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Apple peels away from new media competitors in earnings rankings

Date: June 1 2012

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Apple Inc. (AAPL-US) $ 580.32 1.50% Inc. (AMZN-US) $ 218.48 (0.15%)
eBay Inc. (EBAY-US) $ 41.05 0.37%
Last Updated: 6/8/2012
About This Feature
Data feature produced by SNL's research groups in cooperation with the news department, leverages SNL's unrivaled data resources to highlight emerging trends and topics of interest.
It was perhaps a no-brainer that the most valuable company in the world would end up dominating its sector in terms of earnings in the first quarter.
Indeed, Apple Inc.'s $39.19 billion revenue for the first three months of 2012 exceeded that reported by the companies ranked Nos. 2 and 3 combined. During that quarter, Apple raked in more than a third of its total revenue reported for all of 2011. The quarterly tally also represented 58.9% year-over-year growth. Net income grew even more strongly, rising 94.1% to $11.62 billion, from $5.99 billion a year earlier.
Unsurprisingly, iPhones and related products and services drove the bulk of Apple's earnings growth in the period, with net sales of the devices totaling $22.69 billion, as Apple moved 35.1 million iPhones into the hands of consumers. While net iPhone-related sales grew 85% year over year, however, another segment outpaced the popular smartphone, with net sales growth of 132% year over year: Apple sold $6.59 billion worth of iPads and related products and services, up from $2.84 billion in the year-ago quarter. In all, 11.8 million iPads were sold in the period.
The iPod, meanwhile, generated $1.21 billion in net sales, down 25% year over year; and interestingly, growth in Mac sales was entirely in desktops. Despite the seeming ubiquity of the MacBook, MacBook Pro and MacBook Air in coffee shops across the country and beyond, net laptop sales slipped 1% year over year, to $3.51 billion from $3.54 billion. Desktop sales were up 8%, to $1.56 billion from $1.44 billion.
The other big story for Apple during the quarter was an explosion of sales in the Asia-Pacific region. Notably, the period saw the iPhone's availability expand from one to two carriers in the region.
All told, net sales in Asia-Pacific, excluding Japan, came to $10.15 billion, a massive 114% rise year over year (Japan was no slouch either, with $2.65 billion in net sales, up 91% year over year). The growth pushed Asia-Pacific net sales not far behind the $13.18 billion reported for the Americas. By comparison, just a year earlier, Asia-Pacific's net sales amounted to just more than half of net sales in the Americas. Sales show no sign of slipping, either, as Reuters reported May 16 that a third Chinese carrier, China Mobile, is in talks to bring the next iPhone to its network.
With explosive sales of the iPhone and the iPad, the newest model of which made its debut during the quarter, and massive growth in Asia-Pacific, it was no wonder that Apple performed like gangbusters in the quarter. Many analysts expect that type of performance to continue, despite some recent challenges for the company, including a U.S. Department of Justice lawsuit related to e-book price fixing allegations and lower guidance for the June quarter.
In a May 29 research report, RBC Capital Markets analyst Amit Daryanani wrote that some of the recent stock pressures Apple has encountered only made it more appealing to investors, creating an attractive entry point for any Johnny-come-lately who had watched Apple shares balloon in value from a 52-week low of $310.50 on June 20, 2011, to an all-time high of $644 on April 10, 2012.
Daryanani said Apple has nowhere to go but up through the rest of 2012, as iPad momentum carries on, the iPhone 5 likely launches in the second half and the MacBook line undergoes an anticipated refresh. The analyst also highlighted the possibility of Apple's so-called "iTV" launching by the end of the year, though other analysts have pegged a launch date from 2013 to as late as 2014.
Sterne Agee & Leach Inc. analyst Shaw Wu was similarly bullish on Apple in a May 15 research report. Wu wrote that a supply chain check indicated that manufacturers are making fewer iPhones than expected, but that the move comes thanks to plans for a massive build of the next iPhone later in the year. Meanwhile, he said suppliers are stepping up iPad manufacturing; the latest iPad is younger in its sales cycle than the latest iPhone.
Meanwhile, No. 2-ranked Microsoft Corp., delivered a somewhat less impressive quarter, growing operating revenue by 6.0% year over year, to $17.41 billion. Third-place finisher Inc. made some gains on Microsoft, as it saw operating revenues rise 33.8% from the prior-year period, to $13.19 billion. Net income actually declined year over year at Microsoft, dropping 2.4% to $5.11 billion from $5.23 billion.
While Microsoft remained the second most money-making company in the sector, it was perhaps an inauspicious start to a year in which the company hopes to take on Apple in the tablet space. The tablet-centric Windows 8 is set for a 2012 release.
But in a May 3 research report, Stifel Nicolaus & Co. analyst Brad Reback wrote that the "sleeping giant is waking up," saying that while Apple has captured general consumers' hearts in recent years, its main competitor has quietly been building an enterprise empire.
Ongoing enterprise adoption of Windows 7 and Microsoft's heavy push into cloud computing with Windows Azure, Office 365 and a great many other products have all but sealed up the enterprise market for Microsoft, Reback wrote. He also called the upcoming Windows 8 "a solid product," though he warned that it may not perform amazingly off the bat, coming closely on the heels of many consumers and enterprise customers newly switching to Windows 7.
Otherwise, the rankings largely consisted of the usual suspects: Amazon took the No. 3 spot in revenues but was down at No. 8 in income thanks to its philosophy of extensive, ongoing internal investment. Google Inc. and eBay Inc. were next in revenue and came right behind Microsoft in income. There was one newcomer, however, that hit the list at No. 7 in revenue and No. 6 in income, respectively.
Facebook Inc. reported $1.06 billion in operating revenues and $205.0 million in net income in the first quarter. Still, as anyone not living under a rock is well aware, all has not been well in Menlo Park, Calif., as Facebook told underwriters to cut earnings estimates for the second quarter as a result of difficulties monetizing outsized mobile usage.
Speculation has emerged that Facebook's next moves could be anything from moving into financial services to developing a proprietary smartphone to make up for diminished revenue going forward.

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