Apple Mostly Beats Wall Street Estimates — Again
April 28th, 2015Ahead of the release of Apple’s fiscal second quarter financials, the company’s stock market price was up, closing at $132.65, an increase of 1.82%. Clearly the financial community expected Apple to do well, perhaps better than analyst estimates. In the past, however, stock prices have often declined in after hours trading. This time, the stock price rose 1.24% to $134.30.
Despite the arrival of new flagship smartphones from Samsung, it’s questionable whether the South Korean conglomerate can gain much traction against the iPhone. In the March quarter, Apple remained the unstoppable juggernaut with sales that far exceeded estimates from financial analysts. Some 61.17 million iPhones were sold, compared to expectations averaging 56 million. It’s interesting to note that, according to CEO Tim Cook, some 20% of iPhone users had upgraded to the iPhone 6 or iPhone 6 Plus, so there appears to still be plenty of room to grow. And that’s before you factor in switchers from Android and other platforms.
In all, revenue totaled $58 billon, compared to analyst estimates of $56 billion, with profits of $13.6 billon, or $2.33 per diluted share. This compares to sales of $45.6 billon and a net profit of $10.2 billon, or $1.66 per diluted share, in the March quarter of 2014. Gross margins increased to 40.8 percent, a couple of points ahead of analyst estimates. Sales in China were up 71% over last year despite the heavy competition from Asian brands.
The June quarter outlook is for sales of $46-48 billon, way ahead of last year.
Mac sales continue to soar, with sales of some 4.56 million Macs, a 10% increase, compared to PC sales estimates of a contraction of 7% worldwide. In other words, Mac sales continue to outpace PC sales. Evidently the rush to ditch Windows XP, which fueled some increases in PC sales last year, is pretty much over. Microsoft can only hope that the arrival of Windows 10, promised for this summer, will fuel a new PC upgrade spurt. But don’t bet on it!
As expected, iPad sales continued to decline, with some 12.6 million sold (reflecting a sell-through of 13.7 million when inventory is counted), compared to 16.35 million in the year-ago quarter, a decrease of 23%. But there were some positive developments in the sea of declines, such as setting a new March quarter record for iPad sales in Japan,, and reaching an all-time record in China. Apple also reports that the iPad remains the number one tablet worldwide, and that it’s still number in the enterprise.
First time iPad buyers are ranging from 40% to 70%, depending on the country, with “off the charts” usage charts and customer satisfaction close to 100%. Cook claims iPad “is an extremely good business over the long term,” but won’t predict when the turnaround might come. Not mentioned is the alleged longer replacement cycle that some suggest is a main reason for iPad sales declines. This means that people are hanging onto their gear far longer before buying a new model.
Cook claimed they are “clearly seeing cannibalization” from the iPad to the iPhone and Mac. No doubt the success of the iPhone 6 Plus includes a number of people who might have otherwise bought iPads. But Cook says he expects the situation to stabilize going forward. The IBM partnership is said to still be in the early stages, but he expects to see the iPad play a huge part in that program.
All in all, however, I have little doubt that Apple is cherry picking the good news, and certainly there hasn’t been much iPad news of note since last fall’s release of new models. Rumors of a forthcoming 12.9-inch iPad Pro remain rumors. Even if such a product were to come to be, it wouldn’t happen for a while, though I suppose the business orientation of an iPad Pro could mean there will be news about it during the WWDC, if such a thing exists. I also expect an upgrade to the 15-inch MacBook Pro with Retina display by summer, assuming quad-core Intel Broadwell chips are available in sufficient quantities. Apple clearly is benefitting from the continued growth of Macs despite the overall decline in the PC market.
Apple Watch will be available in more countries by June says Cook. While preorders and overall deliveries were not mentioned, he claimed that there are 3,500 apps available for Apple’s smartwatch platform, compared to some 1,000 apps originally expected at launch. Consumer response, he said, was “extremely positive,” close to 100%. It may not seem that way if you read the tech blogs, where glitches have been reported, such as slow launch times for third-party apps and other irritants. But perhaps those complaints are mostly confined to the early production units Apple seeded to selected members of the media.
Still, Apple didn’t say anything about actual preorders and deliveries. This is quite unlike the usual launch weeks for iPhones and iPads. Is that a harbinger of bad news, or just adjusting to the new ordering scheme, where most sales are being made online, and shipments are still backed up for weeks? But clearly Apple has real data out there that they could have revealed if they felt the news was better than analysts expected.
Cook also attacked third-party bill of materials estimates that claim to judge what it costs to make an Apple product. Cook said they’re usually off base, remarking “I’ve never seen one that’s even close to accurate”
For the money movers in our audience, Apple’s share buyback program was increased from $90 billion to $140 billion. The dividend was increased for the third time in the past three years, to 52 cents per share, with claims that Apple is among the largest dividend payers in the world.
All in all, Apple did extremely well. But I’m sure the critics will seize upon something to complain about. They always do, and the lack of meaningful information about Apple Watch sales might be a good start.
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