Skip to content
Thoughtful, detailed coverage of everything Apple for 34 years
and the TidBITS Content Network for Apple professionals

Apple Reports Record Q2 Financials

Apple has released its Q2 2008 financial report, showing strong results pretty much across the board for the first three months of 2008. Quarterly revenues were $7.51 billion, leading to a net profit of $1.05 billion, or $1.16 per share. In comparison, the same quarter last year saw revenues of $5.26 billion and a profit of $770 million, or $0.87 per share. That works out to a 43 percent increase in revenues year over year, and a 36 percent increase in profit.

While revenue was high – down from the Q1 2008 holiday quarter that encompassed the last three months of 2007 but significantly above year-ago sales – it excludes an enormous amount of current iPhone revenue due to Apple’s accounting practices. Apple chose to recognize iPhone revenue in its earnings more like a 24-month subscription than an outright purchase, as it accounts for Macs. Apple TV and AppleCare revenue is tracked the same way.

Apple further chose to defer all revenue for iPhones starting 06-Mar-08, the date they announced the iPhone SDK, until the iPhone 2.0 software ships. Their reasoning is that purchasers on and after that date bought their iPhones with the expectation of software that wasn’t yet available. This is an extremely conservative method of deferring revenue, which now totals $3.8 billion for all money they’re not yet counting. Some of that logjam will break in the next quarter as a result. (If you ever thought AppleCare was chicken feed, note that it has accumulated $1 billion in deferred revenue as of Q2 2008; that revenue is offset in part by the expense in fulfilling warranty repairs.)

Apple said in January 2008 that the iPod touch has all its revenue counted immediately, which was the justification for charging for a software update; the same will be true for the 2.0 software release for the iPod touch.

International sales accounted for 44 percent of revenues, slightly up from 43 percent in the year-ago quarter, but slightly down from 45 percent in Q1 2008. Japan showed the most strength, with a 49 percent increase in revenues from the year-ago quarter, compared to 45 percent for Europe and 46 percent for the Americas.

The strongest single segment growth, however, came from Apple’s retail stores, which increased revenues by a whopping 74 percent over Q2 2007. The stores took in $1.5 billion, which averages $7.1 million each, calculated using the 205 stores open for most of the year. The year ended with 208 stores, and plans are to open 45 more in the 2008 fiscal year. In late 2006, one analyst figured that Apple was making far more per square foot than diamond retailer Tiffany and Co.; unless Tiffany has likewise experienced similar growth in sales, Apple now vastly outpaces all other retailers.

Apple’s cash balance increased from $18.4 billion last quarter to $19.4 billion, giving the company more than enough working capital to introduce new products, or perhaps buy a small country. Microsoft, under pressure from shareholders, introduced the slightly-out-of-fashion idea of a quarterly cash dividend when sitting on a bit more than twice as much cash in 2003; Apple doesn’t seem to have any truck with that idea.

Most compelling was the increase in Mac sales, up 51 percent in unit sales from the year-ago quarter and up 54 percent in revenue. As has become the trend, laptops led the charge, with 1,433,000 sold (up 61 percent), the most laptops sold in any quarter for the fourth quarter running, in comparison with 856,000 desktops (up 37 percent). Laptop sales even outpaced Q1 2008, which included the holiday season. Just two years ago, in Q2 2006, Apple sold only 498,000 laptops.

iPod sales were, of course, way down from holiday Q1’s 22,121,000 units, with 10,644,000 sold in Q2, but showed only a slight 1 percent increase in unit sales. The iPod did post an 8 percent increase in revenue over the year-ago quarter, thanks to an increased volume of iPod touch sales. The iTunes Store (with iPod services and iPod accessories) accounted for $881 million in revenue, up 9 percent from Q1 and up 35 percent from the year-ago quarter.

Apple sold 1,703,000 iPhones, which is a drop of 26 percent from Q1, but interestingly, a 57 percent increase in revenue, which implies that Apple is making significantly more per iPhone, even though that excludes the deferred revenue noted earlier. The company has sold 5.7 million iPhones worldwide to date, and confirmed their forecast of a total of 10 million iPhones being sold by the end of 2008.

Peter Oppenheimer, Apple’s CFO, said that the company expects to see revenues of about $7.2 billion and earnings per share of about $1.00 in Q3 2008. Meeting that goal would amount to about a 33 percent increase over Q3 2007.

The only notable negative in the report, other than the slowing growth in iPod sales, came from gross margins, or the percentage Apple earns from sales. For the current quarter they were 32.9 percent, down from 34.7 percent last quarter and 35.1 percent in Q2 2007.

Subscribe today so you don’t miss any TidBITS articles!

Every week you’ll get tech tips, in-depth reviews, and insightful news analysis for discerning Apple users. For over 33 years, we’ve published professional, member-supported tech journalism that makes you smarter.

Registration confirmation will be emailed to you.

This site is protected by reCAPTCHA. The Google Privacy Policy and Terms of Service apply.