeing the beginning of the end for eBook copy protection. Mac OS Ken’s Ken Ray shoveled through all of the week’s news to find the parts that matter to you. And his arms are tired, too.

Show Me the Money
Apple’s second quarter, fiscal year 2012. In a word: nutty.

Best second quarter in the company’s history and second best quarter ever by some measures. I’ll draw our earnings info from AppleInsider, AllThingsD, Fortune, Apple’s own press release on the quarter, and Apple’s earnings call.

Before picking up the phone, Apple issued a press release proclaiming March 2012 its best second fiscal quarter so far reporting earnings of US$11.6 billion, or $12.30 a share, on revenue of $39.19 billion. That is a 94 percent increase in earnings over March 2011’s net profit of $6 billion, or $6.40 a share on revenue of $24.7 billion.

The numbers Apple reported beat the street’s estimates â€" 16th time out of the last 17 quarters they’ve done that â€" on strong sales of the iPhone, the iPad, the Mac, and even a little surprise help from the iPod.

All God’s children got a place in the choir.

Did I say strong sales for the iPhone, iPad, and Mac? I should have said record sales for a March quarter. Apple sold 35.1 million iPhones in the quarter, representing 88 percent growth year-over-year, and more than double the growth seen in the rest of the smartphone market, which IDC pegs at 42 percent.

Apple rang up 22.7 billion in iPhone revenue.

The Cupertino company sold 11.8 million iPads during the quarter, a 151 percent unit increase over the same quarter last year. The latest iPad is already in 40 countries, and boy is education getting interested. According to Apple CFO Peter Oppenheimer, Apple sold iPads to education in the quarter at a rate of 2 to 1 versus Macs.

Apple rang up 6.6 billion in iPad revenue.

And get this: Apple sold 7.7 million iPods in the quarter, way less than it used to sell. Heck, way less than it sold in the March quarter of 2011, down 15 percent year-over-year. And yet they still beat the street’s expectations as well as Apple’s own internal expectations.

The iPod still controls over 70 percent of the MP3 player market.

Lump them together â€" the iPhone, the iPad, and the iPod touch â€" and Apple has over 365 million iOS devices out on the planet right now. Which is impressive.

As for the Mac, Apple sold 4 million of those during the quarter, a 7 percent unit increase year-over-year, handily beating wider PC growth of 2 percent, according to IDC.

Weird mix on the Macs, though, with desktop sales up 19 percent from the March quarter of 2011, while portable sales were only up 2 percent.

Suddenly people hate laptops? Mmmmm… more like people are waiting for something new in the laptop line. Citigroup analyst Richard Gartner asked about the mix in the Q&A portion of last night’s call, and was reminded by Apple CEO Tim Cook that Apple updated most of its laptop line in February of 2011, which led to loads of new laptops sold for this quarter last year. Then, too, there is the iPad which may have eaten some Apple laptop sales.

That’s not how he started his answer, though. He started his answer by pointing out that the March quarter was the 24th straight quarter that the Mac outgrew the broader PC market.

So nyah.

Let’s go to the store. Apple Retail took in $4.4 billion, up 38 percent year-over-year. March was the second best quarter for the stores so far, with the 2012 holiday quarter finishing first.

The stores played host to 85 million visitors, up 19 percent from the same quarter a year ago.

I have to say I don’t understand the intricacies of what financial analysts do, but it’s cool since I don’t think they do, either. Apple sold fewer iPads and Macs than the street had expected, yet managed to beat earnings per share by over two dollars. Two dollars.

Apple also took in about $2.5 billion more in revenue than the street expected. Apple ended the quarter with $110.2 billion in cash, up from $96 billion-and-change at end of the December quarter.

Looking ahead to the third fiscal quarter, Apple expects revenue of about $34 billion on earnings per share of $8.68.

As for the Q&A, Morgan Stanley analyst Katy Huberty had an interesting question about the coming quarter. Basically, June quarter guidance looks worse sequentially than March to June quarters in the past, so why?

CFO Oppenheimer says Apple’s buildout for iThings was huge, with the company filling orders earlier than in years past. That led to a lot of people buying stuff last quarter rather than having to wait until this quarter, hence the sequential softness.

Sequential Softness, by the way, easily the best synth-pop band of the 80s.

Sanford Bernstein analyst Toni Sacconaghi wanted a little color on lower priced iPads and iPhones.

Looks good, but too soon to know what’s what was basically the answer from Apple CEO Tim Cook. He says Apple is thrilled with results of lower-cost iPad 2, though it was only lower-cost for two or three weeks of the second quarter, so who can say what the longterm effect will be? He would, however, guess that the $399 iPad 2 probably opens the device to more price sensitive consumers and it did seem to open the device to other, more price sensitive countries.

At the same time, there were new iPad constraints for the end of last quarter and there still are, so it’s not like people are skipping the new iPad for the less expensive old one. As for lower-cost iPhones, Apple’s happy with the free iPhone 3GS offering and the $99 iPhone 4 offering, both of which contributed to the second highest quarter of iPhone sales for Apple so far.

Toni Tony Tonee then asked a question that was perfect for a financial analyst with no sense of design: Wouldn’t it make sense to, more or less, merge the iPad and the MacBook Air into one device?

Tim Cook gave a beautiful answer: Anything can be forced to converge. You begin to make tradeoffs where what you end up with doesn’t please anyone. You can converge a toaster and a fridge, but those things are probably not going to be pleasing to the user.

That was the beautiful part.

While Apple does not talk about future products, Cook made it clear that was one hybrid we’ll not see coming off the line from Cupertino.

The financial world has been in a tizzy over the possibility of carriers trying to drive down or ditch iPhone subsidies. Goldman Sachs analyst Bill Shoppe wondered whether Apple was concerned that carriers might either try to stretch the refresh time for contracts, or that they might try to drive down the price they pay for iPhones.

CEO Cook says Apple wants to make the best smartphone in the world and carriers want to sell what people want to buy. He argues that the subsiy paid for an iPhone is not large compared to 24 months of payments from consumers. Plus execs at the carriers say iPhone has the lowest churn-rate of any smartphone out there, and carriers appreciate the engineering work that goes into iPhone data efficiency. Finally, Cook says iPhone is the best smartphone on the planet to entice a customer using a traditional phone to upgrade to a smartphone, which he sees as good for Apple, good for carriers, and good for consumers.

Piper Jaffray analyst Gene Munster wanted to know how this were going in China.

Tim Cook says Apple had a mind boggling quarter there, grabbing $7.9 billion of revenue in greater China for quarter. The iPhone 4S launched there last quarter, and while the new iPad is not there yet, the iPhone and the old iPads have both created a huge halo effect for the Mac.

JP Morgan analyst Mark Moskowitz was curious about Apple’s current stance on litigation versus settling differences with companies out of court. To this Tim Cook said “We want people to build their own stuff.”

Cook says he’s always hated litigation and he still does. He would rather settle than litigate, but Apple doesn’t want to be the developers for the world. Apple wants people to invent their own stuff.

While Apple was quick to talk about iPad adoption in education in its prepared statements, it didn’t say as much about the enterprise. At least not until Credit Suisse analyst Kulbinder Garcha brought it up.

According to Cook, 94 percent of Fortune 500 and 75 percent of Global 500 companies are testing, piloting or deploying iPad. Hitting numbers like that had been Apple’s focus. Now its focus is on penetration.

Apple Likes it On Top
Last year, Apple and ExxonMobil spent a good bit of the summer battling for first as the most profitable company in the world. And we’ve pretty much been done with that for a while it’s Apple.

BusinessInsider says Apple is on track to generate between $45 billion and $50 billion of profit this year. And while they don’t say how much they expect ExxonMobil to generate, they do point out that the oil giant generated about $30 billion of profit last year. Even if they make more this year, they’re probably not gonna beat Apple.

All of that was already known.

But here’s what you might not have known:

Apple’s iPhone business alone is likely more profitable than any other company in the world.

Emphasis on likely.

According to the piece, Apple’s iPhone business is currently generating about $100 billion a year. Assuming a profit margin of 30- to 35-percent, “it seems likely that the iPhone business is generating about $35 billion of profit per year,” and that makes it more profitable than ExxonMobil.

And that is crazy.

Another nutty stat: “Apple’s Profit Is Now Bigger Than Google’s Revenue.” That’s the headline from a separate BusinessInsider piece.

Don’t believe it? Let’s go to the numbers: The March 2012 quarter revenue for Apple was $11.6 billion, and Google’s revenue was $10.7 billion.

And that is also crazy.

Proview’s iPad Win
AllThingsD has China’s vice minister of the State Administration for Industry and Commerce saying â€" in his view â€" the term “iPad” is owned by China’s Proview Technologies, not Apple. And his view is important since his organization enforces trade laws in China.

He says, “According to the provisions of China Trademark Law, currently Shenzhen Proview is the legal registrant of the iPad trademark.”

Ultimately it’s not up to him; it’s up to the court system in China, though AllThingsD figures if a government official is willing to go on the record, Apple’s chances in court might not be as good as some have thought.

Hey, remember that part where Tim Cook prefers settlements to litigation?

Set My eBooks Free
And finally this week, an interesting move in the eBook space. eBooks about space, actually.

CNET says Science-fiction & fantasy publisher Tor Books has announced that it will drop DRM from all of its eBooks starting in early July.

In a statement, Tom Doherty, president and publisher of Tor Books, said,

Our authors and readers have been asking for this for a long time … They’re a technically sophisticated bunch, and DRM is a constant annoyance to them. It prevents them from using legitimately purchased eBooks in perfectly legal ways, like moving them from one kind of ereader to another.

CNET says some think the Tor maneuver could start a wave of other publishers dropping DRM as well, which sounds crazy until one learns that Tor is actually a subsidiary of Macmillan USA, one of the largest publishers in the world. And, incidentally, one of the five being pursued worldwide for alleged eBook price fixing.

That aside, it does seem plausible that the major publisher could be sticking a toe in the DRM-free eBook water.

Ken Ray has been in and out of tech news since 1998, writing, producing and presenting for the magazine “Global Technology Business,” BusinessRadio 1220/KBPA in San Francisco, TechTV Radio, and “Rob Black and Your Money” on KRON 4 in San Francisco. He hosts a few podcasts on Apple news and news related to Apple news, including “Mac OS Ken” since 2006, and the call-in show “Mac OS Ken: Live” since 2010. He also used to make bread pudding, but hasn’t in quite a while.