Apple’s in-store sales fell sharply from 2008, but its online store traffic soared

Apple's busy Fifth Ave. store. Photo: ped

A pair of reports from Piper Jaffray’s Gene Munster tell the story.

The first, issued early Monday morning, gave the results of a headcount performed at three Apple (AAPL) retail stores on Black Friday, the traditional start of the holiday selling season. Although the stores were busy, his team counted an average of 8.3 Mac sales per hour, down 36% from the 13 Macs per hour they observed on the same day last year.

Munster’s second note, sent nearly seven hours later, reported on comScore data indicating that sales at traffic on Apple’s online store Friday was up 39% year over year.

“Apple’s online store had a big day on Black Friday,” Munster concludes, “offsetting the y/y decline in our retail store checks.”

Based on NPD data that showed U.S. Mac sales up 7% year over year in October, Munster had previously estimated that Apple would sell 2.856 million Macs in the quarter that ends Dec. 26. That’s up from 2.524 million Macs in the same quarter last year, but down from the record 3.053 million Apple sold last quarter.

UPDATE: More field checks and estimates below the fold from Kaufman Bros.’ Shaw Wu, Thomas Weisel’s Doug Reid and Deutsche Bank’s Chris Whitmore.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

These just in:

• Wu writes: “Our field checks indicate strong foot traffic at Apple stores and that Macs, iPhones and iPods saw strong uptake … We believe our forecast looking for 2.9 million Macs is likely conservative. Currently, consensus estimates look for 2.85 million Macs.”
• Reid’s team did store checks at 41 authorized retail locations in the U.S., Canada and the U.K. and came away with “increased confidence” in his estimate of 3.06 million Mac sales this quarter, up 21% year over year.
• Whitmore’s team got the shoe-leather prize, conducting store checks over Black Friday weekend at more than 120 Apple retail stores and 25-plus AT&T outlets. He concludes that both Macs and iPhones are tracking “in-line to above” his unit estimates (8.5 million iPhones and 3 million Macs) while iPods are tracking “roughly in-line” with his estimate of 23 million.

CORRECTION: Several news sites — including this one — repeated Munster’s assertion that Apple’s online sales on Black Friday increased 39% year over year. But comScore’s report clearly states that it was measuring Apple.com’s unique visitors, not its online sales. See here.

Analysts adjust their Chinese iPhone estimates following sales that one describes as “soft”

iPhone buyers in Guangzhou. Photo: iPhonAsia

Following press reports that China Unicom (CHU) only managed to sign up 5,000 new iPhone subscribers after four days of sales, Piper Jaffray’s Gene Munster and Barclays Capital’s Ben Reitzes each issued notes to clients Tuesday that tried to put a positive spin on the news.

“The China launch is a disappointment,” Munster acknowledged. But he added that it reminded him of the launch of the original iPhone in June 2007, when reports that AT&T had activated only 146,000 iPhones in two days caused “unfounded concerns among investors” about the device’s long-term potential.

Doing some quick back-of-the-envelope calculations, Munster estimates that 1,500 iPhones per day works out to 550,000 per year — considerably less than the 1 to 2 million iPhones he had expected Apple (AAPL) to ship to China in 2010. But he anticipates that the cost of unsubsidized iPhones in China (currently about $800) will come down, and he’s sticking with his prediction that Apple will sell 9.2 million iPhones worldwide in the current quarter and 36 million in calendar 2010.

Similarly, Barclays’ Reitzes expressed confidence in his report that with additional carriers, demand for the iPhone in China could “ramp up to multiple millions” over time.

Meanwhile, iPhonAsia’s Dan Butterfield, sampling Chinese language press reports from the 30 provinces where the iPhone went on sale last weekend, suggests that the launch might not have been the bust it’s being portrayed as.

“Despite western media predictions that the iPhone launch in China would be met with a yawn,” he writes,  “there were many enthusiastic buyers at iPhone retailers. The Suning store at Nanjing Commerce Plaza had some 1,000 visitors on launch day.”

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Photo: Apple Inc.

Several analysts waited until Monday morning — the same day Apple (AAPL) is scheduled to release its quarterly earnings report — to send clients their estimates of the company’s unit sales (see here). But Piper Jaffray’s Gene Munster waited longest of all.

Munster released a note at 1:54 p.m. Eastern — about two and a half hours before Apple’s results are due to hit the wires — with his latest estimates for Mac and iPod sales.

He was waiting for data from the NPD Group, which surveys U.S. retail outlets and reports sales of a variety of goods — including electronics — on a monthly basis.

According to Munster, NPD data for the past three months show domestic Mac sales up 13% year over year, which implies unit sales of 2.85 million to 2.9 million. Factoring in international markets, however, Munster suggests that total Mac sales probably grew somewhere between 9% and 11% year to year — roughly double the 5% growth the Street is expecting.

The news for iPods was not quite so encouraging.

Munster’s analysis of NPD data for the quarter shows iPod sales down 19% year to year. That suggests unit sales between 9 million and 9.5 million, somewhat below the Street consensus of 10 million. With iPods sales growing faster overseas than they are in the United States, Munster expects Apple to report iPod numbers somewhere in between the Street’s 10 million consensus and the 9-9.5 million implied by NPD’s data.

Munster thinks Apple will confound the naysayers and once again report a strong quarter driven by impressive Mac and iPhone sales. But he has not changed his earnings estimate ($1.37 per share, slightly below the Street’s $1.42) or his price target ($235).

[Follow Philip Elmer-DeWitt on Twitter @philiped]

How to make sense of the forward-looking statements in next week’s earnings report

If history is any guide, traders will reward or punish Apple’s (AAPL) shares in after-hours trading Monday based not on the quarterly earnings it reports, but on what the company says about the quarter to come — which will almost certainly be disappointing.

You would think by now that Wall Street had figured out that Apple guides conservatively — which is to say, it low-balls its earnings and revenue numbers for the coming quarter so that it can blow them out of the water three months later.

But in case it hasn’t, Piper Jaffray’s Gene Munster on Thursday issued his quarterly guide to Apple’s guidance, in which he tries to predict — based on past performance — precisely how much below (or in rare cases, above) the Street’s expectations we can expect Apple’s predictions to fall.

The charts on which he bases his estimates are pasted below the fold. Bottom line: Munster expects “a typical Apple guide,” with the mid-point of its December earnings-per-share guidance around $1.68 (12% below the Street’s $1.91 consensus) on revenues of  $10.98 billion (4% below the Street’s $11.44 billion).

Below: Munster’s spreadsheets for the past 13 quarters of earnings and revenue guidance.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

How much will Apple’s (AAPL) reported earnings be affected by the new accounting rules approved Wednesday?

A lot, says Piper Jaffray’s Gene Munster.

In a note to clients issued early Thursday, Munster offered his estimated earnings per share under the new and old rules for fiscal years 2009 (which ends in two days) and 2010:

• 2009 EPS: $8.21, up from $5.71  — a 43.8% increase
• 2010 EPS: $8.90, up from $6.00  — a 48% increase

Apple wouldn’t be required to switch to the new accounting method until Dec. 2010, but Munster expects the company will start as soon as possible, probably with the new fiscal year that begins next week.

“While this has been expected for the last month, we believe this will be a positive for shares of AAPL,” he wrote, before raising his price target to $235 from $186.

Of course it’s possible that the impact of the rule changes have already been factored into Apple’s share price. The stock closed Wednesday at $185.50, having soared 137% over the past eight months. The stock is up more than 10% since Aug. 31, when Munster first reported that the Financial Accounting Standards Board (FASB) task force was considering the rule changes.

What are the new accounting rules? Munster does a pretty good job of explaining them:

He writes:

“Before yesterday’s ruling, any product that offered free upgrades to software and services installed on a device like an iPhone required subscription accounting (revenue deferred over 8 quarters in the case of the iPhone and Apple TV). However, the vast majority of the value of the device was realized at the time of purchase. While the value at the time of purchase as a percentage of the purchase price is debatable, we believe about 90% of the value of an iPhone is realized at the time of purchase. Under the previous rules, Apple was only allowed to recognize 12.5% (1/8th) of the revenue from each sale; under the new rules, the percentage will be decided on a case-by-case basis for each given product.”

That case-by-case factor means that Apple’s earnings under the new generally accepted accounting principles (GAAP) won’t be exactly the same as the non-GAAP earnings it’s been reporting (alongside GAAP earnings; see chart below) for the past year — but they will be a lot closer. Under the previous accounting rules, says Munster, there was about a 35% difference between the two. Under the new rules, he expects the difference to be closer to 5%.

These and other issues related to the accounting changes are likely to be hot topics of discussion at Apple’s next earnings call with analysts, sometime in October.

Below: A chart of GAAP vs. non-GAAP earnings for Apple’s third fiscal quarter, courtesy of Kaufman Bros.’ Shaw Wu:

Source: Kaufman Bros.

See also:

• Accounting board votes 5-0 for pro-Apple rule change
• Accounting rule change in Apple’s favor
• Apple pops on Mad Money report
• Spotlight on Apple’s hidden revenue stream
• The day Apple released its iPhone revenue bomb
• Deferred earnings: Apple’s hidden revenue bonus

Steve Jobs, Oct. 2008. Photo: Apple Inc.

Apple hasn’t confirmed it — and not every analyst agrees — but Piper Jaffray’s Gene Munster seems pretty certain that Steve Jobs himself will introduce a new line of iPods next week.

In a note to clients Tuesday morning, Munster describes the substance of Apple’s (AAPL) special music event — scheduled for Wednesday, Sept. 9 — as a “non-event” from Wall Street’s point of view.

Investors, Munster says, are not likely to be impressed with new iPod nanos, iPod classic and iPod touches re-designed with cameras because “as iPod growth slows … the segment becomes less of an investable theme.” (That may be true of the classic and the nanos, but sales of iPod touches grew 130% last quarter year over year.)

Jobs’ return, however, is likely to be greeted by the Street as “a slight positive” for Apple’s shares — “the first public confirmation of Jobs’ health since his return to the company,” according to Munster.

Jobs last appearance at an Apple event was on Oct. 14, 2008, when he introduced the unibody MacBooks. In January he took a medical leave to replace his failing liver.

Other possible announcements next Wednesday, according to Munster:

• A new version of iTunes with integrated social networking features.
• Changes to the iTunes Store, including new music features with richer album artwork.
• Expanded TV and movie options on iTunes with more available content and/or better viewing rights for multiple devices.

Munster expects Apple will eventually launch a monthly subscription for TV shows and a tablet computer, but not next week.

UPDATE: Kaufman Bros.’ Shaw Wu weighed in later Tuesday morning with a different take on who will be presenting next week:

“The keynote speaker(s) were not announced but we believe it will most likely be Phil Schiller, SVP of worldwide product marketing, who mostly recently handled both MacWorld and WWDC events. It is not clear that Steve Jobs will present but most would welcome his appearance as a positive surprise.”

Photo: Apple Inc.

As expected, the latest update to Apple’s (AAPL) flagship Macintosh operating system — Mac OS X Snow Leopard — is going on sale Aug. 28 for the previously announced price of $29. (Press release here.)

Piper Jaffray’s Gene Munster has done some quick back-of-the-envelope calculations and concluded Apple is in it less for the money than for the strategic advantage it hopes to gain over Microsoft’s (MSFT) Windows 7, schedule to ship in October.

According to Munster, Apple is likely to sell 5 million copies of Mac OS X v10.6 in the remaining month of its fiscal fourth quarter for an average selling price of of $22 — less than $29 and more than the $9.95 Up-to-Date price Apple has offered customers who bought MacBook Pros after June 8.

At 60% gross margin, that comes out to $66 million, or $.05 per share — a bump that Munster believes has already been baked into the Street’s Q4 estimates.

So what’s really going on here, he asks rhetorically?

Despite the long list of improvements Apple is touting — it claims to have “refined” 90% of the more than 1,000 “projects” that make up the OS X — Munster describes Snow Leopard as “a minor upgrade … without many significant new features.”

In Munster’s view, Apple is using Snow Leopard as

“an opportunity to sell it at a lower price ($29 vs. $129 previously) and market the new OS as a selling point for the Mac platform over the Windows platform. In other words, Apple is promoting the Mac platform as a superior alternative to Windows in terms of newer technology, more frequently, for less money. The release of Snow Leopard is not about new features; rather, it is about keeping Mac users up to date with the latest technology vs. Windows XP and Vista users on antiquated technology.”

You can learn more about Snow Leopard — including what’s new, compatibility and tech specs — at Apple’s website here.

Gene Munster has seen the future of television and it has an Apple (AAPL) logo on it.

In a note to clients Thursday, Piper Jaffray’s senior analyst offered a scenario by which Apple would enter the cut-throat TV market by 2011 with an Apple-branded television set with digital video recording and home media functions (music, movies, games, interactive TV) built-in.

“Yes, TV hardware is a challenging business if you don’t change the rules of the game,” Munster writes, “but we see potential for Apple to offer best-in-class software and hardware and charge a premium.”

The roadmap to Apple television (as opposed to Apple TV), as Munster sees it:

1. A new Apple TV set-top box within the next few months, with a TV imput and DVR built in. “With the popularity of ad-based internet TV (Hulu.com) and subscription models (Netflix’s Watch Instantly), we believe a-la-carte (iTunes) video purchases have lost share against other video models in recent months. As such, we believe Apple is exploring a subscription-based offering for its TV content in iTunes.”
2. An iTunes TV Pass within the next year. “Apple could leverage its deep library of content with many network and cable channel content owners to provide unlimited access to a sub-library of its TV shows for a standard monthly fee ($30 to $40 per month). Such a product would effectively replace a consumer’s monthly cable bill (~$85/month) and offer access to current and older episodes of select shows on select channels.”
3. An Apple television set within the next two years that could wirelessly sync with iPods, iPhones and Macs. “Such a device would command a premium among a competitive field of budget TVs; we believe Apple could differentiate itself with software that makes home entertainment simple and solves a pain point for consumers (complicated TV and component systems).”

As evidence for Apple’s interest for pushing deeper into the living room, Munster cites: COO Tim Cook’s statement last month that the company will continue to invest in Apple TV because “we fundamentally believe there is something there for us in the future”; patents covering digital video recording; and a five-year, $500 million partnership with LG to produce LCD screens.

Munster notes that Apple currently controls an addressable user base of more than 65 million iTunes users and has sold more than 48 million iPhones and iPod touches that could be used as TV remotes or interactive TV game controllers.

“The argument that Apple will not enter the television market because prices have declined by ~70% in the past three years,” he concludes, “is a similar argument used to conclude Apple would not enter the cell phone market, given phones had seen similar price declines. The bottom line, 10 million HDTV’s sold in the US a year is a real market, and if history repeats itself, Apple will find a way to compete in a commoditized market with a premium priced product.”

Munster expects Apple to sell 6.6 million Apple TVs in calendar 2009, up from an estimated 2.1 million in 2008 — an estimate of 3X growth that he believes may be conservative. By his calculation, every addition 1 million units Apple sells adds $.03 to Apple’s EPS.

Apple Inc.

Piper Jaffray’s Gene Munster — an Apple optimist — took a lot of heat when he predicted two years ago that Apple (AAPL) would sell 45 million iPhones in 2009. Unfortunately for him, the deal he expected Apple to strike in China still hasn’t materialized, and he’s since cut his 2009 expectations back to 25 million.

Now comes Bernstein Research’s Toni Sacconaghi — usually considered an Apple pessimist — with a report that has Apple selling at least 50 million iPhones a year by 2011, up from the 20 million he’s modeling for this year.

How does Sacconaghi expect Apple to get from 20 million to 50 million?

In three steps:

1. By growing with the market: +10 million. Sacconaghi projects the smartphone market to grow by 27% in 2010 and again in 2011. By simply holding its current market share, Apple could add 10.3 million iPhones to its annual sell-through by 2011.
2. By broadening its distribution network: +19 million. In most countries, Apple has only one carrier. By making deals with additional carriers, it could nearly double its 2009 sales. Verizon alone could add 11 million sales in the U.S. by 2011.
3. By striking a deal in China: +3 million. Sacconaghi expects Apple to be selling iPhones through China Unicom before the end of the year. If Apple were to also cut a deal with giant China Mobile (500 million subscribers) before 2011, all bets are off.

MacBook Pro. Source: Apple Inc.

Based on U.S. retail sales data released Monday afternoon by the NPD Group, Apple (AAPL) is on track to sell 2.7 to 2.8 million Macs and 9.5 to 10.5 million iPods in its fourth fiscal quarter, according to Piper Jaffray analyst Gene Munster.

Mac unit sales came in up 2% year over year in July, which according to Munster implies 3% to 7% growth for the quarter that ends in September — roughly in line with the Street’s expectation of 5%.

“With just one month of data,” writes Munster, “it is way too early to make a call on the quarter given ~50% of Mac sales in the quarter typically happen in the month of Sept.”

He adds that international sales are growing faster than domestic for both Macs and iPods, which is why he expects reported sales to be slightly higher than NPD’s numbers would suggest. He also notes that July 2008 was a particularly good month for the Mac, with unit sales up 43% over July ‘07, so achieving 2% growth over that is no mean feat. The next two months should be easier in terms of showing year-over-year growth.

Things aren’t looking quite so rosy for the iPod.

iPods. Apple Inc.

iPod unit sales were down 17% year over year in July, according to NPD, which is worse than Muster expected.

But once again, Munster notes that international sales are growing faster than domestic. He also expects a “reacceleration” in September thanks to Apple’s back-to-school promotion, which offers a free iPod with the purchase of any (discounted) Mac. Bottom line: Munster expects Apple to end the quarter with iPod unit sales down 5% to 14% year-to-year, roughly in line with the Street’s expectations (-10%).

One final data point: the average selling price for Macs in July was down 4% from the previous month, according to NPD. That’s a lot better than the rest of the industry, which have seen ASPs fall 19% year over year thanks to the growing popularity of netbooks. Muster’s model calls for ASPs to drop 6% quarter over quarter.

Apple's next gadget? Image: Piper Jaffray

Piper Jaffray senior analyst Gene Munster took another crack at the Apple (AAPL) tablet computer he’s been writing about for months, issuing a report to clients Friday that included some back-of-the-envelope sales estimates and a computer-generated rendering of what he thinks it will look like.

“Last week we spoke with an Asian component supplier that has received orders from Apple for a touch-screen device to be fulfilled by late [calendar year] 09,” he writes. “This data point underscores our thesis that a tablet will likely launch in early [2010].”

The device, as he sees it, will…

• Be similar to an iPod touch, only larger, capable of running most of the 70,000 applications on the iPhone App Store plus a new category of apps designed for the bigger screen.
• Will be used primarily for Web surfing, e-mail, and digital media, competing with netbooks without being a netbook.
• Will be priced between an iPhone and a MacBook — between $500 and $700.
• Is likely to include a 3G cellular modem and could be subsidized by a carrier — either AT&T (T) or Verizon (VZ).
• Will sell better than Apple TV did its first year (1.2 million units).
• Could in fact sell 2 million units at $600 each to generate $1.2 billion and add about 3% to Apple’s revenue stream in calendar 2010.

See also:

• Let the Apple tablet wars begin
• Analyst: ‘Dramatically’ different Apple tablet in 2010
• Picturing Apple’s tablet computer
• Anatomy of a rumor: The Atom-powered Newton iPhone

Photo: Apple Inc.

Piper Jaffray’s Gene Munster issued a note early Monday morning warning clients that for Apple (AAPL) to sell the 2.45 million Macs the Street was expecting this quarter, there would have to be good news in the data due out from the NPD Group Monday afternoon.

“Mac NPD for the month of June needs to be flat in order for the entire quarter to be tracking in line with Street Mac consensus,” he wrote, adding — in a golfing metaphor salesman slang — that he expected “slight upside to the flat bogey for the month of June, between flat and +5%” year over year.

Well, the NPD numbers came out and they blew past even his most optimistic expectations. Rather than up 5% in June, as he hoped, they were up a whopping 16%.

According to Munster’s second note of the day, that implies sales for the entire quarter of 2.6 million units.

That’s more Macs than any of the analysts we polled over the weekend expected and more, even, than Apple sold in Q2 2008, before the global economy went into free fall.

The average sales price of those Macs in June was down 4% month over month, however, thanks to the same price cuts that drove up volume.

We’ll find out how all this affected Apple’s bottom line when the company reports its full quarterly earnings after the markets close Tuesday.

Meanwhile Apple shares, which had climbed as high as $155 early Monday, slid back down to $151 in mid-afternoon trading. The stock closed at 152.91, up .76% in a day on which the Dow rose 1.19%

See also:

• All eyes on Apple’s earnings
• How to predict Apple’s gross margins

Apple (AAPL), as we’ve said many times before, guides conservatively — which is to say it low-balls its earnings and revenue numbers for the coming quarter so that it can blow them out of the water three months later. It’s a game the company plays nearly every quarter, but the market never seems to learn; Apple’s shares usually take a hit in after-hours trading.

But maybe not next week, when the company is scheduled to report its fiscal third quarter earnings after the markets close on Tuesday, July 21.

Oh, Apple’s guidance will still be conservative; you can count on that.

But according to Piper Jaffray’s Gene Munster, for once it could be in line with or ahead of the Street’s expectations — a development that he believes would be a “material positive.” In other words, it could send the stock, which is up nearly 60% so far this year, even higher over the next three months.

In a report to clients issued early Tuesday morning, Munster reviews Apple’s guidance and ticks off the reasons he believes the company’s earnings estimates for the fourth fiscal quarter could be — for only the second time in the past 12 quarters — in line with the analysts’ consensus.

“While it is impossible to predict the company’s language around guidance and the numbers,” he writes, “we believe it is more likely than usual that the company could guide Sept. revenue in-line with consensus at $9.0 [billion], at least on the high end of the range. [Earnings per share], however, is more likely to be below consensus of $1.29.”

Apple has easily beaten its own guidance the past 12 quarters and, like every other analyst we’ve heard from, Munster expects it to do so again next Tuesday.

Apple’s Q3 guidance is for revenues to come in between $7.7 and $7.9 billion and earnings between $.95 and $1 a share. The Street is looking for Q3 revenues of $8.16 billion and earnings of $1.16. Munster’s numbers, despite his reputation as an Apple booster, are lower than the Street’s. He’s expecting $8 billion and $1.02, respectively.

But more to Munster’s point, Apple for the past 12 quarters, having guided 12% lower than the Street in earnings and 4% in revenue, has beaten the Street’s estimates by 24% in earnings and 3% in revenue. See Munster’s charts below the fold.

What’s different in Q4, says Munster, is that Apple has good reasons to issue guidance> for the September quarter that’s in the Street’s ballpark, among them:

• Strong demand for MacBook Pros. September will be the first full quarter of sales for the new 13″ MacBook Pro priced at $1,199, a “value proposition” that Munster says has “increased dramatically” year over year.
• Back-to-school promotions. The improved value proposition of the 13″ MacBook Pro adds to the impact the annual back-to-school promotion (which includes free iPod touches) will have on Mac sales.
• Better than expected retail sales. Growth rates reported by NPD are trending positively and Apple is having trouble meeting demand for MacBook Pros. See here.

Below: Munster’s spreadsheets for the past 12 quarters of earnings guidance.

Piper Jaffray Analyst Gene Munster appeared on CNBC’s Fast Money program today (July 7). See video below. Discussion of Apple (AAPL) begins about halfway through the video. According to Piper Jaffray’s channel checks iPhones and Macs are selling well and should have a favorable impact on Apple’s (AAPL) earnings. As Munster puts it: “There’s no question that now is a good time to own Apple (AAPL) … June is going to be good, but September and December are going to be huge for these guys (Apple) … iPhone apps are like a boa constrictor, these apps on the iPhone are slowly squeezing the life out of the competition … This is going to be a strong back-half of the year for Apple (AAPL).”

Munster suggested that Apple’s recent decision to cut Macbook prices was a smart business move. He noted that inventories are low and believes that Apple sold at least 2.2 million Macbooks during the third quarter. According to Munster: “We track product lead-times and our records show that Apple has never had a 7-10 day delay on its most popular 13″ model, with the most recent significant delay being 5-7 days over 2 years ago in 9/08.” …”We see this as a sign that demand is outpacing the company’s build expectations, and it may take several weeks to reach a supply demand equilibrium.”

NOTE: This video interview was released on Friday, June 19 … On Sunday, June 21, there were still reports of lines at Apple stores to buy the new iPhone 3G S. Launch weekend sales of iPhone 3G S are off to a very strong start and Gene Munster’s initial guesstimate (500K sales projection for the 1st weekend) may be too conservative.