Sometimes the financial media should just, well, shut up.
This week, using Apple’s most recent guidance statements, is good proof of that.
By any measure, Apple just had one of its best quarters ever. The new Apple iPhone is a mega-hit. Consumers love the brand. Even Mac PC and iPod sales are way up. And sales, despite a brutal economy, are up. But Apple, which traditionally tempers enthusiasm for longer-term financial prospects by lowering future guidance numbers, has done that again.
The company says that fourth-quarter revenues should hit $7.8 billion, with a profit of $1 per share. Analysts had expected Apple’s fourth-quarter numbers to be higher, with revenues at $8.3 billion and profits at $1.23 per share.
Naturally, it was the guidance numbers that made the headlines in the business press. Pundits made much of the company’s announcement that margins would fall to 31.5% in Q4 from 34.5% in the third quarter. Yes, Wall Street hates declining margins but you have to examine the big picture here.
For the first time in my adult life, Apple has a real shot at upending Microsoft’s hold on the PC marketplace. Think about it. Know anybody who loves Vista? Know anyone who is inspired by a recent model PC, especially when compared to what Apple is offering in its desktop and laptop lines? As more people buy iPhones and iPods, it’s becoming easier for them to transition every piece of home or even office hardware over to a ever-more compatible Apple platform.
The company has also moved in recent years to bring its notoriously high prices down to budget-stretched consumers. Said Apple CFO Peter Oppenheimer during this week’s conference call with media and analysts, “We plan to deliver great value to our customers while making a reasonable margin, but not a margin so high as to leave an umbrella for our competitors."
In the short term, lowering expectations is hurting Apple’s stock – it’s down 7.9% since the company announced it quarterly earnings, and was down by 4.5% in Tuesday trading alone. For the year, Apple stock is off 16%.
That said, it’s a brilliant short-term & long-term strategy. Lower expectations now but keep doing the same things that have made Apple one of the hottest names in consumer retail today. Listen to Oppenheimer explain Apple’s take on its long-term strategy and see if it doesn’t make great sense: “We’re delivering state-of-the-art products at price points that our competitors can’t match, which has resulted in market share gains in each of our products. We plan to continue this strategy and to deliver great value to our customers while making a reasonable margin but not a margin so high as to leave an umbrella for our competitors. “
So when financial media types hear about reduced margins down the road and then assume that Apple is going in the tank, well, I just don’t see it. Maybe U.S. sales will slow because of the economy, but there’s always China, India, Russia, Brazil and other countries to take up the slack. Plus, the tradeoff between reduced margins versus increased market share is one I’d take any day of the week.
So ease up on the Apple talk. The company’s going to be just fine – and people who invest in it will, too.