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-FY2008 48% revenue growth, 54% earnings growth, Komag acquisition, non-desktop HD revenue 56% in FY2008 vs. 43% in FY2007.
-Strong Asia growth especially in the 2.5 inch notebook market offset muted demand from U.S. and Western Europe
-HD industry in FY2008 was $35 billion in revenue, 540 million hard drives. FY2009 demand forecast of 620 million units
-ASP in June quarter was $56, down $3 from March and up $1 y/y
-Shipped 11.7 million 2.5 inch mobile drives in June quarter vs. 10.2 million in March quarter and 3.8 million last year
-Higher than expected pricing pressure is hurting OEM negotiations at the start of Q1-2009. Gross margins will go from 21.3% in June to a forecasted 19.3% in September
-They are not modeling any share loss

Take-aways
-2.5 inch notebook drive and their branded “Passport” external HD products continue to drive their growth
-Europe and U.S. getting weaker. Looks like Seagate is hurting them on OEM pricing today and going forward

-delivered lowest ever subscriber acquisition cost ($29), profits at top end of guidance, and ending subscribers (8.4M up 25% y/y, 2% q/q) above midpoint of guidance
-DVD by mail will grow 5 to 10 years
-don’t plan to compete with pay-per-view segment like Apple, Amazon, and Sony or ad-supported segment like Hulu and Youtube
-goal is to have their streaming service integrated with Blu-Ray players, game consoles, connected DVD players, and other internet devices
-hardware partnerships so far with Microsoft Xbox 360, Roku, and LG TVs
-Microsoft deal is exclusive (means no Sony), it will be the only deal exclusive due to its installed base of 10 million
-12,000 titles currently available for streaming
-rise of supermarket DVD kiosk is new short-term competition
-they are going to test raising Blu-ray prices very shortly
-Bay Area (California) penetration is 18.8% vs. 7.2% in the rest of the country

Take-aways
-Good quarter, but earnings leverage not overly impressive. Membership growth continue to be strong in a weak economy (cheap entertainment substitution effect) and SAC at all time lows is another positive sign.
-The transition to the internet streaming model, which is obviously the primary future focus is the key driver here.

-100% of chicken and pork is now naturally raised. Beef is at 60%
-commitment to buy 25% of at least one produce item from local farms (within 200 miles) when it is seasonable available
-expanding to Toronto, however international expansion is not a key driver of their current growth strategy
-holding menu prices steady to maintain and reward customer loyalty, however if food costs continue to rise they may have to raise prices
-expect food costs to rise slightly in Q4, but “significantly” in Q4 as their fixed price agreements expire for corn in their salsa, rice, and soy oil. Those 3 items given today’s prices could hurt their margins by 80-100bps
-salmonella scare did hurt their comps (tomatoes then jalapano peppers) even though Chipotle was not a source of any tainted food
-opened 49 restaurants, 77 YTD and 778 total. Expect to open 130-140 this year
-Short-term EPS growth of 25% will be difficult due to higher commodity prices, low interest rates, and the consumer spending slow-down. They are still committed to the long-term EPS growth target of 25%
-no intention of pulling back store growth in 2009. Openings cost $1.35-1.4 million. Cash on cash returns of 40% by year 3.
-average check on a credit card is higher. 50% of their orders are by credit card. Credit cards are also a lot faster than cash transactions, but they do have higher fees
-middle America is doing worse than California and Florida (this is kind of surprising)
-average check is $10

Take-aways
-This is the first quarter where they have seen a “pullback” in consumer spending. Higher costs and lower consumer spending = multiple compression.
-Then again there probably isn’t a better long-term growth story (I love their food btw) in the restaurant space, so at some point this is a long.

When the earnings press release hit the tape, the stock spiked over $75 from the $70.54 close as traders thought it was an huge 11c EPS beat. After a few moments, people realized there was a large one-time gain in the number. If you take it out, EPS was about in-line. Also if you took the operating income upside from this quarter’s one-time gain from the full year guidance, the full year operating income guidance was weak for the rest of 2008. So the stock sold off to below $69, probably accentuated by short-term traders who had to puke off their initial buys above $75.

The conference call started. Baidu report big upside at this time, so the stock took off again to $71.40, but it wasn’t sustainable as sold off to $69 when the company said their guidance was their best estimate, but in this economy you never know. The tone wasn’t too positive in their prepared statement on guidance.

Then the Q&A started. Someone asked why operating income guidance for next quarter was kind of low sequentially compared to historical numbers. The company said it was low because of lumpy expenses as they build capacity. The stock climbed on the inference management was confident on sales trends if they are ramping up capacity to about $71. Then later in the Q&A, an analyst asked if the onetime $53M operating income gain was included in their fully year operating income guidance. The management said no it wasn’t. The inference here is guidance for the full year was actually good now and wasn’t down vs. previous guidance. The stock took off like a rocket on this to above $76.

So there you have it. The stock spiked to over $75 down to $69 up to $71 down to $68 and then up to over $76. Wild roller coaster. Just be happy you don’t work for a fund that trades after-hours.

I bet people who bought on the EPS beat headline number were forced to puke when they realized it wasn’t real. And then people shorted on weak operating income guidance. Those same people were forced to cover when management showed the guidance was actually good. Crazy stuff.

-inflation and pricing increases ramping up significantly last few weeks
-seeing price increases from suppliers, which at some point they will have to pass on 100% to their consumers
-the only area that is flat or deflating is apparel
-they are seeing more high-end brands in the pipeline
-core store sales is fine and haven’t down-ticked. They are taking market-share
-every club they open in the U.S., they try to open a gas station if they can
-California stores were generally worse before, but in the last 3 months things have “improved slightly”
-last few months consumer electronics weaker than prior, Walmart has been more aggressive. Level of deflation coming down “a shade”

Take-aways
-Inflation is ramping in terms of product price increases.
-I guess apparel is something people can hold off spending on. It’s the only category with flat or declining prices.

There is a lot of conjecture on what the new product introduction mentioned on last night quarterly earnings call will be. What could drive gross margins down a few hundred basis points to 30% in the next fiscal year? Rumors are for a new touchscreen tablet, touchscreen laptop refresh, new iPods, and a cheaper desktop Mac.

The only thing that makes sense is a Nano-phone which will sell massive amount of units at lower margins. Think an iPod Nano with basic phone functionality at price point of $99. That would be a killer product. You would have iPhone with expensive data plan at $199 upfront and then a $99 Nano-phone with no data plan as your product line-up.

The cellphone market is ONE billion unit a year opportunity. I truly believe Apple with a Nano-phone and iPhone would take huge market-share in the coming years. 30-40% marketshare is do-able which is a $30-40 billion+ revenue opportunity. Remember the new iPhone 3G revenue recognition model with AT&T is on a per unit basis, which opens up sales to other carriers under the traditional per handset model once the exclusivity period is over.

It might drive down margins in the short-term as an iPod for $199-$249 is more profitable than a $99 Nano-phone with phone functionality built-in. Moreover it will cannibalize some iPod sales, however this is the no brainer long-term right move. Anyone that doesn’t need a large iPhone would buy the nano-phone as their next cellphone/iPod. Game set match.

The only problem on the investment side is the Steve Jobs health issue that won’t go away until Apple says he is fine. Saying his health is a “private matter” just feeds the worry out there.

Street Estimates
June $1.08 EPS, $7.37B in revenue. September $1.24 EPS, $8.32B in revenue. September 2008 FY $5.21, $32.77B. September 2009 FY $6.38, $40.3B. Street consensus was gross margin of 33%, Mac units of 2.2M, Ipod of 10.3M, and iPhone of 730K.

Apple reported $1.19 in EPS and $7.46B in revenue. Guided to $1.00 EPS (19% miss vs. the street) and $7.8B in revenue (6% miss) for the September quarter. Mac units came in at 2.49M, 11.01M iPods, and 717K iPhones. iPod ASP went down from $170.80 last quarter to $152.39 due to iPod shuffle price cuts. Overall the June quarter beat street numbers for gross margin, EPS, revenue, and unit numbers across Mac and iPods.

Q&A
Guidance for September is for 25% growth (vs. 38% in June) y/y. Gross margin will be 30% next year due to a new product introductions. The stock was down hard, but fell even further from $156 to $149 when the CFO said Steve Job’s health is a “private matter”.

The one positive was he said September guidance would of been “significantly higher” if they were able to recognize iPhone 3G revenue fully instead of the subscription revenue recognition model they use.

Interestingly the CFO kept talking about the new product introduction which would have new features and technology that require a large investment up front, but will be much better than anything the competition can do. It sounded more than a typical annual iPod refresh. The only thing I could think of was maybe the long-rumored touchscreen tablet laptop.

Conclusion
The 19% EPS guide-down for September, lower iPod ASPs, lower gross margin guidance, and Steve Jobs health issue means an ugly stock move. Remember last quarter, the company only guided down 8% for the next quarter.

It will be hard for buyers to commit fully without more clarity on Steve Job’s health. The tone and the way the CFO answered question did not soothe any fears.

US VIDEO GAMES INDUSTRY – JUNE 2008
Software: $872.6M (+61%)
Hardware: $615.1M (+54%)
Accessories: $202M (+25%)
Total Games: $1.69B (+53%)

TOP-SELLING HARDWARE – JUNE 2008
Nintendo DS–783,000
Wii–666,700
PlayStation 3–405,500
PlayStation Portable–337,400
Xbox 360–219,800
PlayStation 2–188,800

TOP-SELLING SOFTWARE – JUNE 2008
Title / Publisher / Release Date / Units*
1 Metal Gear Solid 4: Guns of the Patriots (PS3) / Konami / 774,600
2 Guitar Hero On Tour (DS) / Activision / 422,300
3 Ninja Gaiden II (Xbox 360) / Microsoft / 372,700
4 Wii Fit w/ Balance Board (WII) / Nintendo / 372,700
5 Wii Play w/ Remote (WII) / Nintendo / 359,100
6 Battlefield: Bad Company (Xbox 360) / Electronic Arts / 346,800
7 Mario Kart Wii w/ Wheel (WII) / Nintendo / 322,400
8 Lego Indiana Jones: The Original Adventures (WII) / LucasArts / 294,500
9 Lego Indiana Jones: The Original Adventures (DS) / LucasArts / 267,800
10 Lego Indiana Jones: The Original Adventures (PS2) / LucasArts / 260,300

Source: Gamespot

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Bloomberg is reporting Merill Lynch is selling their 20% stake in Bloomberg to Bloomberg LP conveniently financed by Merrill Lynch (how is that for self dealing). This transaction values Bloomberg at $22.5 billion. It’s rumored that Mike Bloomberg owns 72% of the company, which would make him worth $16 billion at that valuation.