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Apple's (Nasdaq: AAPL) unit sales and corporate earnings continue to grow, pushing revenue in the latest quarter up 30 percent over the same time last year, the company announced Wednesday in a public conference call and webcast.
It also showed a small break with Apple's tradition of secrecy, with company officials speaking candidly about supply and demand and the unannounced G5 iMac.
The company released unaudited figures showing US$2.014 billion in revenue for the third fiscal quarter -- a 30 percent gain over the same period in 2003 -- and $61 million in net profit, up from $19 million in the same quarter last year. Sales outside of the United States remain central to Apple's bottom line, accounting for 39 percent of revenue.
As was the case in Apple's Q2 2004 report, unit sales of iPods paced those of CPUs, with 860,000 of the portable MP3 players sold internationally. Apple also saw a strong market in portable computers, moving 460,000 Powerbooks and iBooks, 53 percent of total CPU sales of 876,000. Of the 416,000 nonportables sold, 13,000 units were Xserves.
Demand and the Supply Chain
However, Apple CFO Peter Oppenheimer also noted supply chain issues were a challenge for the organization, citing shortages of G5 processors from IBM (NYSE: IBM) for constraining Xserve and Power Mac G5 sales.
These inventory issues also stunted the release of a G5 iMac, now slated for September. Oppenheimer alluded to the shift from 120-nanometer to 90-nanometer processors as central to the production issues.
"IBM has assured us they have ample resources and are resolving supply issues with the processor," Oppenheimer said in the conference call.
Representatives from IBM's PowerPC division could not be reached for comment.
Analysts Chime In
Illuminata senior analyst Gordon Haff said he believes these new processors are a very important factor in driving Apple's market success with PC's and servers and are more about power than speed.
"The microprocessor game is becoming as much about power -- and reduced cost -- as ultimate performance for many uses. Reduced cost and power processors have to be part of Apple's product line future. There will remain a place for the fastest chip, but that's just one product category," Haff said.
Reed Cundiff, senior vice president with the Yankee Group, told MacNewsWorld that Hewlett Packard (NYSE: HPQ) and Lucent (NYSE: LU) are two companies in the high tech industry that have worked to streamline what are massive and complex supply chains.
"The goals there have been to implement a leaner inventory process and used pull-based replenishment, which reduces financial demand and warehoused components" he said.
Thorough Communication
According to Cundiff, collaboration and communication are critical to successful supply chain management, with forecasting and demand reported thoroughly to those involved.
"Apparently, this process is not being executed properly in this case," Cundiff added, suggesting that might be a part of Apple's problem. "They can't overstock parts and experience a multibillion dollar write off like Cisco (Nasdaq: CSCO) did."
For his part, Cundiff indicated he believes the other challenge for Apple is IBM as both supply-chain vendor and a maker of computer hardware, using the PowerPC processors in its own gear.
"Service level agreements need to be very specific to ensure Apple would get the proper inventory," he said.
Music and Demand
As was previously reported on MacNewsWorld, Apple has struggled to deliver iPod and iPod Minis to the market and meet consumer demand. A primary factor in shipment delays has been a shortage of the hard drives that power the iPod.
Music was an important driver in Apple's third quarter, with $322 million in revenues generated by the iPod, its accessories and the iTunes Music Store.
Apple addressed this during the earnings conference call, saying increased drive production should resolve delays in moving iPods into the market. Apple executive vice president for worldwide sales Tim Cook added that demand for the iPod has been staggering and they simply have to catch up.
Cundiff thinks this is one supply chain problem that might be a good one to have, with demand so high that new factories need to be built to accommodate production. "This just goes to show that forecasting demand at the consumer level is still an inexact science," Cundiff said.
Word from Wall Street
Gene Munster, senior research analyst with Piper Jaffray, said the firm is maintaining a positive outlook on Apple. In May, Munster issued a research note on Apple, shifting Piper's rating to market perform and expecting big future developments from Apple.
"With several profitable quarters, their core Mac business is again starting to show signs of life," Munster told MacNewsWorld. "What's funny about Wall Street is so many analysts beat up on Apple for their small market share, which is growing, while companies they tout with large market shares are losing traction in many cases."
Munster believes we could see a market with 50 million iPods sold over time, and sees the portable device as part of Apple's anchor in the convergence of digital music.
"The Sony (NYSE: SNE) Walkman sold well over 100 million units and conservative estimates would expect the iPod to track that. With its iTunes Music Store, iPod and now Airport Express, they have a solid trio in digital music entertainment," Munster added.
"Perhaps next we will see licensing of the iTMS protocol to other companies for innovations leveraging wireless and non-Apple devices like car stereos."
