Apple just announced its fiscal Q3 earnings. The company generally beat analyst expectations with $49.6 billion in revenue and $10.7 billion in net income. However guidance was light and iPhone units underperformed vs. analyst expectations, even though iPhone revenue was up 59 percent over last year.
Of the $49.6 billion, Greater China contributed $13.2 billion which was down sequentially but up 112 percent vs a year ago. Americas generated $20.2 billion in sales.
Here are the device numbers, also reflected above:
iPhone: 47.5 million units; $31.3 billion in revenue (35 percent YoY growth)
iPad: 10.9 million units; $4.5 billion
Mac: 4.8 million units; $6.03 billion
Services: $5.03 billion (a new record)
Other: $2.64 billion
Reiterating that it wouldn’t disclose specific sales figures, Apple provided some color, but not a great deal, on Apple Watch performance. The “other” category where the Apple Watch lives grew by nearly $1 billion sequentially.
Apple CFO Luca Maestri said that more than 100 percent of that growth is attributable to the Watch. Analysts polled by Bloomberg estimated that Apple had sold about 1.9 million Watch units during the quarter, at an average selling price of $499.
Analysts had expected iPhone sales of 48.8 million to 50 million units. So 47.5 million in unit sales for the quarter emerges as a miss. Shares are off in after-hours trading on iPhone growth fears.
Notes from the earnings call:
CEO Tim Cook:
Apple Music “numbers are growing every day.” He says “millions and millions” of people around the world already using it.
Apple Pay in UK launched: 250K locations supporting Apple Pay, including public transportation in London.
Square reader will bring Apple Pay to more SMBs in US. He says Apple adding 80K SMBs accepting Apple Pay each month.
Expects 1.5 million US locations supporting Apple by end of 2015.
CFO Luca Maestri:
We continue to gain significant market share in the PC market and sold a record number of Macs (4.8 million units), especially in larger context of the market contraction.
iPad has 76 percent market share in tablet segment priced over $200.
Services revenue saw an increase 12 percent over last year; $5 billion was an “all-time record.” More than 250K apps in Chinese app store.
Apple Watch contributed significant growth to “other” category. Reiterates that the company won’t be disclosing sales numbers so as “not to help the competition.”
Mobile traffic to Apple’s site equaled PC traffic for the first time.
456 retail stores; 190 outside US
$202.8 billion in cash or equivalents, the majority of which (nearly 90 percent) is offshore
Excepts from analyst questions and discussion:
Question about iPhone sequential decline: Cook says that iPhone growth still outpacing the general smartphone market. There’s still 73 percent of the Apple base who have not upgraded to the iPhone 6. Apple says seeing a very high iPhone switcher rate.
Question about growth markets, margins and exchange rates: Maestri speaks in technical, CFO-like terms about currency exchange rates and global economic conditions. As an aside he says iPhone 6+ has been a huge hit in Asia.
Question about Apple Watch performance: Cook talks about the rationale behind not disclosing Watch sales. Look at “other” revenue category; some things in there are shrinking. He says sales of the Watch “exceeded our expectations.”
Watch sell-through in quarter higher than original iPhone and iPad — and done with fewer points of sale. (Arguing demand is healthy.) He says, “Very good news on sales; but we’re more focused on how the product is positioned for the long term.”
Cook: We’re convinced the Watch is going to be one of the top gifts of the holiday season. Customer satisfaction is “off the charts.” He argues this will translate into sales.
Question about iPhone market share and how Apple thinks about it: Cook — our job is to grow our products regardless of the price. We think that if we do a great job with the product people will spend more because they get more out of the product.
Cook cites growth for Apple in emerging markets as validation of the company’s thinking. He says, “We are expanding the market for our products.”
Question about upgrade cycles: Cook says carrier upgrade plan changes may increase iPhone upgrade frequency.
Question re Apple iPhone maturity, product life-cycle and diversification of revenues: Cook says that he sees many years of growth both for the smartphone market and for the iPhone in particular. He says that Apple can do many things well. He says, “I’m still bullish on the iPad.”
Apple iPad usage rates 6X greater than nearest competitor (unclear on metrics used).
Cook turns Apple’s now-underdog status and lower marketshare as a growth opportunity in both mature and emerging markets.
Question about economic weakness in China: Cook acknowledges market volatility and potential “speed bumps” but affirms that China will be Apple’s largest market in the near future. We’ll be at 40 stores in 2016 in China. Country and region still represent an “Unprecedented level of opportunity.”
Question about currency pressure and Apple price increases and their impact on sales: Maestri says that despite negative currency trends and increasing prices, Apple increased sales and market share in “every market” it competes in.
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