Apple-another 18bn in....
posted on
Jan 28, 2015 11:16PM
Interesting that Apple has another record profit. Carl Icahn a large shareholder wants them to buy back more shares. The management team wants to continue R and D spending and pursue strategic acquisitions. Interesting article and conference call text.
Apologies for the formatting issue but the conference call text should be read from the bottom up.
Apple reported it sold 74.5 million iPhones over the holidays. Profit rose 38% to a record high. We live-blogged the report and the call with analysts.
Full story: Apple Sells 74.5 Million iPhones Over Holidays
6:31 pm | Thanks again! | by Brian Fitzgerald
That's all from me.
I've looked through all the comments and I appreciate the input and humor (I think). To answer all of the direct questions: I am Brian Fitzgerald, I made sure I didn't transpose any numbers but thanks for always keeping me honest, and I'll never type faster than the initial blast of headlines aimed at people matching the key metrics to forecasts, sorry.
Thanks again for stopping by. We're live blogging Facebook earnings tomorrow and Google earnings Thursday. See you then.
6:21 pm
At the end of the call, Apple stock is up about 5.4% in after-hours trading. (Not bad, options-market reporter who said it looked like it would be about a 6% swing.) That's not too far off where the stock was at the start of the call, so Cook and Maestri didn't say anything to scare or woo investors.
6:18 pm
The Apple Pay portion was more high-fiving, with some usage stats that seemed buoyant. It's been pointed out that it seems Apple Pay is broadening the user base of people who opt for mobile payments. So check back in a few quarters to see how it is going. The revenue is tucked safely into another line item, so it's hard to say what Apple Pay brings to the company's coffers yet.
6:15 pm
The iPad continues to bob along, nothing impressive but not cratering in the way, say, the iPod did. Cook stayed on message regarding the different upgrade cycle for tablet customers. Though at some point he is going to have to stop saying that it's too soon to tell what that window should be. It's been out for at least four years now. Cook remains optimistic about the business market as a place for iPad growth.
As Daisuke Wakabayashi pointed out in his earnings story, the iPhone's performance provided more than enough cover. Especially with that beefier average selling price that came courtesy of the 6 Plus and more customers opting for chunkier, and more costly, storage models.
6:11 pm
On the Apple Watch, Cook basically acknowledged it is coming in April. I don't recall that month previously being out there -- if not, nice Jedi mind trick by the analyst throwing it out there for Cook to deny if untrue -- but it fits the time frame of early 2015. (Just not the first three months of the calendar year.)
Aside from the launch window, Apple didn't say much other than the usual cheerleading: Cook loves it, developers love writing for it, Cook can't live without it. He didn't say, though, how often he charges it. Come on, analysts! This is why you get follow ups!
6:08 pm
And it’s a wrap.
After all that, let’s circle back to the biggest point: Apple sold a ridonkulous number of iPhones last quarter. Apple is a master of its supply chain, and says it sells everything it makes, but it still ended up running out of phones in its traditional strongholds like the U.S.
This was clearly a result from opening the floodgates of demand for bigger screen iPhones. Yet Cook tried very hard to counter the concerns that it is a “one-time” benefit. He said only a small number of the install base upgraded. I want to re-read the context of the moment, but I recall him saying the number was in the low teens. That suggests the bigger screen will bear fruit for quarters to come.
Another theme, albeit a wonky one, is the strong U.S. dollar. Apple’s message here is that it is continuing to manage the impact well, but it can’t fully head it off.
6:02 pm
Last question: any hurdles to Apple Pay adoption abroad? Cook says, sure, but each country has its own challenges, so there is heavy lifting when scaling up Apple Pay's user base. That said, "It's not something that scares us," Cook said.
6:00 pm
Cook reiterates: Apple saw more new customers to iPhone than ever before, and a higher rate of Android switchers. He doesn't have the numbers is front of him. But the message is clear: there is still a big chunk of the existing installed base of iPhone customers who can still upgrade.
5:58 pm
Next question is on the adoption on iPhone 6 - particularly the 6 Plus. Cook had talked a bit about that, and Android switching. So the analysts are pressing now for more.
5:58 pm
Next question is about guidance for operating expenses going forward. Maestri doesn't show a lot of his hand: we've given you guidance on the coming quarter. We will never underinvest in our business, even though our expense-to-investment ratio was low -- 7.4% in the December quarter. Maestri is confident it can do well going forward.
5:55 pm
Next question is about iPad and businesses. Cook says the iPad is in essentially all Fortune 500 companies. But the deployment is small in each. So there is a lot of room to make up there, and that's why it is working with IBM.
5:54 pm | by uuae
Question on that 100 basis points of impact in the current quarter. Basically, the 100 basis points -- or 1 percentage point -- is the net impact after the hedging. Without hedges, it would be higher. And this is off the prior quarter, not a year earlier.
5:52 pm
Follow up on currency hedging. Maestri says the typical period is 3 to 12 months, and they get replaced with new hedges. This is standard operating business. Apple is happy with how it has done so far.
Cook pops in and points out that there are some markets where you can't hedge - where it is cost-prohibitive, or the tools aren't in place. Then you get the full blast of a strong US dollar.
5:51 pm
Next up: Tell us more about how many people are upgrading on iPhone 6. Cook said it is a number that is barely in the "teens" -- that means there is a big number of people left to upgrade. He also says there are a lot of Android customers left to grab, and plenty of people waiting to get a first phone abroad.
Surprised he mentioned a ballpark number on iPhone 6 upgrades.
5:49 pm
On Apple Pay, he says both the contactless version (pop it near a reader) and the in-app use are going down different paths. Too soon to say how it will go, but Cook twice on this call has called it "the year of Apple Pay."
5:48 pm
Cook said it was a solid quarter. “Something we continue to look at and work on.” He says no more, and acknowledges he is repeating himself. More than 25 million sold so far; Apple doesn’t break out the number.
5:47 pm
A question on Apple TV and the broader vision for the living room. Apple TV -- Throwback Tuesday!
5:46 pm
Cook acknowledges that there is some level of cannibalization on each end -- the Mac and the iPhone -- though he can't put a number one it. But he said there is a bright future.
5:46 pm
Question is why Cook is so bullish on the iPad. Cook says that you won't see "miraculous" changes in these 80-day clips when you look year over year. But the new buyer rates are high, particular abroad.
The idea here is that when the refresh does comes, there is a big install base that is going to do so. The upgrade cycle is longer, he says.
Cook says commerce and usage is high on the iPad. Over the "long arc of time" the iPad is a strong business. He says he is happy with what he sees in the pipeline.
5:42 pm
Follow-up goes to the iPad (which, technically, is a second question, not a follow-up):
5:42 pm
He also pointed out that last year was the launch with China Mobile and carrier promotions in Japan that just aren't going to repeat in the current quarter.
Good question, good answer.
5:41 pm
Next question on revenue guidance. Why is drop in revenue forecast deeper than seen in past Q1 to Q2 transitions?
Maestri parries buy pointing out how much stronger the revenue forecast is from the year earlier. He mentions, again, the currency issue.
5:39 pm
Follow up was on strength of local competition in China. Cook says nothing new and the company is proud of how it is doing. You can see it in the results - mainland China up 100%. The online store has expanded to 350 cities. Online revenue in Chin last quarter was more than what Apple had in prior five years.
5:37 pm
Cook couldn't let the "late" comment pass. He said April is considered early for Apple.
5:36 pm
Cook says his expectations are high. "I can't live without it." (And yet how did he ever?)
5:36 pm
Next question is on Apple Watch, and says it is shipping in April - a little later than desired.
5:36 pm
Follow up gets into whether Apple can spend less to manufacture its phones, thus bumping up its margins. Maestri said Apple feels good about its current margin guidance but that those currency headwinds are a problem.
5:34 pm
Cook said to just look at the next quarter, we are bullish on the iPhone. Cook said only a small fraction of the install base has upgraded so far -- there are more big-screen phones to sell.
Cook also said it is seeing its strongest period of new customer adoption and people switching from Android. So he doesn't think the big-screen upgrade was a one-quarter flash.
5:32 pm
Next question: the sustainability. This is what we talked about earlier on the live blog -- how do you keep this going?
5:31 pm
Next part of the call goes deep into channel inventories.
5:31 pm
So, to be clear, he wouldn't specify which older models like the 5S or C was outperforming in, say, developing markets. Apple doesn't really sell a discounted "value" phone for people who can't write such a big check for the premium new phones. It just sells the older phones.
5:29 pm
Cook says, as he always does, that Apple doesn't break it out. He said the 6 did the best, but they all did well. And he didn't specify if one did any better than another in terms of geography.
5:28 pm
Next question: address the mix. So, how did 6 sell vs 6 Plus.
5:28 pm
Maestri says Apple would prefer to adjust pricing when products launch, but sometimes it has to make a move mid-cycle, like it did with Russia.
5:27 pm
Still, Maestri says, Apple is confident. That was a long question, and the follow up is on pricing power.
5:27 pm
Maestri said the yen and ruble had the biggest impact, but then mentioned a bunch of others like the Australian dollar. He said if currency fluctuations were more stable, Apple could have added four more percentage points to revenue growth.
He says Apple was able to mitigate the impact in part, but that it's going to get even tougher in the second quarter. The existing hedges expire. He said the impact in Q2 would be about five points. Gross margin will take a hit by about a percentage point.
5:24 pm
(I told you.)
5:24 pm
Cross Research gets the first nod. It's about ... CURRENCY!
5:23 pm
On to the questions.
5:23 pm
Apple spend $5 billion buying back 46 million shares, and it paid $2.8 billion in dividends. (It increased its cash position in the quarter by $22.7 billion from the prior quarter.)
5:22 pm
Apple ended the quarter with $178 billion in cash. How are you doing?
5:21 pm
Maestri said Apple had a 200,000 channel inventory decline in iPhones, and only this month reached a supply-demand balance. He's since moved through the impressive Mac numbers and now into iPad. He cites data that shows people who want to buy a tablet plan to buy an iPad.
(It's just that fewer people plan to buy. I believe the argument that people just don't refresh their tablets like the do their phones. They are happy to hold an older tablet longer, and Apple sold a lot of them in those first years.)
5:18 pm
The average selling price for the iPhone was $687 -- up around $50 over a year earlier. That's such a big number, largely due to the 6 Plus but also because more people were plunking down for the higher-storage models, which cost more.
5:16 pm
Maestri is making sure to point out that sales are great not just in the U.S., but in emerging markets and in the BRIC countries -- Brazil, Russia, India, China.
5:15 pm
Greater China was "particularly impressive," he said. He made note of the currency headwinds. The gross margin was above guidance. He didn't say why, but I'm sure someone will ask on the call.
5:14 pm
Cook says results like this take years of work, and thanks the customers. He turns it over to Maestri, who will go through the numbers.
5:13 pm
We're going to keep plugging away at the live blog, but Daisuke Wakabayashi has his first cut at the earnings here. He knows more than I do. Read it.
5:12 pm
Cook says the new iOS apps aimed at the business community are winning over customers. It will release 12 more this quarter and expects to have more than 100 by the end of 2015. That would give a nice base for an iPad Pro, certainly. Come on analysts, ask about a stylus.
5:10 pm
Apple Watch is "on schedule." No new specifics on a release date in that schedule.
5:10 pm
Cook mentions the report today that Apple Pay is available at 200,000 more places through USA Technologies.
5:09 pm
Some 750 banks and credit unions signed on with Apple Pay. Apple Pay makes up more than $2 of $3 spent using contactless payments. "You can use Apple Pay up and down Main Street," Cook says, checking off retailer names like Panera and Whole Foods.
5:09 pm
Cook is tapping off the names it wants you to remember: HealthKit, HomeKit, Apple Pay, CarPlay ...
5:07 pm
Cook is giving a good chunk of the opening statement to Swift, the new programming language for Apple. Says it was downloaded more than 11 million times. I hadn't heard much about it since the launch.
5:06 pm
Apple likes keeping track of its numbers. Cook said Apple shipped its billionth device running iOS -- a grey iPhone 6 plus.
5:05 pm
Apple says it sold around 34,000 iPhones every hour, 24 hours day for the entire quarter.
5:04 pm
"This volume is hard to comprehend," Cook says about iPhone sales.
What's hard to comprehend for investors is how Apple will top this. The big screen was like low-hanging fruit Apple refused to bite for some time. Now that it did, what's next?
5:03 pm
And a reminder that Apple shuffled its product classifications, so you won't see iPod on its own line anymore, for example, and iTunes is now in services.
5:02 pm
We're going through the usual forward-looking statement stuff. Cook and Maestri on the call. It'll be the long high-five statements followed by the Q&A.
Apple also has trouble working its mute button, as someone keeps clearing his throat. They need a Surface Hub.
5:01 pm
Call starts now. Here's the one-pager.
4:59 pm
Sales of "other products" are down from the year earlier, about 5%. It's not broken out anymore, but we're looking at you iPod. Will the Apple Watch resurrect this category by this time next year? To me, that's the line-item replacement for the iPod, which has been consumed by the iPhone.
4:58 pm
If you were keeping track, the iPad units were down from a year earlier. That is keeping with the trend of slowing tablet sales. Apple has taken some steps to bolster the tablet, with new mini versions and the Air 2, and all the work on the business market. But the downtrend continues.
Would the rumored iPad Pro turn it around? Not sure what it could offer businesses that the top-shelf iPad today can't. Does screen size matter that much?
4:55 pm
Revenue overall was up 30%. Revenue from the Greater China region, and that includes Taiwan, was $16.1 billion. That's up 70% from a year earlier. The iPhone is selling in China.
4:52 pm
Less than 10 minutes to go before the call gets under way. What would you ask?
4:51 pm
Apple knows that people are watching that cash pile. In its press release, it pointed out that it spent $8 billion on returning capital, bringing the total to nearly $103 billion -- $57 billion in the past 12 months.
4:50 pm
For the investors out there: Apple declared a cash dividend of 47 cents a share, payable Feb. 12 to shareholders of record as of the close of Feb. 9.
4:48 pm
I'm still taken back by the Mac. At a time when people put their computers in their pockets or their briefcase, Apple is selling more of these desktops than ever before. It just homes in on that high-end customer: Thinking about ditching your desktop? What if you could have a 4K monitor to go with it, though?
4:46 pm
The word “record” is everywhere in this report. Record earnings, record revenue, record iPhone unit sales, record revenue from iPhone, Mac and the App store. Apple said 65% of its sales were from abroad.
4:44 pm
Apple sees second quarter operating expenses of between $5.4 billion and $5.5 billion.
4:43 pm
By recent accounts, Apple is making up ground in smartphone market share -- a hotly debated metric. (Do you care about selling the most phones, or the phones that bring in the most profit. My take is that Apple is all about the profit, but it's not like it doesn't care about share. It had no problem talking about share when the iPad was all there was.)
4:41 pm
That revenue forecast is higher than the $45.6 billion that Apple recorded in the second quarter a year earlier. The iPhone 6 big-screen halo will extend for a bit.
4:39 pm
On to the forecasts:
Apple sees fiscal Q2 revenue of between $52 billion and $55 billion. Remember, it always comes down from the holiday-fueled first quarter.
4:38 pm
The Apple conference call is teed up. You can listen in too here.
4:38 pm
Revenue, EPS, Net, iPhone units -- they all trumped forecasts, and not squeaking by.
4:36 pm
And there goes the stock: up around 5% after hours.
4:36 pm
iPad sales: 21.4 million
Mac: 5.5 million
4:35 pm
iPhone sales: 74.5 million -- that just knocks the forecasts to the ground.
4:34 pm
Sales: $74.6 billion
EPS: $3.06
Net: $18 billion
Margin: 39.9%
4:33 pm
Here we go:
4:33 pm
To Collin's point in the comments, and Apple says itself that its guidance includes currency fluctuations. So there is a lot of baking that has been done on that end.
4:30 pm
And Electronic Arts earnings for all the gamers out there.
4:28 pm
Just waiting on the earnings now, and contemplating how to type fast on this small laptop keyboard I have. Pay no mind to the typos.
4:23 pm
As some readers pointed out in the comments, there is the ongoing situation with Apple's cash hoard, and how it doles that money out to investors through buybacks and dividends. Carl Icahn is watching you, Apple.
4:22 pm
Some other breaking news in the meantime: Yahoo said it is going to spin off its remaining Alibaba stake. Didn't see that one coming.
4:18 pm
With Apple Watch, we're looking for a better indicator on launch timing. That could come in guidance from the company about coming financials, the Journal's Daisuke Wakabayasi wisely pointed out earlier. Cook may give a few more details to make sure the Watch stays on people's minds until launch -- at least on mind beyond how short the battery life will be.
4:16 pm
It would be a surprise if Apple gave any update into how Apple Pay is doing financially. But the company could boast about how many people have activated credit cards, or how many retailers it has brought on board. Last quarter, CEO Tim Cook said more than a million cards were activated in the 72 hours since Apple Pay launched.
4:14 pm
Apple is a highly choreographed company. Anyone tuning in to earnings calls for product announcements are going to be sorely mistaken. Expect to hear about gross margins and a strong dollar. (Actually, you should pay attention to the dollar's impact on Apple's sales overseas. Last quarter, Apple CFO Luca Maestri said it was a significant challenge.)
Still, we should get some sense from Apple about two of its latest offerings: Apple Pay and Apple Watch.
4:12 pm
Let's check in on the stock. Shares finished regular trading down 3% at $109.69 on what was overall a crummy day for equities.
In after-hours trading, the stock is off a few cents. I read earlier that options contracts were projecting a move of around 6% after hours. That's the last thing I will say about puts and calls if I want to keep out of trouble.
4:08 pm
For the "beat or miss" crowd: per-share profit is expected to be $2.60, which reflects that 7-for-1 stock split last June. Net income of $15.3 billion is expected.
Analysts are looking for revenue of $67.7 billion. That's higher than what Apple in October said it expected, when it gave a range of $63.5 billion to $66.5 billion.
4:06 pm
You can watch the other unit numbers, but any change from the recent trends would be a surprise. A year ago, Apple had its best iPad quarter ever but the tablet market has slowed.
iPod sales are disappearing -- literally, as Apple folds the ever-shrinking number into its new "products" category. That group will include accessories, Beats hardware and eventually the Apple Watch.
4:02 pm
Apple will surely get some residual bumps in the coming quarters as people come up for renewal on their subsidized contracts and upgrade to bigger screens. But that "what's next" shadow is already cast.
4:01 pm
The thing about that: While 66 million to 70 million would be a smashing number for Apple, questions are already swirling around how Apple would follow.
The thinking is that the iPhone 6 unlocked a door to pent-up demand for a bigger-screen iPhone. And when I look at my own iPhone 5S, which feels tiny by comparison, it's not hard to understand. Samsung was just eating up customers who wanted those bigger screens.
That's Apple's first-quarter, traditionally its best since it happens over the Christmas holiday period. Now that the iPhone 6 and 6 Plus have been out for an entire quarter, the questions is how Apple follows.
3:56 pm
First off, analysts are looking for a blowout quarter for iPhone sales. The number to watch is 66.5 million. That's how many units analysts polled by Fortune think were sold. It would be a record number. And there are some analysts who think the number could tip higher than 70 million.
3:54 pm | Thanks for stopping by | by Brian Fitzgerald
Hi all. Thanks for stopping by as Apple reports earnings and holds its quarterly call with analysts. The earnings aren't usually released until closer to 4:30 p.m. ET, with the call at 5 p.m., but we'll get into some expectations in the meantime.
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