All Things Digital

Apple reported the best June quarter in the company’s history, for both revenue and earnings, Monday. So why the sudden plunge in share price? Seems concerns about cancer-survivor Steve Jobs’s gaunt appearance at Apple’s World Wide Developers Conference in June have not subsided; nor are they likely to any time soon given the company’s response to them. Asked about Jobs’s health during Apple’s earnings call Monday, Apple CFO Peter Oppenheimer said it “was a private matter.” Predictably, that not-exactly-reassuring remark inspired all sorts of speculation about Jobs’s well-being, which, like it or not, is tied very closely to Apple’s company fortunes. “They have a longstanding policy to not comment on that matter,” explained American Technology Research analyst Shaw Wu. “They didn’t say anything new. But the answer didn’t give anybody confidence. And saying it was a ‘private matter’ didn’t help.”

Clearly.

That said, Apple (AAPL) seems to have recognized its misstep and is working to temper concerns over Jobs’s health. The New York Times reports that Jobs has been telling colleagues that he is cancer-free and that his gaunt appearance lately is due to nutritional issues arising from his cancer surgery. Finally, Apple does indeed have a succession strategy in place should Jobs step away from his current duties. Of course, that strategy is confidential, like pretty much every other aspect of Apple’s business.

QOTD

Steve loves Apple, and serves as the chief executive at the pleasure of Apple’s board, and has no plans to leave Apple. Steve’s health is a private matter.”

– Apple CFO Peter Oppenheimer refuses to answer a question about CEO Steve Jobs’s health during the company’s Monday earnings call.

Turns out, Apple CFO Peter Oppenheimer was a bit conservative in his last fiscal outlook for the company. He predicted third-quarter earnings of $1 per share on revenue of $7.2 billion. A few moments ago, Apple posted earnings of $1.19 per share on revenues of $7.46 billion.

The company shipped 2,496,000 Macs during the quarter, 41 percent more than it did during the year-ago quarter. Quarterly iPod sales were 11,011,000, 12 percent more than one year ago. Quarterly iPhone sales were 717,000, compared with 270,000.

“We’re proud to report the best June quarter for both revenue and earnings in Apple’s history,” said Steve Jobs, Apple’s CEO, recycling his oft-recyled “best quarter ever” soundbyte. “We set a new record for Mac sales, we think we have a real winner with our new iPhone 3G and we’re busy finishing several more wonderful new products to launch in the coming months.”

Apple’s (AAPL) guidance for the current fourth quarter was as conservative as its guidance for the third. The company said it expects $7.8 billion in revenue and earnings per share of $1. That’s well below below the $1.24 a share in profit and $8.3 billion in sales anticipated by analysts.

If Apple CFO Peter Oppenheimer’s April forecast was correct, Apple will report earnings of $1 per share on revenue of $7.2 billion when it posts third-quarter earnings later this afternoon. Of course, the company is known for low-balling expectations and being conservative with its fiscal outlooks, so if its results surpass this forecast, no one will be much surprised. And, indeed, most analysts seem to feel it will. Those surveyed by FactSet Research expect Apple (AAPL) will earn $1.07 per share on revenue of $7.36 billion. Others, like Toni Sacconaghi, who covers Apple for Sanford Bernstein, and RBC Capital Market’s Mike Abramsky, are betting on the company to top consensus estimates with revenues well above $7.5 billion. An impressive number if Apple manages to hit it, especially since the company is deferring recognition of iPhone sales during the quarter.

Given all this then, why are Apple shares trading down this morning? Seems concerns about CEO Steve Jobs’s gaunt appearance at Apple’s World Wide Developers Conference in June have not subsided, nor will they, now that The New York Post is questioning his health. “Apple’s hedge fund investors are very worried,” said a Wall Street source who has spoken with some of the company’s stakeholders,” the Post reports. ” … Multiple sources who have met with–and in some cases even dined with–Jobs in the weeks surrounding the introduction of the iPhone 3G on July 11, said they came away troubled by his thin appearance.”

Holy cow! Despite some very unfortunate stumbles at launch, Apple sold one million iPhone 3Gs in its first three days on the market, according to a company press release this morning. “iPhone 3G had a stunning opening weekend,” said Steve Jobs, Apple’s CEO. “It took 74 days to sell the first one million original iPhones, so the new iPhone 3G is clearly off to a great start around the world.”

‘Course the original iPhone was available in just one country. Its successor is available in 21. And that broad availability makes peddling 1 million of anything, especially one of the hottest gadgets in recent memory a hell of a lot easier. A more impressive metric is the one Apple (AAPL) offered up for its new App Store today.

iPhone and iPod touch owners have downloaded more than 10 million applications since App Store debuted last week. Quite an achievement considering that App Store is the sole source of official iPhone applications, and one that suggests Apple is well on its way to establishing OS X iPhone as a powerhouse mobile platform.

Looks like Steve Jobs’s notorious “Reality Distortion Field” also doubles as a Federation Starfleet-style force field in a pinch. The U.S. Justice Department has ended its investigation into backdated options at Apple (AAPL) and chosen not to bring criminal charges against the company or any of the executives it’s been investigating.

Happy news for Apple, CEO Steve Jobs (shown above in mid-victory dance) and former Apple CFO Fred “It was you, Fredo” Anderson and former general counsel Nancy Heinen, who’ve all managed to dodge quite a legal bullet. Presumably it will be quite a bit more difficult for the civil suits filed against them to succeed with no criminal charges being filed.

In a 2004 email to Steve Jobs, RealNetworks (RNWK) CEO Rob Glaser asked the Apple (AAPL) CEO to consider a “tactical alliance” with his company. License us your Fairplay digital-rights management system, allow our customers to play their digital music collections on the iPod, wrote Glaser, and we’ll make the iPod our primary device for the RealNetworks store and for RealPlayer software.

It was an astonishing offer at the time, especially coming from Glaser, who had been a vocal critic of Apple and its decision to make digital music sold through its iTunes store playable only on iPod (”I bought an iPod and can only shop at one store,” Glaser once said. “What is this? The Soviet Union?”)

But it was an offer that Jobs found unappealing. The Apple CEO rebuffed Glaser, declining even to meet with him over lunch to discuss it.

Glaser, of course, took it poorly and spent the next few years slagging Apple and Jobs for declining the partnership. “We think Apple Computer, and Steve personally, are making a mistake by making the software proprietary,” Glaser said at the Digital Living Conference in 2005. “There’s no reason we should penalize Apple customers for Steve’s pigheadeness.”

Course, in the end Real didn’t penalize Apple’s customers. Apple’s customers penalized Real. And today Apple’s iTunes is the largest music retailer in the states. And Real? Well, Real’s “embracing” the iPod.

Funny how that worked out.

This morning the company announced a new MP3 store whose unprotected music files can be played anywhere–even on an iPod. Like Apple’s iTunes, the Rhapsody MP3 Store offers music from all four major music labels at 99 cents per track, or $9.99 for an album. Over five million songs will be made available, at 256k-bit rates. Visitors can preview them in their entirety instead of the 30-second samples offered by iTunes and the like. And, if they’re Verizon (VZ) subscribers, they can download music directly to their phones with the company’s V CAST Music with Rhapsody service.

“We’re no longer competing with the iPod,” said Rhapsody Vice President Neil Smith. “We’re embracing it.”

Pigheadeness, be damned.

So those reports that AT&T (T) would subsidize $200 of the cost of the iPhone 3G? Way off. According to Oppenheimer analyst Yair Reiner, the carrier is actually paying Apple $325 in subsidies on each iPhone 3G. And another $100 if the purchaser is a new AT&T customer. That’s $425 in potential commissions per device sold. That’s unprecedented in the industry.

So what was AT&T’s reason for agreeing to pay it–other than the warm glow it felt during subsidy negotiations with Apple CEO Steve Jobs? AT&T’s faith in the iPhone’s ability to attract new subscribers, apparently. Not to mention those subscribers’ penchant for running up a $100 tab each month in data and calling services.

One last point worth noting here. That $425 Apple (AAPL) is said to be collecting is even more impressive when one considers the fact that the iPhone 3G costs about half as much to make as its predecessor. Tear-down specialist Portelligent put the new model’s bill of materials at somewhere around $100.