Interview: Intl Data Corp.
>> welcome back. let’s reiterate after the bell earnings from apple. the company coming in with much strobger than anticipated results for the third quarter. third quarter profit excluding items of 38 cents a share. third quarter sales $3.5 billion. analysts looking for $3.3 billion. growth margin 29.7%. macintosh unit shipments up 35% compared with a year ago. the ipod sales also coming in stronger than had been anticipated. ipod shipments up 616% compared with a year ago period. let’s get immediate reaction from this. joining us now from mountain view, california with his reaction to the earnings is robert o’donnell with international data corporation. bob, i know you have been going through the report in the last few minutes. let’s get your immediate reaction to it.
>> obviously, ellen, it’s great news for apple. clearly they have blown away expectations that other analysts have had. the numbers are strong financially. the numbers are strong from a unit perspective on the mac side and even on the ipod side. what is interesting is there were concerns that this quarter’s ipod shipments may be the first where they saw a small decline which wouldn’t have been surprising really given that seasonally consumer electronics tend to dip in the second quarter. here they beat the growth -- they had growth over the first quarter in ipod shipments. i think that’s an excellent sign.
>> i want to focus specifically on the ipod for another moment. you survey that landscape. why were the ipod shipments stronger than people anticipated? those concerns came from several quarters that the sales growth was slowing. >> i think what it was was there was an overall impact on mp-3 players but apple itself was able to maintain and indeed grow its share of the overall market . i think apple has continued to offer the kind of products and price points that people are looking for. they hit the sub$100 market with the ipod shuffle. they have got color screens at lower prices. they have got a broad array of products and price points that seem to be matching it. plus they have the great interface and all the tremendous marketing that they have done to really build up the ipod brand.
>> we flashed something under you that talked about the macintosh shipments, the number there. what everyone has been looking for in recent months is whether ipod sales would translate to sales boosted for the macintosh computers. what does today’s report tell you about that?
>> well, it tells us a couple of things. first of all, we saw sequential growth in the second quarter which to be honest we expected with apple because one thing that apple does different than other p.c. players is the second quarter is the beginning of the back to school time frame for apple. because apple is so strong in education, a lot of the big bids for schools, programs in the fall actually happen in the second quarter. so seasonally the second quarter has been a strong one for apple. it’s important we saw growth there. in addition, my sense is -- we’ll know more when we have more details―there’s a haloeffect from the ipod onto things such as the mac mini and imac, particularly for consumers.
>> how long account halo effect be anticipated to last, since that must have a certain shelf life?
>> it does. it’s unclear. one big question, of course, is how will mac sales be impacted by the announcement of their transition to intel-based processors. that certainly is a big issue in the industry. the question remains is it a big issue in the minds of potential buyers? there are concerns that some people will hold off thinking i will wait until the intel-based macs come out. i think there’s some concern over the next couple of quarters over what impact that announcement will have. on the other hand, just this past week i.b.m., who continues to be their current processor supplier, announced significant upgrades to both their desktop chips for power mac g-5 and potential of a chip for a g-5 notebook which apple has yet to do. it will be interesting to see what apple does. they have been very clear about the fact that they’ll introduce some more power p.c.-based imacs. now they have processors to do it. the question will be which ones they choose to do and how they time those.
>> the company give ago forecast for the fourth quarter saying revenue will come in at $3.5 million. a little shy of what analysts are looking for. they’re saying fourth quarter earnings per share will be 32 cents. analysts looking for 33 cents. does that raise a concern for investors?
>> i wouldn’t say it raises significant concerns. again, my sense is they may be taking into consideration this issue of will the intel transition have an impact on the mac sales. i think it is wise on their part to be a little conservative. not everyone cares about that. there’s a certain group of dedicated apple crowd who does care and they represent a decent proportion of mac sales. so i think they’re wise to be cautious in that regard.
>> thank you for being with us. we appreciate it. robert o’donnell of international data corporation. let’s take a quick break. when we come back, we switch our focus from earnings to washington. the white house budget officials cutting estimates for this year’s deficit, first cut since president bush took office. after a quick break, we go live to washington and speak with josh bolton, director of the white house’s office of management and budget.
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“after the bell.” let’s recap the day on wall street where the dow was led by i.b.m. numbers coming out from a.m. computer. third quarter earnings per share 37 cents a share. analysts were looking for 31 cents. topping what analysts were looking for. third quarter revenue coming in at $3.5 billion. what analysts were looking for was $3.3 billion in sales. apple computer topping estimations in terms of sales as well as profit. let’s get more details if we have them right now. the company saying the fourth quarter earnings per share seen at 32 cents a share. i can call up for you what analyst estimates are. analysts for the fourth quarter looking for 33 cents a share. apple it looks like for the fourth quarter will come in at 32 cents a share. the company saying third quarter ipod shipments were up 616% over a year ago. clearly the ipod has been the driver of profit as well as sales growth for the company. third quarter growth margin was 29.7%. analysts were looking for 31 cents. excluding items, that profit was 38 cents a share. the company also saying -- macintosh shipments up 1,182,000. the company also saying third quarter revenue for computers, 3.52 billion. analysts looking for 3.3 billion. topping. more perspective. apple up 19% for 2005 in terms of those shares. the stock, however, declined 15% since its peak in february. the s.g. cowen analyst says shares are undervalued at this level. 16 of 23 analysts we track here at bloomberg that cover the stock recommend that investors buy the shares. several analysts recommend a hold. that clues harry blount of lee phrapb. the stock has backed off its highs but boasts the fourth best performance of the s&p technology group for 2005. if you look out a bit further to the past 12 months, it’s the best performing stock in the s&p 500. shares, in fact, have nearly tripled, up 162% since last july. the gain vs. helped apple shed all its losses that followed the tech bubble burst of 2000. let’s bring you into the bloomberg terminal for perspective. what we are looking at is a five year graph of apple shares. those are in white versus the s&p 500 seen in orange and s&p technology group, yellow line at the bottom. as tech stocks and the rest of the market plunged in 2000, apple fell as well. stayed within a $5 to $10 range for the next three years. then it started to break out in late 2003, early 2004 surpassing its benchmark and the s&p 500 helped by seven straight quarters of three digit growth. let’s reiterate the numbers in terms of what has been happening with the after the bell earnings. the company coming out beating estimations, 38 cents a share for third quarter profit that. is seven cents better than analysts were looking for. the company also saying third quarter revenue $3.5 billion. analysts looking for $3.3 billion. we’ll continue to analyze this. we’ll bring in a guest in a few minutes’ time. we’ll get his reaction to the numbers. he is robert o’donnell, research manager with international data corp. stand by for that in a few moments time. other stocks in focus today, one was harley davidson. shares up because the company raised its earnings forecast for the year, disclosed an s.e.c. investigation as well. june grasso has been following the story. she joins us with details. certainly a lot of details, june.
>> absolutely, ellen. shares were up as much as 5% today after falling 18% this year through yesterday. the company reported second quarter earnings saying per share profit rose to 84 cents from 83 cents a year earlier, five cents above analyst estimates after buying back about 6% of outstanding stock.
>> i think people were expecting the earnings in general. the consensus was to be down because they took a production cut in the second quarter. but because of the higher mix and because the company repurchased 17.7 million shares, that contributed to the 84 cents which was at the high end of the street range.
>> harley davidson makes about half of all motorcycles with 650 c c or large aer engines sold in the u.s. and one in four worldwide. the company said lower operating income from motorcycle operations pushed second quarter net income down 4%. but the chief executive raised harley’s forecast for 2005 earnings per share saying it will rise 10% to 13%. previous forecast was for growth of 5% to 8%. the gain to be driven by the repurchase of shares. now the s.e.c. is investigating the cut in profit prokwrebgs in april when they reduced motorcycle production targets for this year by 10,000 vehicles prompting a 70% drop in the shares, biggest one-day decline for the stock in 14 years.
>> they’re looking at harley guidance on production and how they get there. i think it’s a more matter of fact investigation rather than anything related to wrongdoing.
>> a.g. edwards has a buy on harley davidson. congers says it’s a solid, conservatively run company generating a lot of cash. the new models will come out in the next few weeks. that’s something analyst also be watching. back to you.
>> watching indeed. thank you so much. we’ll continue our coverage of the earnings out after the bell from a.m. computer. we’ll get reaction from robert o’donnell of the research firm international data corporation.
