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A Case Study In Managing Expectations

Any of you familiar with TQM know that managing your customers' expectations is important. In case you ever needed that lesson reinforced...

Apple profit surges 95 percent on iPod sales

SAN FRANCISCO (AFP) - Apple Computer reported a 95 percent rise in quarterly profits on exploding sales of its iPod music players, and notched more than one billion dollars in sales through its retail stores. ...

Apple reported net income of 565 million dollars, or 65 cents a share, for the first fiscal quarter to December 31, up from 295 million a year earlier. The report beat analyst forecasts of a profit of 55 cents per share.

Sales rose 64 percent to 5.75 billion dollars. Chief executive Steve Jobs disclosed Apple's quarterly revenue result January 10 at the Macworld conference in San Francisco.

Consumers snapped up 14 million iPod devices during the holiday quarter, and Apple has now sold more than 40 million since late 2001. The groundbreaking product has transformed Apple from a niche PC maker into the leading purveyor of digital media.

Apple also sold 1.25 million Macintosh computers during the quarter, a figure that was up 20 percent from the year-earlier figure. Apple is in the process of transitioning its Mac line to Intel rocessors, and it expects to have all of its PCs running on Intel chips by the end of this year.

"We are thrilled to report the best quarter in Apple's history," said Jobs.

"Two highlights of an incredible quarter were selling 14 million iPods and getting ready to launch our new Macs with Intel processors five to six months ahead of expectations. We are working on more wonderful products for 2006, and I can't wait to see what our customers think of them."

iPod sales are booming, Mac sales are up 20% at a time when the critics said Apple would die because of the Intel transition... Things can't get much better in Apple land right now. - One would think that if you had numbers like those in a Fortune 300(ish) company and you announced that you DOUBLED profits that your stock would soar on the announcement, right?

Apple issued a second-quarter profit forecast of 38 cents a share on 4.3 billion dollars in revenue. That outlook fell well short of a Wall Street-estimated profit of 48 cents a share on 4.63 billion dollars in sales.

The forecast drove Apple shares down more than five percent to 78.07 in after-hours trades. It had given up 2.22 in the daytime Nasdaq session.

Now you know why they talk about past performance not affecting the future performance of a security. ;-)

It's all a game of course, Apple is simply managing Wall Street's expectations. The street can't expect doubled profits every quarter. So Apple estimates a low number then when they beat it, the stock price rises again. It's all about managing expectations.

But still, the juxtaposition of these two bits of news still seems weird.

Comments (16)

Another little covered item... (Below threshold)

Another little covered item is that Apple's profits are down.

Is it any surprise that AAP... (Below threshold)

Is it any surprise that AAPL settled back after rocketing to such heights? In the market generally it's often called "a correction."
I just wish I'd bought it at a pre-split 14 and yes, I did consider it. D'oh!

That profit rating also put... (Below threshold)
Red Five:

That profit rating also puts them above Dell this quarter. Schweet!

Apple has long been coming ... (Below threshold)

Apple has long been coming out with something real sweet (a new product, better than expected sales) and then failing to keep the momentum going... so the stock shoots up for a while, then comes crashing back down.

And it probably won't be any different with the Ipod... lots of hype, some good numbers, then no encore.

I blame Bush!... (Below threshold)

I blame Bush!

Oddly enough, as worshipped... (Below threshold)

Oddly enough, as worshipped as Jobs is, had Apple followed his advice and desire the iPod would never have been made. He thought it was a bad idea.

Managing expectations is a ... (Below threshold)
Mrs. Davis:

Managing expectations is a dangerous game in the world of Sarbox.

The stock may be down from ... (Below threshold)

The stock may be down from its most recent wild surge into the 80's, but it's still up magnificently for the year.

Hey steve:Give us tw... (Below threshold)

Hey steve:
Give us two examples (i.e. dates) of Apple stock
crashing trend you claim. There is probably only
one instance that fits your description (late 2000).
This is certainly not a trend.

Apple users are branded fanatics but Windows
users blind themselves to the core. They refuse
to recognize something that is, in many instances,
far better than anything Microsoft can bring to

Stop rationalizing already!

George:There have ... (Below threshold)


There have been plenty of times where Apple has lost half of more its value of the course of a couple of years. here's the chart.. look at April of 91 when it was pushing 17 a share, only to fall back to 6 by sept of 93... then in sept 95 it was up to 11, only to fall to under 5 less than a year later.

And this has nothing to do at all with the windows -vs- mac debate... it is whether Apple, as a company, has ever posted results that have rewarded long term investors for their faith in the company... and my argument is that, notwithstanding the run-up they've enjoyed riding the Ipod, history suggests that when Apple fails to follow up, the stock price will come back down.

>look at April of 91 when i... (Below threshold)

>look at April of 91 when it was pushing 17 a share, only to fall back to 6 by sept of 93... then in sept 95 it was up to 11, only to fall to under 5 less than a year later.

With all due respect Steve you're pointing to the abnormal and calling it normal. That was a 4 year window (over a decade ago) often known as "The Pepsi Era" where all bets were off. -As were the qualifications of the CEOs.

The comapny is now 22 years old... Pointing to a 4 year window of poor management is hardly a good way to establish a "history."

Faith+1 You gotta link?<br ... (Below threshold)

Faith+1 You gotta link?

Faith+1, my understanding w... (Below threshold)

Faith+1, my understanding was that he thought the video iPod was a bad idea. By that point iPods were already wildly successful.

Expectations met or not, AA... (Below threshold)
Joe Ego:

Expectations met or not, AAPL watchers will notice that the stock tends to drop or "correct" in the days following good news from Apple. After most quarterly earnings reports? The stock will go down the next day, even though most of the recent reports have shown good performance and many firms rate the price higher.

iPod sales up? Stock down. Intel migration ahead of schedule? Stock down.

I was actually suprised to see the price jump to $80.86 the other day. That's just not common right after a MacWorld.

Don't have a link, but ther... (Below threshold)

Don't have a link, but there was an internal email published awhile back as aprt of interview with Jobs where he "admitted" being wrong about the iPod. It wasn't for MacWorld, but it's no deep, dark secret. In the article I read (and I am drawing a complete blank as to which mag it was in) it was treated as humorous.

When it was first pitched he viewed it as "another PDA that will fail like the Newton" (Side Note: I actually own one of the original Newton's). He also didn't like the idea that most of the iPod design and workings were from external companies. He's always been a "we do it all" kind of guy even if it was finaincially disasterous to do so.

He has also said he thought the ipod was the wrong place for video too...but this was more recent.

>Don't have a link, but ... (Below threshold)

>Don't have a link, but there was an internal email published awhile back as aprt of interview with Jobs where he "admitted" being wrong about the iPod.

If you don't have a link you ain't got jack. (sorry) I googled it 15 different ways and got nothing.

>He has also said he thought the ipod was the wrong place for video too...but this was more recent.

Yes... He publically proclaimed Apple would never build a video iPod... While they were designing it.

He also said the iMac would not come in different colors and it would not become a whole family of computers.

Do you expect him to telegraph Apple's next move? The guy who is militant about company secrets?

If Jobs says Apple is NOT doing something you can mostly ingore the comment because you have no idea if it is true or not. And he likes it that way.

I'm not saying he's infalible but if you read too much into his public statements, you do so at your own risk.






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