That didn’t take long.
The same Apple (NASDAQ:AAPL) that saw its future suddenly engulfed in a black cloud of uncertainty Monday — following news that its CEO was taking a leave of absence — is now been greeted by the equity market as a company with as bright a future as ever.
So which is it? Is Apple’s blowout quarter a swan song before it begins a slow and irreversible decline without the steady, control-obsessed hand of CEO Steve Jobs to steer it? Or is the company, as the earnings call suggested, going to continue its streak of successful quarters into the foreseeable future?
That depends on how you define “foreseeable future.” Most investors who still have a fondness for fundamental analysis are content to look several quarters into the future. Anything beyond that is anyone’s guess. And from what we heard in Apple’s earnings call Tuesday afternoon, there are enough tech trends going in Apple’s favor right
now that it would take Apple’s remaining management team at least a couple of quarters just to actively sabotage it.
Apple is not only seeing unexpectedly strong growth in nearly every product category, it’s holding down costs admirably as it does so. CFO Peter Oppenheimer said Apple’s gross profit margins would hold around 38.5% in the current quarter, flat with the most recent quarter, and above the 38% most analysts were expecting. As Michael Goodman pointed out, Apple’s guidance is usually conservative, so it’s not inconceivable that Apple’s gross margins could even increase next quarter.
There is just no cooling demand for Apple’s devices. Chief Operating Officer Tim Cook (aka “little Jobs”) stepped in to say he believed demand for iPhones would be “huge” among Verizon customers. The U.S. is the last country that offers iPhones on only one carrier. In every other country, Cook said, bringing on a second carrier brought strong sales growth to iPhones.
And that points to a short-term problem for Apple — albeit a problem that’s not exactly terrible to have. Supply constraints kept iPhones from selling as much as they could have. Cook, who oversees Apple’s supply chain, would say only that the company is working “around the clock” to meet demand.
The supply of iPads is keeping up with demand, but demand could grow over time as they find new markets. Apple executives said that 80 of the Fortune 100 companies are trying out iPads as work computers — including Wells Fargo (NYSE:WFC), DuPont (NYSE:DD), Staples (NASDAQ:SPLS) and Starbucks (NASDAQ:SBUX).
Asked about the risk of iPads cannibalizing sales of pricier Macbooks, Cook said it may be happening a bit, but that there’s also a “halo effect” across Apple’s products that enhances all brands. The image of a cannibal with a halo may not make much sense, but Cook stood his ground. “If this is cannibalization it feels pretty good,” he said.
He has a point, though. iPads aren’t hurting Apple laptops as much as they are hurting a PC market dominated by Microsoft computers. Apple may be taking some bites out of its own lineup, but it’s devouring the market for Windows machines. And from the looks of it, it will keep eating away for some time.
- Poll of the Day