Apple delivered a solid earnings report with just about everything in its right place.
For the September quarter, it earned $US1.96 per share on $US51.5 billion in revenue. Its earnings were ahead of expectations, while revenue was roughly in line.
Apple sold 48.05 million iPhones, which is a 22% jump compared to the previous year, and is about what analysts expected.
Investors basically yawned at the results, with the stock going nowhere in after-hours trading.
Apple offered holiday guidance that is a little light of expectations, but is generally fine. If Apple hits the high-end of its guidance, $US77.5 billion, it would deliver 4% growth, which is reassuring to investors who were worried Apple’s growth would go negative.
“Our early take is that the guidance seems to imply flattish (74-76 million) iPhones for December,” wrote Apple analyst Gene Munster in a note shortly after the numbers were released.
He added, “This would imply iPhone units down 1% to up 2% year-over-year. We view this as a relief given investors were bracing for the start of the 6S cycle to be down meaningfully (down 5-8% y/y).”
Here are all the numbers versus expectations:
- Revenue: $US51.5 billion, up 22% year-over-year (y/y), versus expectations of $US51.04 billion.
- EPS: $US1.96, up 38% y/y, versus expectations of $US1.88.
- Net income: $US11.1 billion.
- iPhone units: 48.05 million, up 22% y/y, versus expectations of 48.5 million.
- iPhone’s average selling price: $US670.
- iPad units: 9.88 million, down 20% y/y, versus expectations of 10.2 million.
- iPad’s average selling price: $US432.66.
- Mac units: 5.71 million, up 4% y/y, versus expectations of 5.6 million.
- Gross margin: 39.9% versus expectations of 39.3%.
- Cash on hand: $US206 billion.
- December quarter revenue: $US75.5-$US77.5 versus expectations of $US77.13 billion. If Apple hits the top end of its guidance, revenue will be up 4% y/y.
Here’s a table with all the results:
Live notes from the earnings call
5:03 p.m.: Tim Cook is talking, running over the numbers. Largest absolute revenue growth ever for fiscal year. We returned $US53 billion through dividends and share repurchases. We completed 15 acquisitions. We are ending year on a high note with a record breaking Sept quarter. Momentum remains strong for iPhone.
5:06: Strong interest around the world. Getting great feedback on new features. We exited quarter with demand outstripping supply.
The Mac outperformed the PC market.
Apple Watch sales were up sequentially and ahead of our expectations. I have heard from customers who say the Apple Watch is saving their lives.
5:08: Revenue in China nearly doubled. I just returned from China.
We started taking orders for the new Apple TV and it was a huge first day. We built a new foundation around our TV vision with tvOS.
5:09: Next month we will ship iPad Pro, which will enable new generation of apps.
5:10: Talking about Apple Music: 15 million accounts, 6.5 million paying customers. Bringing Apple Music to China. Apple Pay seeing double digit growth month over month. Apple Pay now supports merchant rewards, popular retailers will come online. American Express will bring Apple Pay to customers in certain global markets this year and next.
5:11: 40 million people using Apple News, says Tim Cook.
5:14: CFO Luca Maestri takes over. China revenue grew 99%. Emerging market strong overall. Company gross margin up sequentially, better than expected mostly due to low costs.
5:15: Talking iPhone … up 120% in Mainland China.
5:16: Next, talk about Mac. Extended running trend of PC market share gains. Mac growth driven by response to new MacBook. Sales of MB Pro remain strong.
5:17: iPad sell through 10.3 million as we reduced inventory. iPad customer metrics remain positive. 97% customer satisfaction. 70% of people planning to buy a tablet plan to buy an iPad, per ChangeWave survey.
In markets where we compete, we do well. We have 73% of tablets over $US200 in US.
5:19: Talking about deal with IBM. Saying IBM saves money with Macs on support costs which would be good for everyone.
5:20: New record for services, due to apps, which was up 25%. Growth in China, App Store revenue up 127%. Momentum in China has been tremendous.
5:21: Revenue from other products up 61% thanks to Apple Watch.
Retail: We opened 7,463 stores worldwide. We expect 40-50 stores in fiscal 2016.
5:22: Cash is up $US2.8 billion. We did $US5.8 billion of term debt. Returned $US17 billion to investors, $US3 billion in dividends, $US14 billion in share purchases. We have done over $US143 billion of our $US200 billion program.
5:24: Outlook time.
5:25: Q&A TIME
Katy Huberty, MS: Low single digit revenue growth, how do you get comfortable Apple isn’t ex-growth?
Tim: Consider the constant currency, if you do that our guidance is 8-11%. We have a 700 basis point FX headwind. It’s quite good underneath that. Zooming out, here’s what I see: We believe iPhone will grow in Q1, base that on what we are seeing from a switcher POV, highest rate on record at 30% last Q. Look at upgraded that were in the install base prior to 6 and 6 Plus and that is in the lower 30%. Our performance in emerging markets, our market share is low, and the LTE penetration is quite low. Also, look at China, as I’ve said before, we see an enormous change in China over the next several years. Latest from McKinsey, look back 50 million in middle class in next 5 years it will be 10X that and we are well positioned there. Not the only market we are working on, impressed with Vietnam, Indonesia, and India.
Apple TV off to a great start, Apple Watch just starting, App Store hit a new record, happy with early days of Apple Music, with people moving from free trial. Enterprise business is not to be underestimated. We have a $US25 billion business built. Our penetration is low, but we have significant actions to deepen that. Everyone I look, I see opportunity.
5:30: Huberty follow up. More you can do in services?
Tim: App Store up 25% last Q. Some of these upgrade programs in the market, we think in aggregate they may reduce upgrade cycles, and the iPhone sold to someone else hits a price point we’re not hitting today, which could fuel the services revenue which we did well on last quarter.
5:31: Gene Munster: How do you think about iPhone upgrade cycle compressing?
Tim: Our view is that we do think the broader upgrade programs, not just ours in retail that is relatively small to total iPhone sales, but the carriers are offering these plans. We think it would have a positive impact. We do like that it creates a market for an iPhone at a different price point. It also seems like from a roll out POV, you will see these plans offered in some derivation in over a dozen countries, not as pervasive as the US.
Luca: From financial perspective, it is a purchase, not a lease, we recognise revenue up front.
5:35: Toni Sacconaghi from Bernstein. Q1 will benefit from 3 extra weeks in China, and more of those initial launch days, only 2 in September Q. So, I guess investor concern December is a structurally advantaged quarter, but if we look out, wouldn’t that point to notably lower seasonal growth in the March quarter?
Tim: We don’t guide beyond December, but I do think about Macro things, Android switcher, iPhone momentum in emerging markets, LTE penetration, upgrade programs, these are not one time things, these are long time things. When you start with low 30s in terms of iPhone 6/6+ that leaves head room beyond December. Our forecasting doesn’t work how you articulated it. To be clear, I am not agreeing with your point.
Toni: Gains from currency hedging, several billion. Currency hedges rolling off and being replaced with hedges that have less of an impact? How will that impact P&L, how will that impact qualitatively or directionally?
Luca: We have portfolio of hedge contracts, provides margins, that diminishes over time. That protection will come off. There are some currencies we can not hedge. I think, and my conclusion the guidance for Q1 is incredible given the FX headwinds. How do we deal with them? We continue to hedge.
5:40: Shannon Cross: Enterprise business, how do you attack that market?
Tim: From a product POV, we change iOS with more enterprise features, and continue with that cadence. From go-to-market, we are working with IBM. Working with 75 ability partners.
5:42: More colour on China?
Tim: If you look at China, we grew 87%. We’ve been able to grow without the market growing (in smartphones). iPhone 6 #1 selling in mainland China, iPhone 6+ was #3. Economic question, which I know there’s been a lot of attention on. If I were to shut off my web and my TV and just look at how many people are coming in our stores and look at our sales trend, I wouldn’t know there was any economic issue at all in China. I don’t know how unique we are in that. I think there’s a misunderstanding in the western world about China. I don’t think Apple’s results are dependent on minor changes. Area that it’s currently operating in, hard to tell a difference at the consumer level, so we’re very bullish in it. We’re investing in China for the decades ahead. As we look at it, our own views is that China will be Apple’s top market in the world and that’s not just for sales, the developer community is growing faster than any other in the world. I was very impressed with the developers I met last week.
5:46: Steve Milunovich: In terms of selling to customers, why 33% for install base upgraded? Clarity on switch number?
Tim: Switchers: Customers who purchased an iPhone and replaced a smartphone, 30% switched from Android. That number is the largest we’ve ever recorded. Huge number.
In terms of 2016 v 2015 new customers. It’s hard to predict. Happy with how we’re doing. I know there is a fixation on the upgrade rate. When I look, I feel good it’s a low number because that means there’s 69% of people out there that haven’t bothered to upgrade, that’s a large number. Do I think it has any link to consistency. iPhone upgrade plans, only future will tell, but seems like it will accelerate upgrades. I don’t know if we will have more new or not, but that is always our objective. Nobody asking about iPad on the call.
5:51: New Goldman Sachs analyst: What per cent of iPhone go to install base?
Tim: I don’t know answer to question.
The reason I can’t answer, we don’t look in aggregate. We look by iPhone model by country, what per cent going to a first iPhone buyer. China as an example, over 50% that bought a 6 and a 6 Plus buying first iPhone. As you move down the line, that goes up. So a 5S is higher in most countries. That gives you a feel for an important market and where the numbers are.
5:53: Amit from RBC: Gross margins. What is FX dynamic?
Luca: puts and takes on this … positive margin from seasonal. Seen commodity market that has been favourable. We expect it to remain favourable.
5:56: Rod Hall, from JP Morgan. Mix on iPhone 6 v 6S? Any difference between that and 5/5S.
The iPhone 6S is the most popular iPhone we sell. Has there been a change? iPhone 6 + 6+ and compare to last year’s 5S, we are doing better at that price point than we were doing previously.
Follow up: can you imagine doing activation from elsewhere?
Tim: We solved that in 2007, but had to change it to scale in a major way. Always in our mind from customer service we want things as easy as possible. There many different plans that people come in for.
AND WE ARE ALL DONE
Business Insider Emails & Alerts
Site highlights each day to your inbox.