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Apple Reports Q3 2011 Record Financial Results

In Apple’s Q3 earnings call with analysts last week, Apple announced quarterly revenues of $28.6 billion, the highest in the company’s history, with net earnings of $7.3 billion — also a record. All-time record-breaking sales of both iPhones and iPads, along with a June-quarter record number of Mac sales, contributed to the results.

The revenue increase was 82 percent greater than the year-ago quarter, totaling more than $13 billion over that quarter’s results. Operating margin was a record $9.4 billion (32.8 percent of revenue). Net income topped the December quarter’s previous record-breaking figures by $1.3 billion, and grew even faster than revenue: a 125 percent increase year-over-year. Earnings per share translated to $7.79.

Apple said 3.95 million Macs were sold during the quarter, 14 percent more than were sold in the year-ago quarter. By comparison, IDC said that the overall PC market grew only 3 percent last quarter. The Asia-Pacific market was key to Apple’s Mac sales figures, with 57 percent year-over-year increase. Both desktop and portable Mac sales were “healthy” according to Peter Oppenheimer, Apple’s chief financial officer. The new iMac models that Apple recently introduced helped spur desktop shipments (see “New iMac Gains Thunderbolt, FaceTime HD, and Quad-Core CPUs,” 3 May 2011).

iPod sales, as expected, were down in a saturated music-player market: Apple sold 7.5 million of them this last quarter as compared to 9.4 million in the year-ago quarter. However, these were better sales figures than Apple expected, and Oppenheimer noted that over half of iPods sold were iPod touch models. The iPod still commands over 70 percent of the U.S. MP3 player market.

Healthy results were reported for the iTunes Store: almost $1.4 billion in revenue, a year-over-year increase of 36 percent. Strong sales of music, apps, and video all combined to contribute to these results. Apple currently claims more than 225 million accounts in the iTunes Store worldwide.

And what of the iPhone? 20.3 million of them were sold last quarter; the previous June quarter saw 8.3 million iPhones sold, meaning that iPhone sales increased year-over-year by 142 percent, more than double the IDC estimate of smartphone sales growth. These sales resulted in $13.3 billion in revenue. Again, the Asia-Pacific region sales were a big contributor, quadrupling year-over-year. iPhone is now available through 228 carriers in 105 countries. Oppenheimer also reported strong enterprise interest in the iPhone, with 91 percent of Fortune 500 companies either deploying or testing the device.

The iPad maintained its “incredible momentum”: 9.2 million iPads were sold last quarter, compared to the year-ago quarter’s 3.3 million. Even with increased production — 4.5 million more iPads were made last quarter than in the previous quarter — Apple easily managed to sell every iPad they could manufacture. Recognized revenue from iPad and accessories contributed $6 billion to the results. And, again, enterprise impact was significant, with 86 percent of Fortune 500 companies deploying or testing the tablet.

Apple did see some cannibalization in Mac sales that were attributable to iPad sales, noting that almost twice as many iPads were sold as Macs. However, the Windows PC market was more strongly affected by iPad sales than was the Mac market, according to Tim Cook, Apple’s chief operating officer.

Combining all iPad, iPhone, and iPod touch devices, Apple reported a cumulative 222 million iOS device sales as of the end of June.

Apple retail stores turned in record June quarter results, too: $3.5 billion in revenue, an increase of 36 percent from last year. The stores sold 768,000 Macs, compared to 677,000 a year ago. One figure has remained unchanged year-over-year: about half of the stores’ Mac customers last quarter were new to the Mac. Apple saw an average $10.8 million in revenue per store last quarter, and the stores had 73.7 million visitors during the quarter. Apple plans to open 30 more stores worldwide this quarter, including its first store in Hong Kong.

Apple ended the quarter with $76.2 billion in cash on hand and marketable securities.

Wrapping up the announcements, Oppenheimer referred to a “product transition” later in the year about which he refused to say anything more. He also discussed how selling Lion and other services online will affect how Apple reports future revenues.

Specifically, because sales of Lion, which Oppenheimer stated would commence “tomorrow” (20 July 2011), and sales of the iLife applications all include providing customers with future unspecified minor software upgrades and features, revenues will be “fully deferred at the time of sale” and recognized over a period of three years. Also, because Mac OS customers will be eligible for the soon-to-be-released iCloud service, Apple sees the combined value of iCloud services and software upgrade rights to be worth $22 per customer. Apple is deferring that amount for each new Mac sold and will recognize that amount over four years. Similarly, iOS device sales will also have a portion of their revenues deferred: $16 for each iPhone and
iPad sold and $11 for each iPod touch sold; this revenue will be recognized over a two-year period.

Finally, Apple projected revenue in the range of $25 billion for next quarter, lower than this quarter’s revenues, even though next quarter is when the bulk of educational sales take place. Oppenheimer said that he expected increased Mac and iOS device sales over last year, but attributed the lower revenue estimate to “a lot going on in the fall,” including the introduction of iOS 5 and the undisclosed product transition. Of course, historically, Apple always provides conservative guidance in its projections; the actual figures may well differ. Check back with us in three months.

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