Apple’s fiscal first quarter earnings are out. And despite Apple’s claim that it’s the “biggest quarter ever,” the massive revenue numbers represent a slight miss. Right now, Apple stock is down slightly.
The company reported $75.9 billion in revenue versus estimates of $76.6 billion. Apple also just missed iPhone sales estimates, reporting 74.8 million unit sales versus expectations of 75 million.
Earnings per share of $3.28 beat expectations, as did gross margin of 40.1 percent. International sales were 66 percent of total revenue. The company said it had net profit of $18.4 billion. The Americas, Greater China and Europe were the company’s top markets, in that order.
Here are the product line numbers:
iPhones: 74.8 million units, $51.6 billion in revenue (off versus expectations).
iPad: 16.1 million units, $7.1 billion in revenue (off versus expectations).
Macs: 5.3 million units, $6.7 billion in revenue (off versus expectations).
Services (including Apple Pay, Apple Care): $6 billion in revenue.
Other (including Apple TV, Apple Watch, Beats products): $4.3 billion in revenue.
Apple is providing fiscal Q2 guidance of between $50 billion and $53 billion. That is worrying to (or will worry) some investors. Analysts expected roughly $55 million.
Some investors were projecting a year-over-year decline in iPhone unit sales, which didn’t happen. The company has more than $200 billion in cash on hand; more than 90 percent of that is outside the US.
Notes from the earnings call:
CEO Tim Cook:
Apple sold almost 50 percent more iPhones in the December quarter versus two years ago. This happened against the backdrop of currency turbulence and economic declines in markets such as Brazil, Venezuela, Russia and other oil-based economies. Cook also discussed how down markets offer Apple opportunities for investment.
Two-thirds of Apple revenue is now generated outside the US, so currency fluctuations have a major impact on Apple revenues.
We saw “incredible momentum” for the iPhone in Greater China. This happened as other companies were seeing declines. Cook says he now sees softness in Greater China.
We saw a greater number of Android switchers than ever in fiscal Q1. Apple’s iPhone loyalty rate is 2X “the next highest brand,” according to third-party research.
Other facts:
More than 3,600 Apple TV apps.
Of Apple Pay, Cook said the company saw accelerating growth in the second half of last year.
10 million Apple Music subscribers.
One billion active devices globally.
CFO Luca Maestri:
Maestri discussed increasing revenue growth in Services ($5.5 billion [without licensing/patent revenue from Samsung]) and said it’s as profitable for the company as other business lines.
He says that corporate buyers are more inclined to buy iPhones than Android.
Mac results: Sales declined four percent year over year. However, the overall market contracted 11 percent. There was 27 percent growth in China.
iPad results: iPad has 85 percent market share of US tablets costing more than $200. He cites a 97 percent customer satisfaction rate, according to third-party survey data.
Apple Watch saw “especially strong results during the holiday quarter.”
Financial analyst questions/answers:
Analysts jump immediately on the disappointing guidance: Why? Is it about international markets? Maestri again discusses the volatility of foreign exchange markets.
Question about iPhone upgrade program. Cook says “We were blown away by the level of Android switchers we saw last quarter.” But he declines to say much about the upgrade program, other than that he’s optimistic about it.
On virtual reality, Cook says he believes it has the capacity to go mainstream. “It’s really cool” he says.
More questions about guidance and its causes.
Question about potential year-over-year decline in iPhone sales for fiscal 2016 (15–20 percent suggested). Question about causes and the broader market. Cook says iPhone units will decline in the next quarter but doesn’t think it’s as grim as analyst suggested.
Cook says that there’s still lots of growth ahead for the iPhone on a global basis, either through first-time buyers in developing markets or Android switchers.
Question about services revenue and opportunity going forward. Maestri says 85 percent of Services revenue is tied to installed Apple user base (Perhaps this is obvious).
Question about Apple’s opportunity in India. Cook reviews the opportunity in China. He says that in a few years, China will have 500 million middle class consumers. “We remain very bullish on China.” Cook adds, “India is incredibly exciting; it’s the third largest smartphone market in the world after the US and China.”
India fiscal Q1 revenue was up 38 percent.
Another question about iPhone outlook. Cook says that 60 percent of iPhone users have yet to upgrade to the iPhone 6 or above.
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