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Amazon crushes estimates in Q1, posts $130 million profit on $13.18 billion in sales

Thursday, April 26th, 2012

Amazon on Thursday reported its financial results for the first quarter of 2012. Analysts were looking for a profit of $0.07 per share on $12.86 billion in sales, and Amazon posted earnings of $0.28 per share on revenue of $13.18 billion, crushing expectations. The retailer netted $0.38 per share on revenue of $17.4 billion this past holiday quarter, and $0.44 per share on $9.86 billion in sales during the first quarter last year. The nationwide retailer’s stock had been up and down all week as Wall Street’s concerns over margins continued to rattle investors. Amazon’s operating margin fell 3.7% to 1.5% of global revenue in the fourth quarter and in the first quarter a year ago, Amazon’s margins sat at 3.3%. In the first quarter of 2012, Amazon’s operating margins stayed flat at 1.5%. For the second quarter, Amazon forecasts a profit of $40 million, up from a loss of $260 million in the second quarter last year, on revenue of between $11.9 billion and $13.3 billion. Amazon’s stock was up more than 8% percent in after-hours trading on Thursday. The company’s full press release follows below.

AMAZON.COM ANNOUNCES FIRST QUARTER SALES UP 34% TO $13.18 BILLION; 16 OF THE TOP 100 BESTSELLING TITLES ARE EXCLUSIVE TO THE KINDLE STORE

SEATTLE–(BUSINESS WIRE)–Amazon.com, Inc. (NASDAQ:AMZN) today announced financial results for its first quarter ended March 31, 2012.

“I’m excited to announce that we now have more than 130,000 new, in-copyright books that are exclusive to the Kindle Store – you won’t find them anywhere else. They include many of our top bestsellers – in fact, 16 of our top 100 bestselling titles are exclusive to our store”

Operating cash flow increased 1% to $3.05 billion for the trailing twelve months, compared with $3.03 billion for the trailing twelve months ended March 31, 2011. Free cash flow decreased 39% to $1.15 billion for the trailing twelve months, compared with $1.90 billion for the trailing twelve months ended March 31, 2011.

Common shares outstanding plus shares underlying stock-based awards totaled 464 million on March 31, 2012, compared with 466 million a year ago. During the quarter, the Company repurchased 5.3 million shares, or $960 million, under its previously announced authorization to repurchase up to $2 billion of the Company’s common stock.

Net sales increased 34% to $13.18 billion in the first quarter, compared with $9.86 billion in first quarter 2011. Excluding the $56 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales would have grown 34% compared with first quarter 2011.

Operating income was $192 million in the first quarter, compared with $322 million in first quarter 2011. The unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter on operating income was $4 million.

Net income decreased 35% to $130 million in the first quarter, or $0.28 per diluted share, compared with net income of $201 million, or $0.44 per diluted share, in first quarter 2011.

“I’m excited to announce that we now have more than 130,000 new, in-copyright books that are exclusive to the Kindle Store – you won’t find them anywhere else. They include many of our top bestsellers – in fact, 16 of our top 100 bestselling titles are exclusive to our store,” said Jeff Bezos, founder and CEO of Amazon.com. “If you’re an Amazon Prime member, you don’t even need to buy these titles – you can borrow them for free – with no due dates – from our revolutionary Kindle Owners’ Lending Library. The Kindle Owners’ Lending Library is heavily used by Kindle owners, and it has extremely unusual features that both authors and customers love. Every time you borrow a book, the author gets paid – and we have an inexhaustible supply of each title so you never have to wait in a queue for the book you want. Kindle is the bestselling e-reader in the world by far, and I assure you we’ll keep working hard so that the Kindle Store remains yet another reason to buy a Kindle!”

Highlights

  • Kindle Fire remains the #1 bestselling, most gifted, and most wished for product across the millions of items available on Amazon.com since launch. In the first quarter, 9 out of 10 of the top sellers on Amazon.com were digital products – Kindle, Kindle books, movies, music and apps.
  • Amazon launched Kindle Touch Wi-Fi and Kindle Touch 3G on Amazon.co.uk, Amazon.de, Amazon.fr, Amazon.it, and Amazon.es. The full line of Kindle e-ink readers is now available in over 175 countries around the world. Kindle Touch 3G is the most full-featured e-reader with an easy to use touchscreen and the unparalleled convenience of free 3G – no hunting for Wi-Fi spots, simply think of a book and download it. Kindle remains the bestseller on Amazon.co.uk, Amazon.de, Amazon.fr, Amazon.it and Amazon.es since their launches.
  • Amazon introduced a new version of its popular Kindle for iPad app, which is the #5 free iPad app of all time and the #1 free books app on iPad. Millions of customers are using the new Kindle for iPad app, which is optimized for the high resolution display of the newest iPad.
  • Amazon announced an In-App Purchasing service, making it easy for Amazon Appstore developers to offer digital content and subscriptions for purchase within apps and games that are available on millions of Kindle Fires and other Android devices. Amazon Appstore’s In-App Purchasing service is simple for developers to integrate and helps monetize their apps and games, while offering customers a seamless and secure 1-Click purchasing experience.
  • Amazon.com announced the launch of the Amazon Instant Video app for PlayStation 3 (PS3), making the PS3 system the first video game console system to offer Amazon Instant Video, and allowing PS3 users to stream Prime Instant Videos and rent or buy the latest movies and TV episodes directly from their PS3. Customers can also access Amazon Instant Video and Prime Instant Video from Kindle Fire, Mac or PC, or on a TV using either a compatible connected device such as a Blu-ray player or a Roku or directly on compatible Smart TVs.
  • Amazon continued to expand its catalog of title offerings for Prime Instant Video, announcing licensing agreements with Discovery Communications and Viacom. Among the programs added are Discovery Channel’s Dirty Jobs, TLC’s Say Yes To The Dress and Animal Planet’s Whale Wars, as well as thousands of TV episodes from MTV, Comedy Central, Nickelodeon, TV Land, Spike, VH1, BET, CMT and Logo. These deals bring the total number of Prime Instant Videos to more than 17,000 movies and TV episodes from partners such as CBS, Fox, NBCUniversal, Sony, Warner Bros., PBS, Disney-ABC and many more.
  • North America segment sales, representing the Company’s U.S. and Canadian sites, were $7.43 billion, up 36% from first quarter 2011.
  • International segment sales, representing the Company’s U.K., German, Japanese, French, Chinese, Italian and Spanish sites, were $5.76 billion, up 31% from first quarter 2011. Excluding the unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, sales grew 32%.
  • Worldwide Media sales grew 19% to $4.71 billion. Excluding the unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, sales grew 19%.
  • Worldwide Electronics and Other General Merchandise sales grew 43% to $7.97 billion. Excluding the unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, sales grew 43%.
  • Amazon Web Services (AWS) announced that Amazon DynamoDB – the fastest growing AWS service ever – is now available in both the EU (Ireland) and Asia Pacific (Tokyo) Regions. Amazon DynamoDB is a fully managed NoSQL database service that provides extremely fast and predictable performance with seamless scalability.
  • AWS lowered prices for the 19th time in five years by reducing reserved instance prices for Amazon EC2 and Amazon RDS, as well as reducing on-demand pricing for Amazon EC2, Amazon RDS, and Amazon ElastiCache.
  • AWS launched AWS Marketplace, an online store that makes it easy for customers to find, compare, and immediately start using the software and services they need to build software systems and products, and run their businesses. With AWS Marketplace, software and SaaS providers with offerings that run in the AWS Cloud can benefit from increased awareness, simplified deployment, and automated billing. AWS Marketplace brings the same simple, trusted, and secure online shopping experience that customers enjoy on Amazon.com to software built for the AWS platform, streamlining the process of doing research and purchasing software.

Financial Guidance

The following forward-looking statements reflect Amazon.com’s expectations as of April 26, 2012, and exclude financial results of the Kiva Systems, Inc. acquisition which we expect to close in second quarter 2012. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce and the various factors detailed below.

Second Quarter 2012 Guidance

  • Net sales are expected to be between $11.9 billion and $13.3 billion, or to grow between 20% and 34% compared with second quarter 2011.
  • Operating income (loss) is expected to be between $(260) million and $40 million, or between 229% decline and 80% decline compared with second quarter 2011.
  • This guidance includes approximately $260 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions or investments are concluded and that there are no further revisions to stock-based compensation estimates.

A conference call will be webcast live today at 2 p.m. PT/5 p.m. ET, and will be available for at least three months at www.amazon.com/ir. This call will contain forward-looking statements and other material information regarding the Company’s financial and operating results.

These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including, in addition to the factors discussed above, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, fulfillment center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains and develops commercial agreements, acquisitions and strategic transactions, and risks of fulfillment throughput and productivity. Other risks and uncertainties include, among others, risks related to new products, services and technologies, system interruptions, government regulation and taxation, payments and fraud. In addition, the current global economic climate amplifies many of these risks. More information about factors that potentially could affect Amazon.com’s financial results is included in Amazon.com’s filings with the Securities and Exchange Commission (“SEC”), including its most recent Annual Report on Form 10-K and subsequent filings.

Our investor relations website is www.amazon.com/ir and we encourage investors to use it as a way of easily finding information about us. We promptly make available on this website, free of charge, the reports that we file or furnish with the SEC, corporate governance information (including our Code of Business Conduct and Ethics), and select press releases and social media postings.

About Amazon.com

Amazon.com, Inc. (NASDAQ:AMZN), a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth’s Biggest Selection. Amazon.com, Inc. seeks to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Amazon.com and other sellers offer millions of unique new, refurbished and used items in categories such as Books; Movies, Music & Games; Digital Downloads; Electronics & Computers; Home & Garden; Toys, Kids & Baby; Grocery; Apparel, Shoes & Jewelry; Health & Beauty; Sports & Outdoors; and Tools, Auto & Industrial. Amazon Web Services provides Amazon’s developer customers with access to in-the-cloud infrastructure services based on Amazon’s own back-end technology platform, which developers can use to enable virtually any type of business. The new latest generation Kindle is the lightest, most compact Kindle ever and features the same 6-inch, most advanced electronic ink display that reads like real paper even in bright sunlight. Kindle Touch is a new addition to the Kindle family with an easy-to-use touch screen that makes it easier than ever to turn pages, search, shop, and take notes – still with all the benefits of the most advanced electronic ink display. Kindle Touch 3G is the top of the line e-reader and offers the same new design and features of Kindle Touch, with the unparalleled added convenience of free 3G. Kindle Fire is the Kindle for movies, TV episodes, music, books, magazines, apps, games and web browsing with all the content, free storage in the Amazon Cloud, Whispersync, Amazon Silk (Amazon’s new revolutionary cloud-accelerated web browser), vibrant color touch screen, and powerful dual-core processor.

Amazon and its affiliates operate websites, including www.amazon.comwww.amazon.co.ukwww.amazon.dewww.amazon.co.jpwww.amazon.frwww.amazon.cawww.amazon.cn,www.amazon.it, and www.amazon.es. As used herein, “Amazon.com,” “we,” “our” and similar terms include Amazon.com, Inc., and its subsidiaries, unless the context indicates otherwise.

AMAZON.COM, INC.
Consolidated Statements of Cash Flows
(in millions)
(unaudited)
Three Months Ended Twelve Months Ended
March 31, March 31,
2012 2011 2012 2011
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 5,269 $ 3,777 $ 2,641 $ 1,844
OPERATING ACTIVITIES:
Net income 130 201 561 1,054
Adjustments to reconcile net income to net cash from operating activities:
Depreciation of fixed assets, including internal-use software and website development, and other amortization 457 202 1,338 652
Stock-based compensation 160 110 605 448
Other operating expense (income), net 46 33 168 112
Losses (gains) on sales of marketable securities, net (2 ) 2 (8 ) 1
Other expense (income), net 15 37 (78 ) (36 )
Deferred income taxes (38 ) 15 83 38
Excess tax benefits from stock-based compensation (40 ) (46 ) (56 ) (219 )
Changes in operating assets and liabilities:
Inventories 747 343 (1,374 ) (997 )
Accounts receivable, net and other 746 359 (479 ) (170 )
Accounts payable (4,258 ) (2,649 ) 1,388 1,641
Accrued expenses and other (529 ) (183 ) 721 697
Additions to unearned revenue 397 210 1,252 709
Amortization of previously unearned revenue (269 ) (220 ) (1,070 ) (897 )
Net cash provided by (used in) operating activities (2,438 ) (1,586 ) 3,051 3,033
INVESTING ACTIVITIES:
Purchases of fixed assets, including internal-use software and website development (386 ) (298 ) (1,899 ) (1,138 )
Acquisitions, net of cash acquired, and other (50 ) (139 ) (615 ) (473 )
Sales and maturities of marketable securities and other investments 1,738 1,939 6,641 5,318
Purchases of marketable securities and other investments (852 ) (1,112 ) (5,997 ) (6,135 )
Net cash provided by (used in) investing activities 450 390 (1,870 ) (2,428 )
FINANCING ACTIVITIES:
Excess tax benefits from stock-based compensation 40 46 56 219
Common stock repurchased (960 ) - (1,237 ) -
Proceeds from long-term debt and other 68 89 154 168
Repayments of long-term debt, capital lease, and finance lease obligations (153 ) (111 ) (483 ) (295 )
Net cash provided by (used in) financing activities (1,005 ) 24 (1,510 ) 92
Foreign-currency effect on cash and cash equivalents 12 36 (24 ) 100
Net increase (decrease) in cash and cash equivalents (2,981 ) (1,136 ) (353 ) 797
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,288 $ 2,641 $ 2,288 $ 2,641
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest on long term debt $ 6 $ 3 $ 17 $ 12
Cash paid for income taxes (net of refunds) 19 7 45 79
Fixed assets acquired under capital leases 149 181 721 526
Fixed assets acquired under build-to-suit leases 17 69 207 182
AMAZON.COM, INC.
Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)
Three Months Ended
March 31,
2012 2011
Net product sales (1) $ 11,249 $ 8,698
Net services sales (2) 1,936 1,159
Net sales 13,185 9,857
Operating expenses (3):
Cost of sales 10,027 7,608
Fulfillment 1,295 855
Marketing 480 327
Technology and content 945 579
General and administrative 200 133
Other operating expense (income), net 46 33
Total operating expenses 12,993 9,535
Income from operations 192 322
Interest income 12 15
Interest expense (21 ) (12 )
Other income (expense), net (99 ) (18 )
Total non-operating income (expense) (108 ) (15 )
Income before income taxes 84 307
Provision for income taxes (43 ) (89 )
Equity-method investment activity, net of tax 89 (17 )
Net income $ 130 $ 201
Basic earnings per share $ 0.29 $ 0.44
Diluted earnings per share $ 0.28 $ 0.44
Weighted average shares used in computation of earnings per share:
Basic 453 451
Diluted 460 459
(1) Represents revenue from the sale of products and related shipping fees and digital content where we are the seller of record.
(2) Represents third-party seller fees earned (including commissions) and related shipping fees, digital content subscriptions, and non-retail activities.
(3) Includes stock-based compensation as follows:
Fulfillment $ 37 $ 24
Marketing 12 7
Technology and content 85 61
General and administrative 26 18
AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
Three Months Ended
March 31,
2012 2011
Net income $ 130 $ 201
Other comprehensive income:
Foreign currency translation adjustments, net of tax of $(38) and $(7) 137 135
Change in unrealized gains on available-for-sale securities, net of tax of $(2) and $(5) 5 (11 )
Total other comprehensive income 142 124
Comprehensive income $ 272 $ 325
AMAZON.COM, INC.
Segment Information
(in millions)
(unaudited)
Three Months Ended
March 31,
2012 2011
North America
Net sales $ 7,427 $ 5,465
Segment operating expenses (1) 7,078 5,175
Segment operating income $ 349 $ 290
International
Net sales $ 5,758 $ 4,392
Segment operating expenses (1) 5,709 4,217
Segment operating income $ 49 $ 175
Consolidated
Net sales $ 13,185 $ 9,857
Segment operating expenses (1) 12,787 9,392
Segment operating income 398 465
Stock-based compensation (160 ) (110 )
Other operating income (expense), net (46 ) (33 )
Income from operations 192 322
Total non-operating income (expense) (108 ) (15 )
Provision for income taxes (43 ) (89 )
Equity-method investment activity, net of tax 89 (17 )
Net income $ 130 $ 201
Segment Highlights:
Y/Y net sales growth:
North America 36 % 45 %
International 31 31
Consolidated 34 38
Y/Y segment operating income growth (decline):
North America 20 % 6 %
International (72 ) (25 )
Consolidated (15 ) (8 )
Net sales mix:
North America 56 % 55 %
International 44 45
100 % 100 %
(1) Represents operating expenses, excluding stock-based compensation and “Other operating expense (income), net,” which are not allocated to segments.
AMAZON.COM, INC.
Supplemental Net Sales Information
(in millions)
(unaudited)
Three Months Ended
March 31,
2012 2011
North America
Media $ 2,197 $ 1,885
Electronics and other general merchandise 4,772 3,303
Other (1) 458 277
Total North America $ 7,427 $ 5,465
International
Media $ 2,513 $ 2,073
Electronics and other general merchandise 3,203 2,285
Other (1) 42 34
Total International $ 5,758 $ 4,392
Consolidated
Media $ 4,710 $ 3,958
Electronics and other general merchandise 7,975 5,588
Other (1) 500 311
Total Consolidated $ 13,185 $ 9,857
Y/Y Net Sales Growth:
North America:
Media 17 % 18 %
Electronics and other general merchandise 44 63
Other 66 74
Total North America 36 45
International:
Media 21 % 13 %
Electronics and other general merchandise 40 54
Other 24 15
Total International 31 31
Consolidated:
Media 19 % 15 %
Electronics and other general merchandise 43 59
Other 61 65
Total Consolidated 34 38
Y/Y Net Sales Growth Excluding Effect of Exchange Rates:
International:
Media 22 % 9 %
Electronics and other general merchandise 42 49
Other 26 12
Total International 32 27
Consolidated:
Media 19 % 13 %
Electronics and other general merchandise 43 57
Other 61 64
Total Consolidated 34 36
Consolidated Net Sales Mix:
Media 36 % 40 %
Electronics and other general merchandise 60 57
Other 4 3
100 % 100 %
(1) Includes non-retail activities, such as AWS, miscellaneous marketing and promotional activities, co-branded credit card agreements, and other seller sites.
AMAZON.COM, INC.
Consolidated Balance Sheets
(in millions, except per share data)
March 31, December 31,
2012 2011
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 2,288 $ 5,269
Marketable securities 3,427 4,307
Inventories 4,255 4,992
Accounts receivable, net and other 1,813 2,571
Deferred tax assets 371 351
Total current assets 12,154 17,490
Fixed assets, net 4,653 4,417
Deferred tax assets 27 28
Goodwill 1,970 1,955
Other assets 1,535 1,388
Total assets $ 20,339 $ 25,278
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 6,886 $ 11,145
Accrued expenses and other 3,602 3,751
Total current liabilities 10,488 14,896
Long-term liabilities 2,580 2,625
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value:
Authorized shares — 500
Issued and outstanding shares — none - -
Common stock, $0.01 par value:
Authorized shares — 5,000
Issued shares — 474 and 473
Outstanding shares — 450 and 455 5 5
Treasury stock, at cost (1,837 ) (877 )
Additional paid-in capital 7,192 6,990
Accumulated other comprehensive loss (174 ) (316 )
Retained earnings 2,085 1,955
Total stockholders’ equity 7,271 7,757
Total liabilities and stockholders’ equity $ 20,339 $ 25,278
AMAZON.COM, INC.
Supplemental Financial Information and Business Metrics
(in millions, except per share data)
(unaudited)
Y/Y %
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Change
Cash Flows and Shares
Operating cash flow — trailing twelve months (TTM) $ 3,033 $ 3,205 $ 3,114 $ 3,903 $ 3,051 1 %
Purchases of fixed assets (incl. internal-use software & website development) — TTM $ 1,138 $ 1,374 $ 1,589 $ 1,811 $ 1,899 67 %
Free cash flow (operating cash flow less purchases of fixed assets) — TTM $ 1,895 $ 1,831 $ 1,525 $ 2,092 $ 1,152 (39 %)
Free cash flow — TTM Y/Y growth (18 %) (8 %) (17 %) (17 %) (39 %) N/A
Invested capital (1) $ 7,931 $ 8,551 $ 9,147 $ 9,680 $ 10,006 N/A
Return on invested capital (2) 24 % 21 % 17 % 22 % 12 % N/A
Common shares and stock-based awards outstanding 466 468 469 468 464 -
Common shares outstanding 452 454 455 455 450 -
Stock-based awards outstanding 14 15 14 14 13 (4 %)
Stock-based awards outstanding — % of common shares outstanding 3.1 % 3.2 % 3.2 % 3.0 % 2.9 % N/A
Results of Operations
Worldwide (WW) net sales $ 9,857 $ 9,913 $ 10,876 $ 17,431 $ 13,185 34 %
WW net sales — Y/Y growth, excluding F/X 36 % 44 % 39 % 34 % 34 % N/A
WW net sales — TTM $ 36,931 $ 40,278 $ 43,594 $ 48,077 $ 51,404 39 %
WW net sales — TTM Y/Y growth, excluding F/X 39 % 39 % 39 % 37 % 37 % N/A
Operating income $ 322 $ 201 $ 79 $ 260 $ 192 (40 %)
Operating income — Y/Y growth, excluding F/X (20 %) (36 %) (77 %) (48 %) (38 %) N/A
Operating margin — % of WW net sales 3.3 % 2.0 % 0.7 % 1.5 % 1.5 % N/A
Operating income — TTM $ 1,334 $ 1,265 $ 1,076 $ 862 $ 732 (45 %)
Operating income — TTM Y/Y growth, excluding F/X 7 % (7 %) (25 %) (44 %) (50 %) N/A
Operating margin — TTM % of WW net sales 3.6 % 3.1 % 2.5 % 1.8 % 1.4 % N/A
Net income $ 201 $ 191 $ 63 $ 177 $ 130 (35 %)
Net income per diluted share $ 0.44 $ 0.41 $ 0.14 $ 0.38 $ 0.28 (35 %)
Net income — TTM $ 1,054 $ 1,038 $ 871 $ 631 $ 561 (47 %)
Net income per diluted share — TTM $ 2.30 $ 2.26 $ 1.89 $ 1.37 $ 1.22 (47 %)
Segments
North America Segment:
Net sales $ 5,465 $ 5,406 $ 5,932 $ 9,902 $ 7,427 36 %
Net sales — Y/Y growth, excluding F/X 45 % 50 % 44 % 37 % 36 % N/A
Net sales — TTM $ 20,392 $ 22,208 $ 24,014 $ 26,705 $ 28,667 41 %
Operating income $ 290 $ 214 $ 144 $ 285 $ 349 20 %
Operating margin — % of North America net sales 5.3 % 4.0 % 2.4 % 2.9 % 4.7 % N/A
Operating income — TTM $ 972 $ 986 $ 943 $ 933 $ 991 2 %
Operating income — TTM Y/Y growth, excluding F/X 17 % 9 % 1 % (2 %) 2 % N/A
Operating margin — TTM % of North America net sales 4.8 % 4.4 % 3.9 % 3.5 % 3.5 % N/A
International Segment:
Net sales $ 4,392 $ 4,507 $ 4,944 $ 7,529 $ 5,758 31 %
Net sales — Y/Y growth, excluding F/X 27 % 36 % 33 % 29 % 32 % N/A
Net sales — TTM $ 16,539 $ 18,070 $ 19,580 $ 21,372 $ 22,737 37 %
Net sales — TTM % of WW net sales 45 % 45 % 45 % 44 % 44 % N/A
Operating income $ 175 $ 172 $ 116 $ 177 $ 49 (72 %)
Operating margin — % of International net sales 4.0 % 3.8 % 2.4 % 2.4 % 0.9 % N/A
Operating income — TTM $ 922 $ 888 $ 790 $ 640 $ 515 (44 %)
Operating income — TTM Y/Y growth, excluding F/X 4 % (7 %) (23 %) (41 %) (49 %) N/A
Operating margin — TTM % of International net sales 5.6 % 4.9 % 4.0 % 3.0 % 2.3 % N/A
Consolidated Segments:
Operating expenses (3) $ 9,392 $ 9,527 $ 10,616 $ 16,969 $ 12,787 36 %
Operating expenses — TTM (3) $ 35,037 $ 38,404 $ 41,860 $ 46,504 $ 49,899 42 %
Operating income $ 465 $ 386 $ 260 $ 462 $ 398 (15 %)
Operating margin — % of Consolidated sales 4.7 % 3.9 % 2.4 % 2.7 % 3.0 % N/A
Operating income — TTM $ 1,894 $ 1,874 $ 1,734 $ 1,573 $ 1,505 (21 %)
Operating income — TTM Y/Y growth, excluding F/X 10 % 1 % (11 %) (21 %) (22 %) N/A
Operating margin — TTM % of Consolidated net sales 5.1 % 4.7 % 4.0 % 3.3 % 2.9 % N/A
AMAZON.COM, INC.
Supplemental Financial Information and Business Metrics
(in millions, except inventory turnover, accounts payable days and employee data)
(unaudited)
Y/Y %
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Change
Supplemental
Supplemental North America Segment Net Sales:
Media $ 1,885 $ 1,585 $ 1,927 $ 2,562 $ 2,197 17 %
Media — Y/Y growth, excluding F/X 18 % 19 % 21 % 8 % 17 % N/A
Media — TTM $ 7,170 $ 7,430 $ 7,767 $ 7,959 $ 8,270 15 %
Electronics and other general merchandise $ 3,303 $ 3,496 $ 3,635 $ 6,881 $ 4,772 44 %
Electronics and other general merchandise — Y/Y growth, excluding F/X 63 % 67 % 56 % 51 % 44 % N/A
Electronics and other general merchandise — TTM $ 12,277 $ 13,683 $ 14,992 $ 17,315 $ 18,784 53 %
Electronics and other general merchandise — TTM % of North America net sales 60 % 62 % 62 % 65 % 66 % N/A
Other $ 277 $ 325 $ 370 $ 459 $ 458 66 %
Other — TTM $ 945 $ 1,095 $ 1,255 $ 1,431 $ 1,613 71 %
Supplemental International Segment Net Sales:
Media $ 2,073 $ 2,075 $ 2,226 $ 3,447 $ 2,513 21 %
Media — Y/Y growth, excluding F/X 9 % 20 % 17 % 18 % 22 % N/A
Media — TTM $ 8,247 $ 8,772 $ 9,238 $ 9,820 $ 10,261 24 %
Electronics and other general merchandise $ 2,285 $ 2,398 $ 2,681 $ 4,032 $ 3,203 40 %
Electronics and other general merchandise — Y/Y growth, excluding F/X 49 % 53 % 51 % 41 % 42 % N/A
Electronics and other general merchandise — TTM $ 8,162 $ 9,162 $ 10,199 $ 11,397 $ 12,314 51 %
Electronics and other general merchandise — TTM % of International net sales 49 % 51 % 52 % 53 % 54 % N/A
Other $ 34 $ 34 $ 37 $ 50 $ 42 24 %
Other — TTM $ 130 $ 136 $ 143 $ 155 $ 162 26 %
Supplemental Worldwide Net Sales:
Media $ 3,958 $ 3,660 $ 4,153 $ 6,009 $ 4,710 19 %
Media — Y/Y growth, excluding F/X 13 % 20 % 19 % 14 % 19 % N/A
Media — TTM $ 15,417 $ 16,202 $ 17,005 $ 17,779 $ 18,531 20 %
Electronics and other general merchandise $ 5,588 $ 5,894 $ 6,316 $ 10,913 $ 7,975 43 %
Electronics and other general merchandise — Y/Y growth, excluding F/X 57 % 62 % 54 % 47 % 43 % N/A
Electronics and other general merchandise — TTM $ 20,439 $ 22,845 $ 25,191 $ 28,712 $ 31,098 52 %
Electronics and other general merchandise — TTM % of WW net sales 55 % 57 % 58 % 60 % 60 % N/A
Other $ 311 $ 359 $ 407 $ 509 $ 500 61 %
Other — TTM $ 1,075 $ 1,231 $ 1,398 $ 1,586 $ 1,775 65 %
Balance Sheet
Cash and marketable securities $ 6,881 $ 6,355 $ 6,326 $ 9,576 $ 5,715 (17 %)
Inventory, net — ending $ 2,888 $ 3,229 $ 3,770 $ 4,992 $ 4,255 47 %
Inventory turnover, average — TTM 11.6 11.3 10.8 10.3 10.4 (10 %)
Fixed assets, net $ 2,902 $ 3,470 $ 3,999 $ 4,417 $ 4,653 60 %
Accounts payable — ending $ 5,540 $ 5,721 $ 6,552 $ 11,145 $ 6,886 24 %
Accounts payable days — ending 66 69 72 74 62 (5 %)
Other
WW shipping revenue $ 330 $ 331 $ 360 $ 531 $ 461 40 %
WW shipping costs $ 786 $ 820 $ 918 $ 1,466 $ 1,129 44 %
WW net shipping costs $ 456 $ 489 $ 558 $ 935 $ 668 47 %
WW net shipping costs — % of WW net sales 4.6 % 4.9 % 5.1 % 5.4 % 5.1 % N/A
Employees (full-time and part-time; excludes contractors & temporary personnel) 37,900 43,200 51,300 56,200 65,600 73 %
(1) Average Total Assets minus Current Liabilities (excluding current portion of Long Term Debt) over five quarter ends.
(2) TTM Free Cash Flow divided by Invested Capital.
(3) Represents cost of sales, fulfillment, marketing, technology and content, and general and administrative operating expenses, excluding stock-based compensation.

Amazon.com, Inc.

Certain Definitions

Customer Accounts

  • References to customers mean customer accounts, which are unique e-mail addresses, established either when a customer places an order or when a customer orders from other sellers on our websites. Customer accounts exclude certain customers, including customers associated with certain of our acquisitions, Amazon Enterprise Solutions program customers, Amazon.com Payments customers, Amazon Web Services customers, and the customers of select companies with whom we have a technology alliance or marketing and promotional relationship. Customers are considered active when they have placed an order during the preceding twelve-month period.

Seller Accounts

  • References to sellers means seller accounts, which are established when a seller receives an order from a customer account. Seller accounts exclude Amazon Enterprise Solutions sellers. Sellers are considered active when they have received an order from a customer during the preceding twelve-month period.

Registered Developers

  • References to registered developers mean cumulative registered developer accounts, which are established when potential developers enroll with Amazon Web Services and receive a developer access key.

Units

  • References to units mean physical and digital units sold (net of returns and cancellations) by us and sellers at Amazon domains worldwide – for example as well as Amazon-owned items sold through non-Amazon domains. Units sold are paid units and do not include units associated with certain acquisitions, rental businesses, web services or advertising businesses, or Amazon gift certificates.

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AT&T posts better-than-expected profit in Q1, sells record 5.5 million smartphones

Tuesday, April 24th, 2012

AT&T on Tuesday reported its results for the first quarter of 2012. Following a record holiday quarter that saw the nation’s No.2 carrier pull in $0.42 per share excluding one-time charges on sales of $32.5 billion, analysts were expecting first-quarter EPS of $0.57 on revenue totaling $31.85 billion. The company beat expectations, posting a profit of $0.60 per share on in-line sales of $31.8 billion. AT&T activated 3.6 million iPhones during the first quarter last year, and that number climbed to 4.3 million in the first quarter of 2012, down seasonally from a record 7.6 million during the holiday quarter. Total smartphone sales for the first quarter this year came in at 5.5 million, in line with the 5.5 million smartphones it sold in the first quarter of 2011, though AT&T says that its first-quarter smartphone sales set a new record this year. The carrier added 726,000 net subscribers last quarter as its total subscriber count reached 103.9 million, up from 103.2 million in the December quarter. AT&T’s stock is trading up 0.5% ahead of the bell. The company’s full press release follows below.

Solid Growth in Earnings, Revenues and Margins, and $4.7 Billion Returned to Shareholders Highlight AT&T’s First-Quarter Results

Wireless Margins Expand and Smartphone Sales Set First-Quarter Record; 30 Percent of Smartphone Customers are on 4G-Capable Devices

DallasTexasApril 24, 2012

  • $0.60 diluted EPS compared to $0.57 diluted EPS in the first quarter of 2011
  • Consolidated revenues of $31.8 billion, up $575 million, or 1.8 percent, versus the year-earlier period
  • Wireless operating income margin up to 27.2 percent; wireless EBITDA service margin up significantly to 41.6 percent even with strong smartphone sales
  • More than $2 billion in stock buybacks; 67.7 million shares repurchased
  • AT&T’s growth engines — wireless, wireline data and managed services — represented 78 percent of total revenues and grew 6.2 percent versus the same quarter a year ago, led by:
    • 19.9 percent growth in wireless data revenues, up more than $1 billion versus the year-earlier quarter
    • 19.0 percent growth in strategic business services revenues
    • 38.2 percent growth in consumer U-verse revenues
  • Smartphone sales of 5.5 million, exceeding the previous first-quarter record, with about 30 percent of all postpaid smartphone subscribers on 4G-capable devices
  • 726,000 total wireless net adds, with gains in every customer category
  • Postpaid wireless churn of 1.1 percent, lowest level in seven quarters
  • Record first-quarter branded computing (tablets, tethering plans, etc.) net adds of 460,000 to reach a total of 5.8 million, up almost 70 percent versus a year ago
  • Postpaid wireless subscriber ARPU (average monthly revenues per subscriber), up 1.7 percent to $64.46
  • Wireline business year-over-year revenue comparisons continue to improve
  • Wireline consumer revenues up 1.0 percent versus the year-earlier period; seventh consecutive quarter of year-over-year growth
  • AT&T U-verse® subscribers (TV and high speed Internet) top 6 million; U-verse TV subscribers reach 4 million in service

Note: AT&T’s first-quarter earnings conference call will be broadcast live via the Internet at 10 a.m. ET on Tuesday, April 24, 2012, at www.att.com/investor.relations.

Consolidated Statements of Income
Statements of Segment Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Supplementary Operating and Financial Data
Reconciliation of EBITDA
Reconciliation of Free Cash Flow
Net-Debt-to-EBITDA Ratio
Non-GAAP Discussions

AT&T Inc. (NYSE:T) today reported first-quarter results highlighted by strong 4G mobile data sales and wireless margins, and solid revenue and earnings growth. “We continue to capitalize on our terrific momentum in mobile Internet,” said Randall Stephenson, AT&T chairman and chief executive officer. “Smartphone and branded computing device sales continue to set a record pace, mobile data revenues were up nearly 20 percent, and we achieved this growth with expanding margins. These results add confidence in our outlook for the year.”

First-Quarter Financial Results
For the quarter ended March 31, 2012, AT&T’s consolidated revenues totaled $31.8 billion, up $575 million, or 1.8 percent, versus the year-earlier quarter.

Compared with results for the first quarter of 2011, operating expenses were $25.7 billion versus $25.4 billion; operating income was $6.1 billion, up from $5.8 billion; and operating income margin was 19.2 percent, compared to 18.6 percent.

First-quarter 2012 net income attributable to AT&T totaled $3.6 billion, or $0.60 per diluted share, up from $3.4 billion, or $0.57 per diluted share, in the year-earlier quarter.

First-quarter 2012 cash from operating activities totaled $7.8 billion, and capital expenditures totaled $4.3 billion. Free cash flow — cash from operating activities minus capital expenditures — totaled $3.5 billion. During the first quarter, AT&T began repurchasing shares under its outstanding 300 million share buyback authorization. The company repurchased 67.7 million of its shares for $2.1 billion in the quarter.

WIRELESS OPERATIONAL HIGHLIGHTS
Led by mobile data growth in the first quarter, AT&T delivered strong smartphone and branded computing device sales with solid data revenue growth, lower postpaid churn and expanding margins. Highlights included:

Wireless Data Revenues Increase $1 Billion. Total wireless revenues, which include equipment sales, were up 5.4 percent year over year to $16.1 billion. Wireless service revenues increased 4.3 percent, to $14.6 billion, in the first quarter. Wireless data revenues — driven by Internet access, access to applications, messaging and related services — increased by more than $1 billion, or 19.9 percent, from the year-earlier quarter to $6.1 billion. First-quarter wireless operating expenses totaled $11.7 billion, up 3.4 percent versus the year-earlier quarter, and wireless operating income was $4.4 billion, up 11.3 percent year over year.

Wireless Margins Expand Even With Strong Smartphone Sales. First-quarter wireless margins grew significantly, driven by improved operating efficiencies and further revenue gains from the company’s 41 million high-quality smartphone subscribers. AT&T’s first-quarter wireless operating income margin was 27.2 percent versus 25.8 percent in the year-earlier quarter, and AT&T’s wireless EBITDA service margin was 41.6 percent, compared with 39.0 percent in the first quarter of 2011.(EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.)

Subscriber Gains in Every Category. AT&T posted a net increase in total wireless subscribers of 726,000 in the first quarter to reach 103.9 million in service. This included gains in every customer category. Subscriber additions for the quarter include postpaid net adds of 187,000. Prepaid net adds were 125,000, connected device net adds were 230,000 and reseller net adds were 184,000. First-quarter net adds reflect continued adoption of smartphones and sales of tablets.

Smartphone Sales Exceed First-Quarter Record. AT&T sold 5.5 million smartphones, exceeding a first-quarter sales record set last year. Smartphones represented more than 78 percent of postpaid device sales. At the end of the quarter, 59.3 percent, or 41.2 million, of AT&T’s postpaid subscribers had smartphones, up from 46.2 percent and 31.5 million a year earlier. AT&T’s ARPU for smartphones is 90 percent higher than for non-smartphone subscribers. About 88 percent of smartphone subscribers are on FamilyTalk® or business plans. Churn levels for these subscribers are significantly lower than for other postpaid subscribers. About 30 percent of AT&T’s postpaid smartphone customers use a 4G-capable device.

Both Android and iPhone device sales remain strong. iPhone sales were helped by AT&T’s 4G network, which lets iPhone 4S download three-times faster than other U.S. carriers’ networks. In the quarter, the company activated 4.3 million iPhones, with 21 percent new to AT&T.

Strong Branded Computing Sales. AT&T had its best-ever first-quarter sales for branded computing subscribers, a new wireless data revenue growth area for the company that includes tablets, tethering plans, aircards, mobile Wi-Fi hot spots and other data-only devices. AT&T added 460,000 of these devices to reach 5.8 million, up almost 70 percent in total subscribers from a year ago. During the quarter, 240,000 tablets were added, about three-quarters of which were postpaid.

61 Percent of Smartphone Subscribers on Tiered Data Plans. The number of subscribers on tiered data plans also continues to increase. About 25 million, or 61 percent, of all smartphone subscribers are on tiered data plans compared to 38 percent a year ago, and more than 70 percent have chosen the higher-tiered plans. AT&T’s postpaid wireless subscribers on data plans increased by 15.1 percent over the past year.

Industry-Leading Postpaid ARPU Continues Growth. Postpaid subscriber ARPU increased 1.7 percent versus the year-earlier quarter to $64.46. AT&T continues to lead the industry with postpaid subscriber ARPU. This marked the 13th consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU. Postpaid data ARPU reached $26.92, up 15.3 percent versus the year-earlier quarter.

Postpaid Churn Improves. Postpaid churn reached its lowest level in seven quarters. For the first quarter, postpaid churn was 1.10 percent, compared to 1.18 percent in the year-ago first quarter and 1.21 percent in the fourth quarter of 2011. Total churn was up, at 1.47 percent versus 1.36 percent in the first quarter of 2011 and 1.39 percent in the fourth quarter of 2011, due to higher reseller and connected device churn.

WIRELINE OPERATIONAL HIGHLIGHTS
AT&T’s first-quarter wireline results were led by continued improving trends in business and strong growth in U-verse revenues. Highlights included:

Wireline Operating Income Improves. AT&T’s wireline operating income totaled $1.8 billion, 2.4 percent higher than the first quarter of 2011 and down 1.2 percent versus the fourth quarter of 2011. First-quarter wireline operating income margin was 12.2 percent, compared to 11.8 percent in the year-earlier quarter. Total first-quarter wireline revenues were $14.9 billion, down 0.8 percent versus the year-earlier quarter and down slightly sequentially. First-quarter wireline operating expenses were $13.1 billion, down 1.2 percent versus the first quarter of 2011 and down slightly sequentially. Improved consumer and business strategic services revenue trends and execution of cost initiatives helped to partially offset declines in voice revenues.

Business Revenues Continue Improving Trends. Business revenues had their best year-over-year comparison in the last three years. Total business revenues were $9.2 billion, down 0.8 percent versus the year-earlier quarter. Business service revenues declined 0.3 percent year over year, compared to a year-over-year decline of 4.4 percent in the year-ago quarter, and were essentially flat sequentially. Declines in legacy products were largely offset by continued strong growth in strategic business services.

Business Data Revenue Growth Accelerates. Revenues from strategic business services, the new-generation capabilities that lead AT&T’s most advanced business solutions — including Ethernet, VPNs, hosting, IP conferencing and application services — grew 19.0 percent versus the year-earlier quarter, continuing strong trends in this area. This now represents a $6.2 billion annualized revenue stream. Total business data revenue growth accelerated to 4.2 percent year over year, the strongest showing in four years.

U-verse Drives Consumer Revenue Growth. Continued strong growth in consumer IP data services in the first quarter offset lower revenues from voice and legacy products. Driven by strength in IP data services, revenues from residential customers totaled $5.4 billion, an increase of 1.0 percent versus the first quarter a year ago. The first quarter marked the seventh consecutive quarter of year-over-year growth in wireline consumer revenues. U-verse continues to drive a transformation in wireline consumer, reflected by the fact that consumer broadband, video and voice over IP revenues now represent 55 percent of wireline consumer revenues, up from 47 percent in the year-earlier quarter. Increased AT&T U-verse penetration and a significant number of subscribers on triple- or quad-play options drove 17.5 percent year-over-year growth in IP revenues from residential customers (broadband, U-verse TV and U-verse Voice) and 3.8 percent sequential quarterly growth. Consumer U-verse revenues grew 38.2 percent compared with the year-ago first quarter and were up 8.5 percent versus the fourth quarter of 2011.

U-verse Tops 6 Million Subscriber Mark. Total AT&T U-verse subscribers (TV and High Speed Internet) reached 6.2 million in the first quarter. AT&T U-verse TV added 200,000 subscribers to reach 4.0 million in service. In the first quarter, the AT&T U-verse High Speed Internet attach rate was more than 90 percent and about half of new subscribers took AT&T U-verse Voice. About three-fourths of AT&T U-verse TV subscribers have a triple- or quad-play option from AT&T. ARPU for U-verse triple-play customers was $169, up slightly year over year. Penetration of eligible living units continues to grow and was at 16.8 percent in the first quarter, and 27.1 percent across areas marketed to for 42 months or more. AT&T U-verse High Speed Internet delivered a first-quarter net gain of 718,000 subscribers to reach a total of 5.9 million, more than offsetting losses from DSL. Overall, AT&T added 103,000 wireline broadband connections. About 45 percent of consumers have a broadband plan delivering speeds up to 6 Mbps or higher versus 35 percent in the year-ago quarter.

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Samsung to report record Q1 as profits double

Friday, April 6th, 2012

Samsung Electronics on Friday reported unaudited earnings results for the first calendar quarter of 2012. Following a record holiday quarter that saw the company pull in a profit of 5.3 trillion Korean won on sales of 47 trillion won, Samsung expects to report an operating profit of 5.8 trillion won — nearly twice its profit the first quarter last year — and revenue of approximately 45 trillion won. Samsung’s Galaxy S II smartphones are still among carriers’ best-selling smartphones in the United States, and the South Korea-based consumer electronics giant recently announced that sales of its massive Galaxy Note “phablet” topped 5 million units.

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Welcome to the post-post-PC era: A review of Microsoft’s Windows 8 Consumer Preview

Wednesday, February 29th, 2012

Apple’s iOS platform seemed to come out of nowhere and take the world by storm in 2007. The introduction of the first-generation iPhone set in motion a chain of events that lead up to the holiday quarter in 2011, when Apple recorded the most profitable quarter in technology history thanks mainly to unbelievable iPhone, iPod touch and iPad sales. No platform is selling as quickly as Apple’s mobile platform right now, but iOS is still in its infancy and the fact remains: as hot as iOS is right now, and as popular as smartphones and media tablets are, no platform installed base on the planet even comes close to approaching the size of Windows right now.

The Future

Microsoft said this past December that there are now more than 1.25 billion PCs running the Windows operating system. Billion, with a “B.” Smartphones are the hottest segment in consumer electronics right now and people are buying Apple’s iPad in droves, but even still, more people around the world rely on Windows than ever before. This is because the software that powers countless businesses from the ground up is built on Windows. From web browsers to accounting software to point-of-sale systems to 3D animation software to word processors to custom proprietary solutions and far, far beyond… Entire industries are built on Windows.

The future is anything but “post-PC.”

We are now entering the post-post-PC era, and its focus is the PC. A new, smarter, more versatile PC. A PC that lets users browse the web casually in bed and work with massive databases in SQL Server. A PC that can run a $0.99 news reader as well as it can run proprietary $99,000 CRM software. A PC that is as ideal for playing Angry Birds as it is for running a modeling environment that allows its user to build schematics for a skyscraper. This is the future of computing.

That is not to say Windows 8 is an “iPad killer” or that media tablets are going away. Far from it. While their functionality may overlap in a number of areas, light-duty tablets and full-fledged PCs serve different purposes and will continue to coexist for some time. What we will see, however, is media tablets becoming more capable and more powerful as PCs become better suited for touch input. At some point down the road the two categories may merge, but neither will “win” or “lose.”

The OS

I’ve spent the past week playing with and working on a Samsung tablet powered by Microsoft’s new operating system. It’s nice to be able to work and play on the same tablet.

While Windows 8 is not quite in a state where it is ready to be released to the public, it is a completely different beast than the Developer Preview Microsoft released more than five months ago. During a meeting with Microsoft executives, I was told that the Consumer Preview version of Windows 8 includes tens of thousands of changes compared to the version that was released to developers in September. Thousands of changes are system-level items that I’m sure I didn’t notice, but thousands more are user-facing changes that have helped improve the user experience dramatically.

One of my favorite features is the implementation of swipe gestures. As can be seen in the second and third images within our Windows 8 screenshot gallery, Microsoft has tweaked the main menus used to navigate the OS and perform a variety of key functions. While using a touchscreen to interface with Windows 8, these menus are opened using gestures.

A swipe from the bezel around the screen in from the right opens the start menu, which includes a search button to search for files and apps, a share button to share the current page via email or using other services, a start button, a devices button that lists devices connected to your PC, and a settings button that provides quick access to basic settings such as brightness and speaker volume, as well as a link to more system settings. A swipe in from the left switches between open apps, and a swipe in from the left and back out to the edge of the display opens the app-switcher. Within an app, a swipe down from the top or up from the bottom opens app-specific menus.

While using a keyboard and mouse, gestures from the sides are replaced by keyboard shortcuts or mouse touches to the corners of the screen. A touch to the top-right or bottom-right corner mimics a swipe in from the right and opens the start menu while a touch to the top-left or bottom-left corners opens the app-switcher.

There are countless other great features new Windows 8 Consumer Preview; from picture password, an enhanced security feature that lets the user unlock a PC by tracing preset patterns on an image of his or her choosing instead of using a simple alphanumeric password, to “roaming,” which automatically syncs settings, apps and other data between different Windows 8 computers. While one convertible slate can handle duties as a tablet, notebook and desktop computer, Windows 8 is all about choice. Some users may opt for a single device while others will want a lightweight 7-inch ARM-based tablet in addition to an eight-core beast of a desktop PC.

In terms of performance, Windows 8 exhibited the smoothness and stability we’ve come to expect in a post-Vista world, and this is just a preview version. There were hiccups, of course, but overall the experience was vastly superior than it has been with any other version of Windows. The setup is remarkably fast and easy, touch responsiveness is iPad-like and I was quite impressed with the versatility of this platform. To understand the concept of one device for work and for play is one thing. To sit in bed hopping around lightweight apps and then walk over to your desk, dock your tablet, and have desktop-grade productivity software running on the same device is something else entirely.

The machine I tested Windows 8 on is a pre-release dockable Samsung tablet with a 1.6GHz Intel Core i5 processor and 4GB of RAM. Yes, it’s a tablet with a fan. It’s also a tablet that can run your existing desktop-grade enterprise software, consumer software and lightweight Metro-style apps. Get over it.

The Endgame

Windows 8 gives us a glimpse at the future of computing, but it’s not quite there yet. While the version I spent time with is merely the Consumer Preview and not the release build of Windows 8, it gives us a very good idea of what Microsoft’s new operating system will look like when it launches. The concept is fantastic and I very much like Microsoft’s execution thus far, but it still feels like a marriage of two completely different operating systems rather than a fusion of two experiences.

This is by design, in part. Because the function of a true PC varies so greatly from the function of a media tablet (as we know this category of devices today), Microsoft has created separate experiences for each category. There is a tablet experience with the fantastic Metro UI, a desktop experience reminiscent of Windows 7, and a bit of overlap with each, intended to create some amount of cohesiveness. The end result, however, is not a consistent experience.

There is a disconnect that can be felt across Windows 8. Again, this is mostly by design. In what I call “tablet mode,” the user is presented with an interface that is quite clearly built to be touched. It is characterized by a cascade of large tiles that display live data and can be poked to open apps. The Metro-style apps that are revealed house nice big buttons and a touch-friendly design. Metro-style apps also take up every last pixel of the display, which is a fantastic canvas on which developers can paint terrific experiences.

In “desktop mode,” Windows 8 has the look and feel of Windows 7. In fact, it basically is Windows 7. There are some elements of Metro that spill over into desktop mode — such as the app-switcher and Windows Phone-like lock screen, which displays notifications from up to five apps — but they are effectively completely separate platforms.

Desktop mode has not been optimized for touch at all. In fact, tapping in a text field while no physical keyboard is attached to the tablet doesn’t even bring up the virtual keyboard. Instead, the user must tap on a small keyboard icon in the task bar to open the keyboard, and then he or she must tap another two buttons to close the keyboard once finished typing. And while typing in desktop mode, by the way, I found that the keyboard often obscured the text field in which I was typing.

Perhaps I can better illustrate my point about the disconnect with this simple example:

Windows 8 ships with two completely separate web browsers. One is called “Internet Explorer”. The other is called “Internet Explorer.”

Internet Explorer is a fantastic Metro-style browser that is designed with touch in mind. Controls are large and easy to poke, menus retract and let web pages occupy every inch of the display, and pages load lightning-fast in this lightweight tablet browser. Then, in desktop mode, users can browse the web using Internet Explorer, the same robust web browser hundreds of millions of people currently use around the world on their Windows PCs.

Confused yet?

Microsoft’s inclusion of two completely different web browsers that share the exact same name is indicative of the separation present in Windows 8. One tablet OS and one desktop OS, together on the same machine.

In the end, this disconnect is probably a good thing for now. Windows users come in all shapes and sizes, and millions of people who will upgrade to Windows 8 in the coming years will be terrified of doing so. They are used to Windows as we know it today, and the look and feel of Metro is a complete departure from the Windows they currently rely on day in and day out. After the initial shock wears off, these people who are so scared of change will find themselves eased into the new Windows because desktop mode is so familiar, and because “tablet mode” is so separate from it.

But this is not the future of post-post-PCs.

Windows 8 is the tip of the iceberg. The start of a shift that will eventually see the “tablet” UI and the “desktop” UI merge into one comprehensive user experience. Apple is taking a different approach; as we’re seeing in OS X Mountain Lion, Apple is slowly readying its desktop user interface for a touch environment by taking some of the elements from its gorgeous mobile UI and adapting them for desktop computers. This varies dramatically from the path Microsoft is taking with Windows 8, but the endgame is the same: one experience that is as capable as it is versatile, and as user-friendly as it is beautiful.

This is the future of computing.

Microsoft’s Windows 8 Consumer Preview will become available to the general public on Wednesday as a free download with an initial cache of more than 100 apps in the Store, all of which will be free during the preview period.

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Foxconn owner Hon Hai reports huge revenue growth in January

Wednesday, February 15th, 2012

Hon Hai Precision Industry Company, Ltd., parent company of original device manufacturer Foxconn, reported huge revenue growth of nearly 50% for the month of January, Taiwan Economic News reports. The manufacturing giant enjoyed performance that beat forecasts last month, with revenue ballooning 47.9% year-on-year to NT$274.6 billion, or approximately $9.1 billion USD. Revenue was down 13.3% sequentially after a big December capped off a hot holiday quarter, but the seasonal decline was expected and well below the average 20% fall off Hon Hai typically sees between December and January. Hon Hai’s nearest competitor Quanta Computer saw revenue grow 2% to NT$78.3 billion in January, and rival Compal Electronics reported a dip of 22% to NT$43.7 billion in January.

Read

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Can smartphone vendors survive with Apple and Samsung dominating the industry?

Thursday, February 9th, 2012

Apple and Samsung are in the midst of a patent-fueled war with no end in site, but the pair has also inadvertently joined forces to make it increasingly difficult for other vendors to continue making smartphones. New estimates suggest Apple and Samsung combined to take in a staggering 95% of smartphone industry profits in the fourth quarter of 2011. The figures paint an even bleaker picture for the rest of the players in the smartphone business than earlier estimates; UBS analyst Maynard Um said last week that Apple and Samsung’s combined take amounted to 90% of smartphone industry profits. Read on for more.

“With the strong iPhone market share gains during Q4/11 combined with Samsung’s strong share gains within the Android ecosystem, we estimate Apple and Samsung captured roughly 95% of industry profits,” Canaccord Genuity analyst Mike Walkley wrote in a note to investors on Thursday.

Walkley continued, “Apple generated a remarkable 80% share of estimated Q4/11 handset industry operating profits (vs. 56% in Q3/11 and 48% in Q4/10) with only 8.1% global handset market share. Demonstrating the strength of the iPhone’s profit share gains during Q4/11, Samsung’s share of industry profits declined from roughly 26% in Q3/11 to 15% in Q4/11, even though Samsung’s share of Android smartphones increased from 35% in Q3/11 to 39% in Q4/11.”

As Apple and Samsung each reported blowout quarters last month — Apple’s $13 billion holiday quarter was the most profitable quarter ever recorded by a technology company — other smartphone vendors are on the ropes. Nokia posted a €1 billion loss in the fourth quarter, Sony Ericsson reported a €247 million loss, LG posted its second consecutive loss last quarter, HTC continued to slump, Motorola recorded an $80 million loss and RIM continued to slide as well.

And for these struggling smartphone companies, Walkley doesn’t see things getting better in the immediate future. “With RIM, Nokia, HTC, and Sony Ericsson all in the midst of product transitions and Motorola Mobility merging with Google, we believe Apple and Samsung will maintain dominant share positions during H1/12,” the analyst wrote. ”Our January checks indicate Apple and Samsung trends remain strong versus competitors.”

Samsung is expected to launch its quad-core Galaxy S III smartphone this coming May, and Apple will then reportedly launch a completely redesigned next-generation iPhone later this year.

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Samsung takes another page from Apple’s playbook: increase margins

Tuesday, February 7th, 2012

Apple has argued on multiple occasions that Samsung builds mobile products that ”blatantly imitate the appearance of Apple’s products to capitalize on Apple’s success.” Courts seem to disagree for the most part, with only a pair of injunctions having been issued despite dozens of complaints Apple has filed around the world. There are some areas where Samsung does seem to take pages out of Apple’s playbook, however — Samsung’s new anti-iPhone ad strategy is somewhat reminiscent of Apple’s famous “I’m a Mac” campaign, for example — and market research firm Allied Business Intelligence may have uncovered another one this week. Read on for more.

ABI recently performed a teardown on Samsung’s latest flagship phone, the Galaxy Nexus, and the firm analyzed the components found within the handset. Among them was a new version of Samsung’s LTE chipset that is estimated to cost half as much as the chip it replaces.

“The Samsung Galaxy Nexus modem is constructed with the combination of a Via Telecom CDMA/EVDO Rev. A integrated circuit and a Samsung LTE baseband integrated circuit,” the firm wrote in its report. “This combination is now common for Samsung’s Verizon phones, but the Galaxy Nexus sports a new version of the LTE baseband chip. The new chip is estimated at nearly half the cost of the prior chip’s $23 price tag.”

One area where the competition has been unable to keep pace with Apple is profit, and the company’s record-setting holiday quarter was thanks largely in part to the huge margins it enjoys on iPhone sales. Asymco’s Horace Dediu estimates that Apple took in approximately 75% of mobile phone industry profits last quarter despite accounting for just 9% of global cell phone shipments, or an estimated 23.5% of all smartphone channel sales.

Whether or not Samsung’s mobile devices are “copycats” as Apple claims is up to the courts of the world to decide, but Samsung would be wise to follow Apple’s lead where margins are concerned. Samsung shipped about as many smartphones as Apple during the holiday quarter, but the $2.32 billion in operating profit it took in from its mobile business pales in comparison to Apple’s mobile profits.

Making significant cuts to component costs while still managing to sell 4G devices at premium prices could help the South Korea-based vendor hold its ground in the first quarter while the world awaits the launch of its next-generation flagship smartphone, the quad-core Galaxy S III.

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A visualization of Apple’s market cap and cash [infographic]

Tuesday, January 31st, 2012

Apple reported a monster first quarter last Tuesday that sent the company’s stock skyrocketing over the past week. Apple’s holiday quarter was the most profitable quarter ever reported by a technology company, and the second most profitable quarter reported by any U.S. firm. With a market capitalization that now sits in excess of $420 billion, Apple is currently the most valuable company in the world, and with more than $97.6 billion in cash and cash equivalents at the end of calendar 2011, Apple has amassed an unbelievable war chest that is unrivaled among its competitors. Business blog MBA Online recently put together an infographic to help us visualize just how big Apple has grown since it teetered on the brink of bankruptcy in the late 90s. Among the graphic’s bullet points are the facts that Apple’s year-end cash pile is enough to buy an iPad for each and every person living in Canada and Greece combined, and it’s also enough to pay off the entire public debt of eight countries within the European Union. The site’s full infographic follows below.

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Apple’s grip on tablet market said to be loosening as Android shipments tripled in Q4

Thursday, January 26th, 2012

Apple sold more iPads in the fourth calendar quarter than it has ever sold before in a single three-month period, but the 15.4 million tablets it managed to move weren’t enough to keep Google from gaining ground. Market research firm strategy analytics on Thursday released its tablet estimates for the three months ended December 2011, and Google’s Android partners seemingly managed to triple tablet shipments during the holiday quarter last year. Read on for more.

Strategy Analytics estimates that Apple’s 15.4 million iPads shipped was good enough to capture 57.6% of the tablet market in the fourth quarter last year. In the same quarter a year earlier, Apple shipped 7.3 million tablets and accounted for 68.2% of the global market.

Google’s Android partners combined to ship 10.5 million tablets in the December quarter, good for a 39.1% share of the market. Android vendors shipped just 3.1 million tablets in the fourth quarter of 2010, which accounted for 29% of the market.

“Global tablet shipments reached an all-time high of 26.8 million units in Q4 2011, surging 150 percent from 10.7 million in Q4 2010,” Strategy analytics analyst Peter King said in a statement. ”Demand for tablets among consumer, business and education users remains strong. Apple shipped a robust 15.4 million iPads worldwide and maintained its strong market leadership with 58 percent share during the fourth quarter of 2011. Apple shrugged off the much-hyped threat from entry-level Android models this quarter.”

Apple’s iPad business is still growing rapidly, and chief executive Tim Cook said on a recent earnings call that Amazon’s popular Kindle Fire tablet had no impact whatsoever on Apple tablet sales. It appears as though a broader media tablet market is finally beginning to form around what had essentially just been an iPad market until recently, however.

Strategy Analytics’s full press release follows below.

Strategy Analytics: Android Captures Record 39 Percent Share of Global Tablet Shipments in Q4 2011

Boston, MA – January 26, 2012 – According to the latest research from Strategy Analytics, global tablet shipments reached 27 million units in the fourth quarter of 2011. Android jumped to a record 39 percent global share, while Apple iOS maintained its strong leadership at 58 percent.

Peter King, Director at Strategy Analytics, said, “Global tablet shipments reached an all-time high of 26.8 million units in Q4 2011, surging 150 percent from 10.7 million in Q4 2010. Demand for tablets among consumer, business and education users remains strong. Apple shipped a robust 15.4 million iPads worldwide and maintained its strong market leadership with 58 percent share during the fourth quarter of 2011. Apple shrugged off the much-hyped threat from entry-level Android models this quarter.”

Neil Mawston, Executive Director at Strategy Analytics, added, “Android captured a record 39 percent share of global tablet shipments in Q4 2011, rising from 29 percent a year earlier. Global Android tablet shipments tripled annually to 10.5 million units. Dozens of Android models distributed across multiple countries by numerous brands such as Amazon, Samsung, Asus and others have been driving volumes. Android is so far proving relatively popular with tablet manufacturers despite nagging concerns about fragmentation of Android’s operating system, user-interface and app store ecosystem.”

Other findings from the research include:

  • Global tablet shipments hit 66.9 million units in full-year 2011, surging 260 percent from 18.6 million in full-year 2010. Consumers are increasingly buying tablets in preference to netbooks and even entry-level notebooks or desktops;
  • Microsoft captured a niche 1 percent global tablet share in Q4 2011. The upcoming release of Windows 8 this year cannot come quickly enough for Microsoft, so its hardware partners can start competing more effectively in the tablet space.

Exhibit 1: Global Tablet Operating System Shipments and Market Share in Q4 2011

Global Tablet OS Shipments (Millions of Units)

Q4 ’10

Q4 ’11

Apple iOS

7.3

15.4

Android

3.1

10.5

Microsoft

0.0

0.4

Others

0.3

0.5

Total

10.7

26.8

Global Tablet OS Marketshare %

Q4 ’10

Q4 ’11

Apple iOS

68.2%

57.6%

Android

29.0%

39.1%

Microsoft

0.0%

1.5%

Others

2.8%

1.9%

Total

100.0%

100.0%

Growth Year-over-Year %

N / A

150%

The full report, Global Tablet OS Market Share: Q4 2011, is published by the Strategy Analytics Tablet & Touchscreen (TTS) service, details of which can be found here: http://tinyurl.com/78qpf5u.

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Apple to pass HP as the world’s top PC and tablet vendor

Tuesday, January 17th, 2012

When counting tablets as personal computers, Apple will soon overtake Hewlett-Packard as the world’s top PC vendor. Based on a Fortune poll of 42 analysts, iPad sales could hit the 14 million mark in the fourth quarter, a big bump over the 11.12 million sold in the third quarter. Apple previously sold 4.89 million Macs, with holiday sales estimated to exceed 5 million units. When combined, both iPad and Mac sales are expected to be over 20 million units during the holiday quarter, which would be enough to push Apple past HP. The estimated sales would give the Cupertino-based company a 17.6% market share versus HP’s 13%. Asymco’s Horace Dediu noted that Apple has never held the top spot; the company’s market share peaked at 15.8% thanks to the Apple II in 1984. Last quarter, Apple surprised Wall Street when the company announced lower-than-expected earnings, however Apple is expected to crush estimates when it announces its December-quarter earnings on January 24th.

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UBS: 2011 iPad sales to total 28 million, iPhone 52 million

Wednesday, September 8th, 2010

UBS analyst Maynard Um has raised his stock price target for Apple, Inc. to $350 from $340. The move comes as Um predicts upwards of 28 million iPads could be sold in 2011; a number the analyst described as “conservative.” Mr. Um is also predicting 52 million iPhones to be sold in the 2011 calendar year. Um continued: “We continue to favor product plays such as Apple as the company should have some of the most highly sough referred t after products in the holiday quarter. Despite tough economic conditions, consumers remain willing to pay for innovation. Despite increasing competition in smartphones and that which is soon to come in tablets, Apple’s ability to keep its products fresh and innovative gives us confidence in our estimates going forward.” Unlike 2010, the iPad will be competing with multiple Android tablet devices — such as Samsung’s Galaxy Tab — that offer similar functionality in 2011.

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