Apple Beats; Guides Conservatively

Apple’s (AAPL) third-quarter numbers were well above both guidance and analyst’s estimates. In fact, the results were above the high end of the range of estimates for EPS. However, the fourth-quarter guidance was below the consensus numbers as stated this morning.

The company continues to gain market share in the three major hardware sectors: computers with very significant gains in portables, music players and smart phones.

Overall computer unit sales increased 4% year over year in the face of an industry decline of 3%. Mac portable units were up 13%, a very significant gain.

The mp3 market continues to be weak, and iPod volume declined from 11 million a year ago to 10.2 million this last quarter. The problem was the traditional mp3 market is still declining and the strength in more advanced produced, like the Shuffle, was not enough to offset the decline in older designs. Apple also reduced channel inventory during the quarter.

The iPhone continues to be a major success for Apple. Volume increased by 626% to 5.2 million in the quarter. Deferred revenue for the iPhone and Apple TV increased by $1.3 billion during the third quarter, from $5.5 billion to $6.8 billion. The costs of this revenue have been expensed as incurred, so there will be a significant improvement in gross margins as this revenue is recognized in the income statement.

Guidance for the fourth quarter was revenue $8.7 to $8.9 billion and earnings (GAAP) of between $1.18 to $1.23 per share. This is below this morning’s consensus number of $9.1 billion and $1.30 per share.

We expect continued growth in iPhone sales. Consumer surveys show an increasing share of purchasing plans as compared to the other major smart phone producers. The computer marker appears to have bottomed and traditional mp3 players may continue to decline but growth in more advanced units should offset the decline.

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