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Apple Earnings Lifted by China Sales

Jul. 20, 2011 Paul Thurrott | Paul Thurrott's Supersite for Windows

Apple announced another stunning financial quarter on Tuesday, with a record quarterly net profit of $7.31 billion on record quarterly revenue of $28.57 billion. The consumer electronics giant credited its recent entry into China for pushing it over the top, but it's equally likely that a delay in the next-generation iPhone was responsible: Apple sold a whopping 20 million iPhones in a quarter that is usually the weakest for that device.

"We're thrilled to deliver our best quarter ever, with revenue up 82 percent and profits up 125 percent," a prepared statement credited to ailing Apple CEO Steve Jobs reads. "Right now, we're very focused and excited about bringing iOS 5 and iCloud to our users this fall."

Broken down by product line, virtually all of Apple's solutions are selling well. Its iPhone sales were up 142 percent over the same quarter a year ago, though that's skewed because a year ago, Apple had already announced the replacement for the then-current iPhone, and buyers were waiting. Sales of the iPad were strong, at 9.25 million units, with Apple again claiming it sold every device it could make. Apple also claimed that while the iPad was cannibalizing the Mac somewhat, most sales were coming from Windows users. The company didn't back up that claim with any numbers or admit that most iPad sales were additive—not replacements for existing PCs

Mac sales were unexpectedly steady from the previous year—analysts had expected a stronger quarter—with 3.95 million computers sold, though Apple today announced new revisions to the Mac mini and Macbook Air computers, which should jumpstart sales again. And iPod sales were even worse than expected: 7.54 million units, down 20 percent from a year earlier.

Apple COO Tim Cook said that Apple's expansion into China last year has helped drive revenue gains, noting that the country was "key" to the company's success. In fact, Apple's revenues from China, at $6.33 billion, are closing in on its US results. (Apple posted $10 billion in revenues from "the Americas" in the quarter.) Revenue growth in the Asia-Pacific market overall is up over 600 percent year over year.

Also launching today is Apple's next-generation Mac OS X version, code-named Lion. This software represents Apple's first attempt at melding the Mac with its far more successful devices, which run a different system, called iOS. My review of Mac OS X "Lion" is available now on the SuperSite for Windows.

Discuss this Article 28

JayZeee74
on Jul 20, 2011
I didn't know that you continue a close relationship with Steve Jobs and his doctors to know that his condition is "ailing". Solid reporting.
yoshipod
on Jul 20, 2011
"Apple also claimed that while the iPad was cannibalizing the Mac somewhat, most sales were coming from Windows users. The company didn't back up that claim with any numbers, or admit that most iPad sales were additive, and not replacements for existing PCs" Paul still unable to accept the facts that tablets are impacting PC sales. He is correct that most iPad sales are additive. I am sure very few people are throwing out a PC and going pure tablet, but that does not matter. (How many PC sales are additive? Why don't we talk about that when discussing market sales, etc?) What tablets are doing is making people not upgrade their PCs as often as they would. Consumers are choosing to not buy a PC and buy a tablet instead. That does not mean they won't eventually a purchase new PC, but it does mean that overall there are fewer PC sales that would have occurred. Think of it this way. A person has a 4 year old Intel Core Solo laptop. Its starting to get a little slow by todays standards, but still functions well enough. That person is considered buying a new laptop. Instead they go and get an ipad to use along with the laptop. The ipad does a decent amount of what the laptop can do, but not everything. The laptop can still do what the tablet can't. But now the slow speed is not as noticeable as many functions have been offloaded to the ipad. That person will buy a new laptop in a couple of years, maybe when Windows 8 comes out, but for now, the ipad has satiated the need for a new PC, as they are using their PC less. Now multiple that by 10M+ tablets sold last quarter. That is how they are impacting PC sales, and it is certainly real.
jersey72
on Jul 20, 2011
@yoshi- "A person has a 4 year old Intel Core Solo laptop. Its starting to get a little slow by todays standards, but still functions well enough. That person is considered buying a new laptop. Instead they go and get an ipad to use along with the laptop. The ipad does a decent amount of what the laptop can do, but not everything. The laptop can still do what the tablet can't. But now the slow speed is not as noticeable as many functions have been offloaded to the ipad." I can't get on board with your scenario. If I have a laptop that's getting slower, it's not going to be showing its age doing the tasks that would be offloaded to the iPad - email, surfing, social networking. What the iPad does clobber is the netbook market. That's where the iPad offers a real choice. I was considering buying a netbook but went the iPad direction instead. It's lighter, easier to port around, and I love using it for both Facebook and Twitter. But it doesn't come close to replacing my laptop nor my wife's desktop at home, nor did it cause us to decide against upgrading the desktop.
argraphics
on Jul 20, 2011
@yoshipod Thats 100% what my wife did....Kept the old Crappy slow dell laptop to log in to work every now and than...But facebook, gmail, netflix,, etc....... all on the iPad
Ikon819
on Jul 20, 2011
yoshipod, you're scenario has some merit, in theory, but the figures don't seem to back it up, at least not yet. PC sales are still an order of magnitude more than tablets. Perhaps as more tablets hit the market we'll see a greater impact, but I don't think it's a certainty
infiniteloop
on Jul 20, 2011
For a more realistic appraisal of Apple's recent quarter, (one which acknowledges that iPads are indeed eating into PC sales) look here. http://mobile.reuters.com/article/idUS427359930320110720?irpc=932
infiniteloop
on Jul 20, 2011
Does anyone else think Paul is a bit disingenuous referring to Apple as 'The consumer electronics giant'? In Paul's world he's trying to differentiate between Apple and Microsoft as if they don't compete. The consumer moniker is particularly inappropriate since Macs, iPhones and especially iPads are all making inroads into business like no other products. Come on Paul. 'Tech Giant' is more appropriate here.
chuckb84
on Jul 20, 2011
Here's a real world iPad scenario. A friend has an 3 year old Macbook Pro and recently got an iPad as a gift. She's decided to sell the old Macbook Pro and get an imac. This gets: 1. More computing power and better price performance while at a desk. 2. A lighter, easier to use mobile computer. 3. Some tradeoff in what she can do while mobile because an iPad is not a laptop. The notable thing you can't do with an iPad is coding. Since my friend is a coder, I was surprised at this decision, but it's an example of a different optimization you can make with the iPad. Her mobile needs are suite to the iPad and it works better at meetings. I think we may see some surprises in how resources are allocated for various computing needs. Not everyone needs or wants a full blown computer everywhere they go, even sophisticated users like my friend.
yoshipod
on Jul 20, 2011
"Does anyone else think Paul is a bit disingenuous referring to Apple as 'The consumer electronics giant'?" I agree with Paul on this one. Apple is now considered a consumer electronics company rather than a computer manufacturer. They certainly straddle both worlds, and I expect that to continue. But right now more revenue comes from iOS products than OS X ones. The dropped the "computer" from their name a few years back.
Anonymous
on Jul 20, 2011
This is a pretty funny attempt to throw cold water on some pretty good numbers.
infiniteloop
on Jul 20, 2011
Thing is Yoshipod, Apple is now making huge inroads into business, as I've already outlined. Therefore they are not a 'consumer electronics giant' they are an electronics giant which innovates and creates markets. Therefore 'Tech Giant' is more appropriate.
yoshipod
on Jul 20, 2011
@infiniteloop Apple may be making inroads to enterprise, but as of now the majority of their sales, as well as the public perception, is that they are geared towards individual consumers. That could change in the future, but for now, its not really a stretch to call them a consumer electronics company.
infiniteloop
on Jul 20, 2011
@Yoshipod: Neither is it accurate.
jersey72
on Jul 20, 2011
@infinitetroll: "Thing is Yoshipod, Apple is now making huge inroads into business, as I've already outlined. Therefore they are not a 'consumer electronics giant' they are an electronics giant which innovates and creates markets. Therefore 'Tech Giant' is more appropriate." Tell you what - I'm feeling generous today. I will spot you, for the sake of argument, that the iPhone and iPad are popular in businesses. Name one other non-iOS product that's popular in business. And by popular, let's set the mark at at least a 5% market share.
infiniteloop
on Jul 20, 2011
@Meh: Perhaps you should read this: http://applenewsdaily.posterous.com/macs-have-decimated-windows-pcs-in-b... Final Cut Pro is extremely popular in it's Market. But tell you what, let's see if you can do the same for non Windows products made by Microsoft.
BananaJr
on Jul 20, 2011
Final Cut Pro Ok, back to the regular thread. Paul actually made a valid observation. Apple lengthens the iPhone cycle and ends up selling MORE phones. The iPad in just over a year significantly contributes to the profit of the company. If there is one takeaway from this quarter Microsoft could use is that Apple went after it's own iPod and Mac with new products. At some point Microsoft is going to have to start cannibalizing it's own Windows sales with new innovative products lest someone else does it for them.
Anonymous
on Jul 20, 2011
@Meh Im in the Graphic design/Printing business and I can assure you Macs have more than 5% marketshare. Also as a former musician I cant also bet my life Macs have a majority in the recording Industry. ( Logic, Pro Tools, Rasons, Etc.... )
jersey72
on Jul 20, 2011
@Anonymous - was speaking overall business/enterprise @infinitetroll- really? Ok... SharePoint SQL Exchange .NET and Visual Studio Live Meeting/Lync Office 365 Azure - good enough for Apple even .......
jersey72
on Jul 20, 2011
@infinitetroll- From the article - "Forrester analyzed the operating systems of 400,000 client computers from 2,500 companies that surfed to its Web site in the last year to come up with its data." So really - people that surfed to the Forrester web site, not actually market share.
infiniteloop
on Jul 21, 2011
@Meh: Okay. Now repeat the exercise as I asked, without running those things on Windows. Re marketshare: You're in denial. That doesn't matter, fact is OSX has a greater than 10% (and growing) presence in business. Add in the iOS presence which you've already admitted and you have a sizeable Apple involvement in business. Like I said, the 'consumer' moniker is incorrect.
chuckb84
on Jul 21, 2011
The discussion of Apple in business use is not a major issue. Their presence is small, but growing. However, Microsoft OWNS that market, not just on the desktop, but through all the backend systems. I'm not saying I like it, but it is an undeniable fact. In fact, my frustration with Apple is that they give many signs that they don't really care about the business market. It is an even smaller "hobby" than the Apple TV. However, there is a much bigger issue which is the elephant in the room: Microsoft products are almost routinely pirated in China and Asia, while the Chinese love buying Apple products so much that fights break out in the lines at the Apple stores. This is another good indicator of future trends. Apple growing 600% YOY in a market that will soon be bigger than the USA.
jersey72
on Jul 21, 2011
@chuck- Sorry if my point was lost in my back and forth with the resident troll. The only point I was making was Microsoft has been and continues to be extremely in many markets - and yes, mainly on the business side. "However, there is a much bigger issue which is the elephant in the room: Microsoft products are almost routinely pirated in China and Asia, while the Chinese love buying Apple products so much that fights break out in the lines at the Apple stores." That doesn't tell the full story. Remember that in order to install Mac OS you need to either hack your system or install it onto Apple hardware. Plus, it's not like you can get a pirated iPhone/iPad. Apple is a hardware first company - you need the hardware to get the software.
MSTAYLOR
on Jul 21, 2011
@chuckb84 - What is it that you don't like about Microsoft on backend systems? Is there something about Exchange or SQL Server that bothers you? How about Sharepoint? In my experience, they just work. I understand that the licensing is a hassle in some cases, but I am not involved in that part of it, I setup, maintain, and use them all...and they "just work". On a note more related to the subject of earnings...congratulations to both Apple and Microsoft - and to all of us, in reality. That both companies are having great years in today's economic downturn is really a good thing for the end users, whether they be consumer or enterprise.
chuckb84
on Jul 21, 2011
@tayme, My only squawk about Microsoft business systems is that they try to force you to use WIndows/Office. It's done in many ways, some very overt, some more subtle. Yah, Sharepoint "works" with Macs, but not as well as with Windows. Mac Office is still an abominable pig compared with Office/Windows. This is NOT due to technical constraints, anymore than the lousy iTunes on Windows is a technical matter; it's an attempt to push you to buy more Microsoft stuff and perpetuate a lockin in the business world. The fundamental issue with Exchange, or any other vendor proprietary system like that is that it is from a single vendor. I prefer open standards wherever possible. A Mac at a business that uses Windows/Exchange/Sharepoint infrastructure is a second class citizen and probably always will be, by design from our dear friends in Redmond. I hate that. The only thing is, I'd hate desktop Windows/Office even more, so I'm stuck. @Meh, Sure Apple is primarily (90+%) a hardware company. I'm not commenting on the hardware/software dichotomy, just that 1.4 Billion people are falling all over themselves to buy Apple stuff. Actually, I tend to think Apple is a -systems- company; they make great hardware that lets them implement end-to-end systems that people like. Actually, the strength of Microsoft in the business world is the same end-to-end system attribute. I just don't like what they want to make me use at my desk :(.
jersey72
on Jul 21, 2011
@chuck- " I'm not commenting on the hardware/software dichotomy, just that 1.4 Billion people are falling all over themselves to buy Apple stuff." The point that I'm making is they *have to* buy it if they want it. With Windows they can simply pick up a pirated copy. As for what they're making you use at your desk, well..... Need a better IT department? I love what I get to use. ;-)
BananaJr
on Jul 21, 2011
@Meh I wouldn't be too quick to play the copyright card. I think you have read about the pirated "Apple stores" by now. From what I read even the employees believe they work for Apple. No it's not on the order of magnitude you are stating and probably easier to shut down. Nonetheless, an interesting development.
MSTAYLOR
on Jul 21, 2011
@BananaJr - I wonder if the "Genuises" at the Fake Apple Store are any better than the ones at the Real Apple Store. They certainly can't be any worse.
BananaJr
on Jul 21, 2011
Hahahaha. Store is spelled Stoer on the sign in front. I'm guessing no.

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