The iPhone is still the engine behind Apple’s phenomenal success, even if attention lately has been focused on its new smartwatch.
And Wall Street media was raving Monday evening after Apple reported its latest strong quarter.
While skeptics question whether the company’s future is tied too much to one product, the iPhone’s popularity was the reason Apple turned in another blow-out financial report Monday. The results far surpassed most analysts’ expectations for the first three months of the year, when sales traditionally fall from their holiday-season peak.
- Inside Apple’s earnings: Torrid iPhone sales, especially in China, are driving Apple’s success and are likely to continue. (WTW INsider)
Apple sold more than 61 million iPhones in the quarter, accounting for more than two-thirds of its $58 billion in revenue for the three-month period and the lion’s share of its $13.6 billion in profit.
As expected, the numbers were down from the previous quarter, when holiday shoppers bought a record 74 million of Apple’s new iPhone 6, 6 Plus and older models. But the 61 million was a 40 percent increase over the number of iPhones sold in the first three months of 2014.
The news produced a list of positive headlines:
- Apple: Not Just Phoning It (The Wall Street Journal)
- Apple Earnings Surge 33% on iPhone Sale (The Wall Street Journal)
- ‘Fast Money;” Apple Is Impressive but Why Aren’t Shares Higher? (TheStreet)
- Deep Dive Into Apple’s Better Than Expected Capital Return Program (Forbes)
- Apple Reports Massive Quarter (Bloomberg)
- China iPhone sales boost Apple; shares up modestly (Reuters)
- China to become Apple’s top market next year? (CNBC)
“We’re seeing great results all over the world,” Apple Chief Financial Officer Luca Maestri told The Associated Press, adding that iPhone sales grew 72 percent in China, where the company has big hopes for expansion.
Other products played a much smaller role. Revenue from Mac computers rose 2 percent from a year earlier, to $5.6 billion, while iPad revenue fell 29 percent, to $5.4 billion — continuing a steady decline in tablet sales.
Apple didn’t report any results for the new Apple Watch, which it began selling this month after the quarter ended. CEO Tim Cook told analysts on a conference call that he was “thrilled” with customer response, but added that it’s difficult to gauge demand because initial supplies are limited. Analysts estimate about 2 million have sold to date, suggesting early demand is healthy but not of blockbuster proportions.
The iPhone is another story. Since it began offering models with bigger screens last fall,Apple has vied with South Korea’s Samsung for the No. 1 position in the global smartphone market. By some estimates, Apple outsold Samsung in the quarter that ended in December, and analysts will be watching closely when Samsung reports its latest results this week.
How rest of Apple lineup is faring:
Apple’s iPhone was again the company’s star in the first three months of the year. The tech giant sold 61 million iPhones, or 40 percent more than in the same period a year ago. That represented about two-thirds of its $58 billion in revenue.
But executives also shed some light on other well-known Apple products in interviews and a conference call with analysts Monday evening.
- iPAD SALES DOWN
Apple’s tablet computing device, once a red-hot consumer gadget, has suffered from a steady decline in sales over the last year. Apple sold 12.6 million iPads in the latest quarter, for about $5.4 billion in revenue. That’s down from 16.3 million iPads sold in the same period a year earlier.
Analysts say consumers are realizing tablets aren’t as useful for some tasks, and they’re also waiting longer to buy new models. Apple CEO Tim Cook said Monday that some potential iPad users are opting instead for the company’s new lightweight MacBook computers, or even the newer iPhone models that have larger screens.
But Cook said he sees a future for the iPad in business settings, where workers can use specialized iPad apps created by IBM and other commercial software developers. “I believe the iPad is an extremely good business over the long term,” Cook said. “Precisely when it begins to grow again, I wouldn’t want to predict. But I strongly believe that it will.”
- MAC SALES UP
At a time when market researchers say the personal computer market is shrinking, Appleis actually increasing its sales of Macs. The company sold 4.6 million Mac desktops and notebook computers in the last quarter.
That’s a lot fewer than the estimated 13.4 million PCs sold by leading PC-maker Lenovo in the same period. But the Mac contributed $5.6 billion of Apple’s revenue last quarter and saw unit sales grow 10 percent, while market researchers at International Data Corp. estimate total PC sales by all vendors shrank nearly 7 percent.
The growth in Mac sales was led by Apple’s MacBook portables, said Chief Financial Officer Luca Maestri, although he did not break out desktop or laptop figures.
- WATCH SALES UNDISCLOSED
Despite repeated questions, Cook and Maestri declined to reveal any sales figures for the Apple Watch, which went on sale this month. The company is currently only accepting orders online and Cook said, “right now, demand is greater than the supply.”
But he said Apple is working to fill orders and expedite deliveries that have been delayed for several weeks, while increasing supplies to the point where Apple will begin selling the watch in more countries by late June. Currently, the watch is being sold in the United States, Australia, Canada, China, France, Germany, Hong Kong, Japan and the United Kingdom.
Maestri also said the watch will contribute to a slight dip in the company’s profit margins during the first quarter that it’s on sale. Cook, however, said that’s typical for a new product when manufacturing and supply chains are still being refined, and he declined to offer any estimate for the watch’s profitability over the long term.
As iPhone sales have surged, so has Apple’s stock. Apple shares have gained more than 50 percent over the last year, making it the world’s most valuable company. The stock closed Monday at $132.65, up 1.8 percent for the day, and was rising another 1 percent in extended trading.
The iPhone isn’t just Apple’s dominant product, said Frank Gillett, a tech industry analyst at Forrester Research. “It’s more than anything else what’s driving the success of their company.”
Market researchers, however, expect smartphone growth to slow down worldwide this year, particularly at the higher price range where Apple competes, as most consumers in industrialized countries have already bought one. That could make it difficult for Appleto maintain its recent pace.
“They’re extremely dependent on the iPhone,” said investment analyst Colin Gillis at BGC Partners. “At some point, the market dynamics change,” he said, adding that the question is what could replace the iPhone if sales begin to slow.
Cook said he’s optimistic about new markets such as China, where Apple has made a strong showing against Samsung and China’s Xiaomi by appealing to a growing middle class. He also said only 20 percent of iPhone owners have purchased the newest models, which he painted as a sign that many more will eventually upgrade to the 6 or 6 Plus.
Maestri, meanwhile, said the company is diversifying with new products like AppleWatch and Apple Pay, which on Monday added Discover to the list of payment cards that work with the service. While he acknowledged these currently provide minimal revenue to Apple, analysts say they have big potential. And they are designed to work closely with the iPhone, which means each may bolster the other’s popularity in the future, Gillett said.
Apple also announced Monday an expansion of its 2-year-old effort to give investors a bigger share of the company’s huge profits. Maestri said Apple will raise its quarterly dividend by 11 percent, to 52 cents a share, and has increased a $90 billion stock buyback program to $140 billion. In total, he said the program will return $200 billion to investors by the end of March 2017.
Apple ended the quarter with $193.5 billion in cash and short-term securities. But since most of that is parked overseas to avoid paying higher U.S. tax rates, Maestri said Applewill likely take advantage of low interest rates to borrow money for the program.
