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Apple feels downturn sting

Posted: 24 Apr 2009 ?? ?Print Version ?Bookmark and Share

Keywords:Apple decline? iPhone sales? NAND flash?

Apple Inc. may have defied gravity by posting its strongest ever non-holiday quarter in Q1 09 but the company said it expects to see declines in its revenues, profits and gross margins in coming months as component prices firm up, ending significant declines.

The iPhone maker posted quarterly revenue of $8.16 billion, net profit of $1.21 billion and gross margins at 36.4 percent in its latest period ending March 28. That's up from revenue of $7.51 billion, profits of $1.05 billion and margins of 32.9 percent in Q1 08.

The company, however, expects to feel some of the reality of the recession in the next three months. It predicted revenues down to about $7.8 billion in its coming quarter. Profits per share will decline to a dollar or less a share, down from $1.16 in the last quarter, and gross margins could slide to 32 percent in the next and dip again to about 30 percent in the September quarter, the company said.

Tim Cook, Apple's chief operating officer said he expects component costs in the coming period will be about flat with today's levels. Cook had said significant declines in component costs such as DRAM, flash and LCDs bolstered the company's profits in the last quarter of 2008.

"There will be some commodities such as NAND flash that will increase [prices] sequentially [due to] reduced wafer starts from several suppliers," said Cook. "Last quarter [the semiconductor industry] wrang out [some of its] excess inventory, and I don't expect to see the reductions we saw in last quarter," he said.

"We don't want you to count on the gross margins you have seen that have benefited from a commodity component environment," Cook told Wall Street analysts on a conference call releasing quarterly earnings April 22.

Cook declined to speculate about the macroeconomic environment, but he did say Apple's product growth this year is roughly in line with 2008 levels. "Were not entering the game of predicting bottoms, but if you look at product areas we see very little difference from last year," he said.

Peter Oppenheimer, Apple's chief financial officer, blamed a number of factors for Apple's gloomy forecast including price pressure to win seasonal deals for computer sales in K-12 education and the overall economic downturn.

iPhone boom
Apple reaped higher revenues and margins than anticipated in its latest quarter thanks to continued declines in component prices and software and accessories sales at higher than expected levels, Oppenheimer said.

"We are within hours of reaching our one billionth download on App Store," he added. "We believe it's a key differentiator in the mobile phone market."

He would not comment on the ratio of free versus paid applications downloaded from the site. The company has sold a total of about 37 million iPhones and iPod Touch systems to date, a fact driving the software growth, Cook said.

The company previewed version 3.0 of its iPhone software in March and is expected to release new handsets using it in June.

Apple is now selling the iPhone in 81 countries. China is perhaps the biggest market where it has not yet debuted. "We would like to be there in the next year, and we are working on it," said Cook.

The company has no plans to make the iPhone available in the U.S. outside its exclusive arrangement with AT&T, he added.

The Macintosh represented one weak spot in an otherwise strong quarter for Apple. Sales were down about three percent overall and more in the United States. However, that's better than the global PC market which International Data Corp. project declined about seven percent in the last three months, Cook said.

Apple sold 2.22 million Macintosh computers, 11 million iPods and 3.79 million iPhones during the quarter.

Oppenheimer said chief executive Steve Jobs is still expected to return to the company in June, following a medical leave announced in January.

- Rick Merritt
EE Times

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