Apple: 'Another Blowout Quarter'

"Under new accounting rules approved by the Financial Accounting Standards Board, Apple counted all revenue and costs for the iPhone once the product is sold, rather than spreading the revenue out over the two-year life of a purchaser's subscriber agreement with its mobile carrier as had been the case in the past.

"The new accounting rule also applies to AppleTV, but that is still a minor product in the company's portfolio.

"Famous for being secretive, the company talked about making the change in earlier conference calls but never specifically said when it would be implemented. It was applied retroactively.

"Sales of Macintosh computers were particularly robust and better than most analysts expected. The company sold 33% more Macs than in the prior-year period, fueled by the launch of the new MacBook, which Apple CFO Peter Oppenheimer said led to 'very strong results in our education business in the quarter.'

"Sales of iPods declined by -8% on a unit basis from the prior year, but the company said a 55% increase in sales of the high-end iPod Touch resulted in a 1% increase in revenue to $3.39 billion.

"The Touch is essentially the iPhone without the phone component but with access to all of its applications via a Wi-Fi connection. Apple said it continues to enjoy more than 70% market share in the U.S. MP3 market.

"The iPhone's unit sales growth was 100% better than in the prior-year period and set a quarterly sales record. The growth outpaced the overall 35% growth in the smartphone market during the December quarter, Oppenheimer said.

"Recognized revenue from iPhone handset sales, accessory sales, and carrier payments was $5.58 billion during the quarter, compared to $2.94 billion in the year-ago quarter.

"Apple also added 17 new carriers outside of the U.S. during the period and claims it has distribution in 86 countries around the world.

"The company's sales equaled $15.88 billion compared with $11.88 billion a year ago. Apple generated another $5.8 billion in cash during the period.

"Apple opened 10 new stores during the quarter, bringing the total to 283 stores in 10 countries. The company remodeled 32 stores.

"It will be a busy week for Apple as the company is also expected to announce its much-anticipated tablet computer tomorrow. CEO Steve Jobs alluded to the product in the earnings release, saying:

"The reaction to Apple's earnings beat was somewhat muted in early trading as investors digested the new accounting rules, but sentiment improved as the day wore on.

"The new rules don't really affect the way we value the company, as in the past we had been valuing it on an adjusted earnings and/or cash flow basis.

"Apple continues to be a huge bargain in our view, and the accounting change will just help demonstrate how cheap the stock truly is. The company ended the quarter with $24.8 billion, or around $27.53 a share, in cash and short-term marketable securities.

"The company also had $15.0 billion, or around $16.68 a share, in long-term marketable securities (which is any investments with maturities over 12 months).

"We expect the company to earn at least $11.00 a share in FY2010. Take out its cash, and the stock is trading at under 17x estimates with growth expected to be around 20% the next five years.

"Take out its cash and long-term marketable securities and the stock is trading at only 15x that estimate. We're sticking by our 'Buy' Rating and $270 price Target, but think it could prove to be low."

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