(Getty Images/Justin Sullivan) Apple delivered a solid earnings report with just about everything in its right place. For the September quarter, it earned $1.96 per share on $51.5 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, $77.5 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: $51.5 billion, up 22% year-over-year (y/y), versus expectations of $51.04 billion.
- EPS: $1.96, up 38% y/y, versus expectations of $1.88.
- Net income: $11.1 billion.
- iPhone units: 48.05 million, up 22% y/y, versus expectations of 48.5 million.
- iPhone's average selling price: $670.
- iPad units: 9.88 million, down 20% y/y, versus expectations of 10.2 million.
- iPad's average selling price: $432.66.
- 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: $206 billion.
- December quarter revenue: $75.5-$77.5 versus expectations of $77.13 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:
(Apple)
Charts
(BI Intelligence)
(BI Intelligence) (BI Intelligence)
(BI Intelligence)
(BI Intelligence) (BI Intelligence) (BI Intelligence)
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 $53 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 $200 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 $2.8 billion.
We did $5.8 billion of term debt. Returned $17 billion to investors, $3
billion in dividends, $14 billion in share purchases. We have done over
$143 billion of our $200 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 $25 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 recognize 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 color 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 percent 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
percent 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
favorable. We expect it to remain favorable.
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
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