Apple earnings are out!
The stock is up ~8% in immediate reaction to the news.
Apple shipped 43.7 million iPhones, up 17% year-over-year, blowing away expectations.
Revenue was $45.6 billion, growing 4% year-over-year, also beating expectations.
The iPad number was a giant miss, though. Apple sold 16.35 million, which is a 16% drop on a year-over-year basis.
In the release, CEO Tim Cook said, “We’re very proud of our quarterly results, especially our strong iPhone sales and record revenue from services … We’re eagerly looking forward to introducing more new products and services that only Apple could bring to market.”
On the earnings call, Cook explained the buyback by saying that he thinks Apple is massively undervalued. He believes it has a bright future ahead and the share repurchases are a sign of the board’s faith in Apple’s future.
Read more: http://www.businessinsider.com/apple-q2-earnings-2014-4#ixzz2zkc7kIsM
Apple also announced a 7-for-1 stock split, and an increase in its buyback program and dividend.
Here are the big numbers:
- Revenue: $45.6 billion versus $43.6 billion expected
- EPS: $11.62 versus $10.16 expected
- iPhones: 43.7 million versus 37.7 million expected
- iPhone ASP: $596 versus $610 expected
- iPads: 16.35 million versus 19.7 million units expected
- iPad ASP: $465 v $430
- Macs: 4.1 million versus 4.03 million expected
- iPods: 2.76 million versus 2.99 million expected
- Gross Margin: 39.3% versus 37.7% expected
- Q3 Revenue: $36-38 billion versus $38.1 billion expected
LIVE BLOG OF THE EARNINGS CALL (MOSTLY PARAPHRASED)
5:02 PM Tim Cook is starting the call…
Strongest non holiday quarter ever. Our underlying business is even stronger if you factor in FX and inventory. If you don’t factor that in growth would be closer to double digits.
5:03 PM iPhone was key…
New March record. Demand for each 3 iPhones stronger than predecessor. Gained share in developed and emerging markets. Established new record in BRIC countries.
5:04 PM Software and services
Up double digits. Strong momentum. Almost 800 million iTunes accounts.
5:05 PM iPad …
Sales above our expectations, but below analyst expectations. Here’s why.
2 factors: In March increased channel inventory, this quarter lowered. Continue to believe tablet will beat iPad and Apple will benefit.
5:06 PM Retail…
Angela Ahrendts joining next week.
5:06 PM Over last 6 months, 60 million new registered users.
5:07 PM 2/3 of iPad were new to iPad, 1/2 of iPhone were new to iPhone.
5:07 PM I’d like to thank our talented employees. And our customers.
5:09 PM Update to capital return…
Guiding thoughts: Apple has created tremndous value for shareholders and that will always be our top priority and driving force. Keep investing in our supply chain. Investing in marketing and distribution. Expanding products and services into new categories. Investing through acquisitions. 24 companies in last 18 months.
We apprecite input from investors. Will seek investor input. Regular process allows us to evaluation return of capital. Allows us to be thoughtful.
5:11 PM More on cash…
We decided to allocate cash to share repurcahses, because we think we are undervalued. This is a signal from board and management in the future of Apple.
We understand the importance of dividend so we are increasing and planning for increases going forward.
5:12 PM Now, Luca Maestri …
5:13 PM Running over iPhone numbers…
(We missed some of the numbers but he said India and Vietnam sales more than doubled, Japan was up 50%, China was a record)
5:14 PM iTunes 2.6 billion, up 9%, a new record
5:14 PM 87% of iOS is on iOS 7
5:15 PM Strong performance for Macbook Pro and Macbook Air, Mac gained share
5:17 PM Talking about strong iPad engagement, and Ipad usage at big companies.
5:18 PM iPad has over 95% of education tablet market
5:19 PM 156 billion in cash, down 8.3 billion. 88% of cash off shore. Cash flow up 13.5 billion. 21 billion in capital returns.
5:19 PM We payed 2.7 billion in dividends in February.
5:23 PM More detail on capital expansion…
Have done 46 billion of 60 billion, over 75% with 7 quarters left in program. Have returned cash to investors at a fast pace. Today, we take additional steps. Go to 130 billion. We are increasing size of share repurcahse from 60 to 90 billion. We think company is undervalued. $1 billion of cash for RSUs. $3.29 dividend for shareholders of May 2014. Understand importance of dividend increases. Planning for continued annual increases. Annual payments of $11 billion. All funded with domestic cash which was $18 billion. Will maintain domestic liquidity. To repatriate we would have cash tax consequences, which would not be in the best interset of shareholders. To execute new program, we intend to access debt markets. Domestic and international debt markets, similar to what we did last time.
5:25 PM Now Tim Cook is back…
7 for 1 stock split which will occur in June, want to make it more accessible to a larger number of shareholders. 6 additional shares for each share on the day.
5:25 PM Tim talking about Peter Oppenheimer. Says he never missed guidance.
5:26 PM Oppenheimer is leaving Apple, so Cook is just talking about how much he respects and likes him.
5:26 PM TIME FOR Q&A
5:27 PM Katy Huberty: 800 million accounts is staggering, yet iTunes software sales growth decelerated. How to install base?
TIM: Several things, not just App Store revenues. Look at App store would be different. I do believe we can monetize more than we are from services in existing and new areas. App Store was broad based. In China, growth was triple digits.
5:28 PM Huberty: ASPs… iPhone 5S surprise. Can you charge more in the future? Or strategy to maintain prices?
TIM: We price that we think it’s a fair price for the value we’re delivering. We make decision as we get closer to market.
5:30 PM Bill Shope: Key drivers for June GM?
LUCA: March quarter good. Three reasons. Better volume. Better costs than anticipated. Some favorable mix of both products and services. As we go to Q3, loss of leverage which come from sequential decline in revenue. Less favorable mix. To offset that, partial offset, some cost improvements.
5:31 PM Shope: iPhone sales… North America sales?
TIM: We saw some pressure from stricter upgrade policies. This is US. IPhone strength broad based. US, UK, France, Germany, China Vietnam, had largest total sales of iPhones in the BRIC countries we’ve ever seen. We feel very good that the strength was broad based.
5:33 PM Toni Sacconaghi: Luca on iPhone ASPs down $40, largest sequential decline. What drove that?
LUCA: When you look at $41 decline, about 1/2 was driven by fact that we have continued to do well in emerging markets with the 4S. LAt Am, Asia PAC, Eastern Europe. The rest was primarily as we move away from launch, we have lower capacity mix in our numbers.
5:38 PM Toni: How do you think of replacement cycles?
TIM: There’s a lot there… To be clear on iPhone 4, sold single digit percentage of those, extremely minimal impact on quarter. In terms of general upgrade, some of the programs the carriers are running may increase the upgrade cycle, some areas where customers pay a bit more in the beginning have ability upgrade each year. Some that work that way, some that work the way you’re leaning, and how these balance is difficult to conclude. Smart phone market only 1 billion or so and eventually will take over entire phone market. New users to iPhone in emerging markets. New to iPhone 4S in the 80 percentages in certain large Geos. Gives us a great comfort that we can continue to grow. May not attract to top phone, but in on entry iPhone, great phone on great value, gets them into ecosystem. Macro, see getting people into iPhone bigger than noise around carrier plans. Some help, some work the other way and unclear how those net. Important to know the bulk of things you’re seeing in US are not occuring in other Geos in terms of upgrades. It’s 30%.
5:39 PM Toni: [Missed question]
TIM: Most important thing we do is make great products, you can bet that’s where our attention is. In terms of BOM pressure, you’ve seen it exists but we work down the cost curve. As I said before, we price at a level that is fair for value we’re providing. Not stuck on certain price points. Values that are fair for what we’re delivering.
5:46 PM Steve Milunovich: iPad, what up?
TIM: Good question, let’s talk. When I back up, absolutely the fastest growing product in Apple’s history. First that was instantly a hit in consumer, enterprise and eductation. Sold over 210 million since launch, more than we or anyone thought was possible. Twice as many IPhones in a comparable. Over 7X iPOds. Important to put that in perspective. Looking at it by market, in education we have 95% share. Focus is on penetration, getting more schools to buy. Clear to educators that student achievement is higher with iPad in school than without it. In enterprise, we’re seeing 98% of FOrtune 500 using iPad, seeing according to Good technologies, 91% of activations are iPad, also astonishing number. Enterprises writing apps. This is great for that company and more productive. Just like in education what we have to do in enterprise is focus on penetration, has to been deeper.
As for Office on iPad … if it was earlier, would have been better for MSFT, frankly. There’s a lot of alternatives. I do see it as a key franchise in the enterprise, whole heartedly welcome to the App Store. Our customers responding in a good way. Helps us in enterprise.
Other things: Customer SAT is 98, almost nothign with that. Intention to buy nubmers are good, usage are off the chart, far and exceeding Android.
When I back up, I feel great. That doesn’t mean every 90 days is going to be a number that everybody is thrilled with. Means trend looks very very good.
Thing that drives us are the next iPads if you, things we can do to make the product better. No shortage or work or ideas on that. I can’t help but be excited. I think we did a good job of explaining the gap … channel inventory, we should have been even clearer on.
I am bullish on iPad
5:50 PM Milunovich: No massive acquisitions like Google/FB, what up with that?
TIM: Key thing is to stay focused on things that we can do best and we can perform at a high level that customers come to expect. We feel comfortable expanding and wer’e doing that. Great things we’re working on. Things I’m excited about. We care about every detail and it takes a bit longer to do that. As you know from following us, we didnt ship first MP3, nor the first smartphone or the first tablet. We shipped first successful version of those. Means more to get it right than get it first. YOu can see so many products that wanted to be first but not what customers want from Apple. We’re on the prowl, I suppose you could say [for acquisitions.] Not in a race to spend the most, in a race to make the best products.
5:52 PM Shannon Cross: Competitive landscape for smartphones…
TIM: A lot of moving parts, a lot of acquisitions, a lot of people giving up to some degree, deciding to do other things. The part of the market we’re interested in isthe market that want the best smartphones. We can do well in a number of geographies, some of the numbers we’ve experienced … thru first hald Brazil up 61% Russia up 97% turkey up 56% india up 55% vietnam up 262%. These are not historic strong holds.
5:56 PM Shannon: China…
TIM: All time revenue record $9.8 billion in Greater China. iPhone up 28%, we gained share. Mac up 13%, far outpacing IDC of negative 8%. Look at iTunes software and services, in triple digits. Look at iPad, look at demand, grew by 6%, compares to IDC forecast of a flat tablet market. Did well in every single area in China. People that bought iPhone 4S, 85% were first time. iPhone 5C 65% first time buyers, also heavily Android switchers. 62% switched from Android. 60% of 5C switched from Android. We’re looking at this data and continue to triple Apple retail over next two years. 40,000 points of sales. That’s a low number considering folks in China.
5:58 PM Gene Munster: Apple TV…
TIM: Not a hobby because … Sales over $1 billion from content and hardware, so doesn’t feel right to call it a hobby. From investment, better and better. We have HBO GO and you have to authenticate to use it. Amazon got some older content from HBO… I haven’t had a chance to evaluate, don’t a point of view. If I look at content on Apple TV favorable to the Amazon box. PRetty large install base, feeling good about that business and where it can go.
5:59 PM AND THAT’S IT
Read more: http://www.businessinsider.com/apple-q2-earnings-2014-4#ixzz2zkcJ4C00