Apple iPhone 3GS, 'Snow Leopard' Sales Should Boost Quarterly Earnings

By Nicholas Kolakowski  |  Posted 2009-10-18

Apple iPhone 3GS, 'Snow Leopard' Sales Should Boost Quarterly Earnings

Apple may offer a rosy outlook during its Oct. 19 quarterly earnings call, buoyed by strong iPhone 3Gs and "Snow Leopard" sales, as well as potential products in the pipeline such as a tablet PC.

According to The Wall Street Journal, quoting an analyst survey by Thomson Reuters, Apple is estimated to earn $1.42 a share on $9.2 billion in revenue for the quarter, a fairly substantial increase over the $7.9 billion earned during the same quarter in 2008.

The fourth fiscal quarter is also the first full one since the June launch of the iPhone 3GS, which sold over a million units during its first three days of release. On Oct. 9, Apple released an update for the iPhone and the iPod Touch, 3.1.2, which corrected a number of bugs that had been annoying users. In particular, the update corrected what had been derisively known among iPhone users as "coma mode," in which the smartphone refused to awaken from sleep.

On Sept. 28, Apple announced that more than 2 billion apps had been downloaded from the App Store since its launch in July 2008. The online service now catalogs about 85,000 applications for the iPhone and the iPod Touch.

The App Store passed the 1-billion-downloads mark in April, and led other players in the mobile space such as Microsoft and Research In Motion to launch their own application stores. Over the summer, Microsoft worked to create an ecosystem of 600 applications ahead of the Oct. 6 launch of its Windows Mobile 6.5 operating system, but ended up with just over 240 programs by that date.

A report by AdMob on mobile phone use issued on Sept. 30 stated that the iPhone OS share of the smartphone operating system worldwide market grew from 33 percent in February to 40 percent in August. Apple's escalating rival, Google, saw the number of smartphones using its own Android operating system grow from 2 to 7 percent during the same period.

Apple will also likely announce shipment numbers for the Snow Leopard OS X update to its operating system. Released on Aug. 28, Snow Leopard had been outselling the original Leopard OS by a two-to-one margin, and outselling previous iteration Tiger by four to one, according to estimates by research company The NPD Group.

While not a total architectural makeover, the $29 Snow Leopard update brought under-the-hood refinements to the operating system, including requiring 7GB less space on the hard drive.

Factors Working for and Against Apple


The question remains to be seen, however, whether Apple can continue robust sales of its Macs and operating system upgrades after Microsoft releases its own much-anticipated next-generation operating system, Windows 7, on Oct. 22. A number of analysts have predicted that the release of Windows 7 will have little effect on Apple's sales.

"We have concluded that no negative correlation exists [with Apple's] hardware sales when Microsoft launches a new OS," Brian Marshall, an analyst with Broadpoint AmTech, wrote in an Oct. 12 research note. "Ironically, we believe new OS launches from [Microsoft] may have even acted as a 'delayed accelerant' to Apple's computing sales. However, we believe Apple's success (or failure) in the computing market is largely idiosyncratic (or company-specific) in nature and not dependent on others in the industry.

"It is our view that Apple has the ability to potentially double its computing market share on a global basis from 4 percent today to 8 percent over the next few years," Marshall added, citing the iPhone's presence in 80 countries, Apple's business model and its high cash flow as reasons for an optimistic guidance.

However, Marshall cautioned, factors such as cannibalization of iPod sales by the iPhone and sustainable carrier subsidies from AT&T could affect Apple negatively.

Apple also has products in its pipeline that could affect its guidance for the next quarter.

During the Q&A session following the upcoming Oct. 19 earnings call, an analyst or reporter may ask Apple executives about the company's anticipated tablet PC. While Apple has refused to comment on the possibility of such a device, reports and speculation have abounded that it could be introduced sometime in early 2010.

In an Aug. 7 research report, Piper Jaffray analyst Gene Munster predicted that an Apple tablet PC would sell in the $500 to $700 range, feature a multitouch screen and run on either the iPhone OS or else a modified version of the Mac OS X. Munster also estimated that the device could potentially sell 2 million units during its first year of release, generating some $1.2 billion in gross revenue for Apple.

The company's last earnings call, on July 21, saw Apple Chief Operating Officer Tim Cook fail to issue a denial about the possibility of a tablet PC. "I never want to discount anything in the future and never want to specifically answer a question on new products," Cook said.

Nonetheless, Apple filed a patent application in June for a touch-screen interface with a screen capable of being manipulated with not only the fingers of both hands, but also palms-in theory, opening a device to a broad range of activities including drawing and typing.

Reports in The Wall Street Journal indicated that Apple CEO Steve Jobs had focused much of his attention since returning to the company on the tablet. Jobs had spent much of 2009 on medical leave, receiving a liver transplant in April for a still-undisclosed condition. 

Rocket Fuel