Apple to Bears: Drop Dead!

Minyanville  |

Yesterday morning, heading into Apple's (AAPL) fiscal second-quarter earnings report, I opined that things were starting to look dicey for the most important company in the world, relative to last quarter, which had a seemingly non-stop stream of positive anecdotes and news items. (See: Apple: Earnings Are Coming, and Things Are Looking a Lot Dicier This Time Around.)

As it turned out, Apple didn't skip a beat.

It walked right up to the mouth of the bear, stuck a shotgun in, and pulled the trigger.

Apple's numbers were incredible. Beautiful. Stupendous. Monumental. Super-duper. Killer. Awesome.

You get the point.

For the second quarter, Apple reported a profit of $12.26 per share, smashing the consensus estimate of $10.06 per share by a whopping 22%.

Sales were also very strong at $39.2 billion, easily surpassing Wall Street's expectations for $36.8 billion.

iPad sales were slightly weaker than expected at 11.8 million, but still rose a solid 151% year-over-year. On the conference call, CEO Tim Cook noted that Apple was supply-constrained on the new iPad, which could mean disproportionate strength in the coming quarters as Apple satisfies pent-up demand.

However, the really big news on the product side was the iPhone number, which was a major concern due to so-so activations at key US carriers Verizon (VZ) and AT&T (T).

The Street was looking for iPhone shipments in the 30-32 million range, but Apple comfortably passed that mark by moving 35 million units for an 88% year-over-year increase.

So when we factor in the awful recent results at HTC, Motorola Mobility (MMI), Nokia (NOK), and Research In Motion (RIMM), it's obvious that Apple should show a significant increase in smartphone market share.

And don't forget, the iPhone 4S, which is the current big revenue driver, was only a modest update over 2010's iPhone 4. A revolutionary iPhone 5 with snazzier features for the spec-obsessed nerd crowd could further accelerate market-share gains, though it's tough to determine whether that would derail Apple's last true smartphone competitor, Samsung (SSNLF). Oh well -- there's enough money to go around.

Remember our favorite smartphone industry chart:

(Source: Strategy Analytics)

Once again, the lesson is: There is no bull market in Google (GOOG) Android smartphones. There is, however, a bull market in Samsung smartphones powered by Google Android.

Since the mainstream financial media has finally gotten around to noticing this, I'll point out that Minyanville was going gaga over this trend way back in January when the Q4 2011 smartphone market-share numbers from Strategy Analytics first hit. (See: Samsung and Apple Now Account for 86% of Smartphone Industry Growth.)

Elsewhere, the iPod, which is being cannibalized by the iPhone, continued its decline with a 15% unit decrease, while Macs were slightly above expectations with 7% unit growth. And note, while that 7% growth number isn't so hot, Gartner recently estimated that first-quarter global PC industry sales rose just 1.9%.

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In terms of regions, as expected given Apple-mania in China, Asia Pacific was the hot stuff, with 114% revenue growth and a 29% increase in Mac unit sales. On the conference call, Tim Cook said that Apple's China revenue rose over threefold year-over-year, hitting $7.9 billion, or about 20% of sales.

Apple stores also had a great quarter, with a 38% increase in total revenues, and a 23% increase in revenue per store.

Looking forward, Apple forecasted a so-so June quarter (its fiscal third quarter), but that's not unusual for this chronic low-baller. Apple's weak gross margin guidance is especially laughable given the crash in flash prices that crushed SanDisk (SNDK). (See: Flash Crash! SanDisk Teases Ties With Apple, but That Relationship Is Not a Two-Way Street.)

In all, Apple is just killing it, and making the crazy brave and phony tough bears with zero knowledge of or interest in industry statistics and trends look like a bunch of dopes.

Two other wrinkles to note:

Qualcomm (QCOM), a perennial world champ up until last week's earnings report, had weak guidance because of a shortage of next-generation 28-nanometer parts. (See: Qualcomm Loses Its Sparkle as Supply Constraints Present a Double-Edged Sword.)

Incidentally, in Apple's call, in response to an analyst inquiry, Tim Cook said that the company does not currently use 28 nanometer parts. So common sense tells us that Samsung is likely driving the shortages at Qualcomm. Now, if it turns out that Apple does end up using Qualcomm's 28-nanometer 4G/LTE solutions in the iPhone 5, Qualcomm is likely to skyrocket because that will be a major, major piece of business. But for now, I'm on the sidelines with Qualcomm -- read the above article for my full reasoning.

And finally, have you been watching AT&T and Verizon get behind Microsoft's (MSFT) Windows Phone operating system? This could be a headwind for domestic Android market share, though likely less so for the iPhone because of Apple's rabid consumer base.

Verizon launched the Android era in the fourth quarter of 2009 with a major push of the original Motorola Droid -- so good old-fashioned corporate marketing muscle does have the power to influence change in the face of doubt. (I was a hater! See: Betting on Motorola's Droid Is Premature.)

By Michael Comeau

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