Intel, Not Halo-Effect, Drives Apple Mac Sales

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Intel-Based Macs Help Apple's Net Surge 48%

• Summary: Apple's stock rose 8.4% in late trading after the company released Q2 results. Key points: Revenue rose 24% to $4.37 billion, within Apple's guidance range of $4.2-4.4 billion but missing the consensus of $4.44 billion. Net income rose 48% to $472 million. EPS of $0.54 beat Apple's guidance of $0.39-0.43 and the consensus of $0.44. Mac sales rose to 1.3 million units and $1.87 billion in revenue from 1.2 million units and $1.57 billion a year earlier. iPod sales rose to 8.1 million units and $1.5 billion in revenue, up from 6.2 million units and $1.1 billion a year earlier. Analysts interpreted Apple's Q3 guidance of moderate quarter-over-quarter revenue growth to $4.5-4.6 billion to imply that new iPod models won't be released during the quarter.
• Comment on related stocks/ETFs: Apple (AAPL) comfortably beat EPS estimates despite missing revenue estimates. In other words, the company's profit margins are far better than analysts realized, confirming that the Mac business has more leverage for Apple than the lower margin iPod business. What's interesting to note is that this isn't the long predicted "halo effect" of interest in Apple's iPods splling over into interest in Macs. Rather, this is the success of the switch to Intel chips. See Apple's press release, the entire conference call transcript, and key excerpts containing Apple's discussion of sales of iPods and iTunes, its retail strategy and the transition to Intel-based Macs. The press release stated that 75% of Macs sold during the quarter used Intel chips. Carl Howe's comments and preview of Apple's earnings yesterday on Seeking Alpha got this right. Intel (INTC) itself is hurting, but at some point the Apple win will translate into higher profits.