Apple's Spaceship headquarters now under construction (Click Image To Enlarge)
Apple shares fell hard after reporting earnings Tuesday, July 21, 2015.
While the company beat expectations for revenue and earnings, iPhone sales were softer than expected, leading to stock falling over 7% in after hours trading.
Here are all the big numbers:
- Revenue: $49.6 billion, up 33% annually, versus analyst expectations of $49.4 billion
- EPS: $1.85, up 45% versus analyst expectations of $1.81
- iPhone units: 47.5 million, up 35%, versus analyst expectations of 48.8 million (the whisper number was 50 million)
- iPad units: 10.9 million, down 18%, versus analyst expectations of 10.9 million
- Mac units: 4.8 million versus 4.9 million
- Cash: $203 billion
- Revenue guidance: $49 billion-$51 billion versus $51.06 billion
Overall, the numbers are good. But, analysts were getting all geeked up for a monster iPhone number, which didn't happen.
On the call, CEO Tim Cook explained, in part, why iPhone sales were below analyst expectations.
He said the company had 600,000 fewer iPhones in channel inventory. If those phones had been in the channel, then Apple would not have missed on iPhone units as badly. It would have also led to an extra $396 million in revenue, since the average selling price of the iPhone is $660.
Why did Apple have lower channel inventory? Just because. Cook said the company tries to avoid having unnecessary inventory when possible. If he wanted to smash expectations, he would have shipped the extra 600,000 units, but he doesn't run the company to the 90-day drumbeat of earnings expectations, he said on the call.
Even with 600,000 extra iPhone sales, Apple would have missed expectations.
Despite iPhone sales coming in short of expectations, it was still a strong quarter, with sales up 35% year over year.
On the call, Cook was optimistic about the future of the iPhone. He said Apple had its highest switcher rate from Android ever. He also said that only 27% of the people that owned iPhones before the iPhone 6 launched had upgraded to the iPhone 6 or iPhone 6+. The iPhone has loyalty rates above 86%, which means there's lots of room for growth from upgraders.
Also, sales in China were up 87%, CFO Luca Maestri said on the call.
The other thing of note from the call was information on the Apple Watch. Apple didn't provide any specific numbers, but it did say that sales were above internal expectations. It said the watch sold better in its first 9 weeks than the iPad sold in its first 9 weeks.
The watch was reported as part of the "other" category, but it says the watch was more than 100% of the annual growth in the "other" category. It says iPod, and other accessories dragged down growth in that category.
Overall, it was another good quarter from Apple, despite the fact that investors decided to sell.
Below are tables, charts, and our live blog of the call.
FINANCIAL STATEMENTS
Click Image To Enlarge
Click Image To Enlarge
PRODUCT UNIT SALES
Click Image To Enlarge
Click Image To Enlarge
Click Image To Enlarge
Click Image To Enlarge
Click Image To Enlarge
TOTAL REVENUES
Click Image To Enlarge
Click Image To Enlarge
Click Image To Enlarge
REVENUES FROM SERVICES
Click Image To Enlarge
OTHER PRODUCT REVENUES
Click Image To Enlarge
COMMENTARY:
Notes from the Call
Tim Cook said.
"It's been a busy and exciting quarter."
Apple achieved record results despite reducing channel inventory.
iPhone unit sales grew over 35% and gained share in all geographical segments. Apple saw highest Android switcher rate ever as well.
Tim Cook said.
"Tremendous record quarter for Mac."
App Store revenue grew 24% in the quarter, reporting highest results ever.
Apple Watch demand immediately exceeded supply and Apple delayed the availability in their own retail stores until mid June. Apple has now caught up with demand and Apple Watch is now available in 19 countries. Apple is very happy with customer satisfaction and usage statistics. Apple's own market research shows that 94% of Watch owners wear it and use it every day.
Tim Cook said.
"It's a rare and special privilege to launch a new platform with such promise and potential."
25 leading publishers have been signed for Apple News, including CNN, Bloomberg Business, The Daily Telegraph, and ESPN.
"Millions and millions" of customers are already using Apple Music. 15,000 artists have signed up for Connect. Millions of listeners are enjoying Beats 1.
American Express will add Apple Pay support for corporate cards next month. 700 universities in the US will soon accept Apple Pay. Apple is on track for Apple Pay acceptance in 1.5 million locations in the US by the end of 2015.
Apple doesn't participate in the low end of the tablet market, saying CFO Luca Maestri.
Services revenue has increased 12% over the past year. Services growth was strong in China where App Store revenue doubled year over year.
Apple Watch revenue accounted for over 100% growth in the Other category for the quarter.
Tim Cook is very bullish on iPhone growth in the future given the headroom for Android switchers.
The iPhone 6 Plus is doing well in Greater China and other Asian markets.
The Apple Watch sell-through was higher than the same period for the original iPhone and iPad launches.
Tim Cook said.
"We're convinced that the Watch is going to be one of the top gifts of the holiday season."
Tim Cook talked about the iPad.
"It's not like people have forgotten iPad or anything. It's a fantastic product."
Tim Cood had this to say about China.
"China will be Apple's largest market at some point in the future."
Apple Watch sales have been higher in June than April or May.
If you would like to review the entire Apple earnings conference call with analysts click HERE.
CONCLUSIONS
What stands out clear as mud in the Unit Sales - 4 Quarter Moving Average (5th chart in the Product Unit Sales section) is that Apple is too dependent on sales of the iPhone. iPad and iPod sales are declining as they approach the end of their product life cyles. Although Mac sales were up, growth has been relativelyy flat for the last five quarters.
In my opinion, Apple must have a new hit product because sales of the Apple Watch are not sizzling. The Apple Watch is supposed to be that new hit product, but many forecasters are already saying that the watch will be a flop, in spite of what Tim Cook claims. My gut tells me that the watch is not going to be the runaway must-have product that Apple customers will lust after.
With over $200 billion in cash or convertible investments, you would think Apple would dedicate Manhattan Project resources to developing new products. We keep reading about an Apple TV, and the latest rumor to surface is an Apple electric vehicle. We have designed bigger and faster, more feature-packed smartphones, and a nearly endless parade of mobile apps, but I haven't seen that blockbuster product. Apple Music could become a major revenue contributor, not on the same level as hardware. So Apple better start innovating like crazy or their shares will really nose-dive if there is any hint of a slowdown in iPhone sales.
On a positive note, with only 27% of the iPhone installed base having upgraded to the iPhone 6/6 Plus at the end of Q3 2015, I have a strong feeling that Apple iPhone replacement sales will rebound strongly in the second half of 2015. Most of the future iPhone growth will be from China which represented 26% of Apple's revenues during the quarter.
Courtesy of an article dated July 21, 2015 appearing in The Wall Street Journal, an article dated July 21, 2015 appearing in MacStories, and a press release dated July 21, 2015 issued by Apple,
Follow Me: 
Twitter: turk5555 
Facebook: 797743955 
LinkedIn: turk5555
Comments