Apple Reports Record March Quarter Results of $13.6B Profit on $58B Revenue, Boosts Dividend and Buybacks

[DakotaGuy]

ONE trick ponies are never good, for corporations, in the long-run - all it takes is one miss of the flagship product and the market gets a little scrambly.

Yep that is the only worry I can see. Apple is a "one hit wonder" and iPhone must continue to hit on all cylinders or it's lights out.

Maybe the Apple Watch will be the next iPhone, but I doubt it. I think it will end up like the iPad. Start out moderately strong... hit a peak... and then go downhill from there.

 

[gugy]

Yeah... that poor $5.8 billion in revenue on $1.3 billion in profit. 10%. Really hurting them. *sarcastic*

Apple will NOT give up on the Mac, trust me! Not with those kind of numbers! Most companies would KILL KILL KILL to have desktop computer sales numbers like that.

Don't worry about the Mac folks, Apple will continue to invest in it.

E

Exactly,

Also the fact content for iDevices are being created on Macs and Apple is very well aware of that.
I really don't see Apple ever ignoring the Mac. They need it in order to provide the content and tools for developers, users, customers, etc.

 

[Rogifan]

ONE trick ponies are never good, for corporations, in the long-run - all it takes is one miss of the flagship product and the market gets a little scrambly.

Strip out iPhone and Apple's revenue are equivalent to Google and only $4B less than Microsoft. I'm sure a lot of companies would love to do $17B revenue in one quarter. And this doesn't include revenue from Watch, new Macbook, new streaming music service or new TV/service. Also Apple Pay is in its infancy. And who knows what else Apple has in the pipeline.

People that make this observation...I'd love to know what they want Apple to do about it. People want iPhones. Apple is selling them as fast as they can make them. I'm just not sure what people expect Apple to do so iPhone is a smaller piece of the revenue pie.

 

[Tycho24]

Then maybe you should be investing in Google?

This is only good advice IF you are a "greater fool" investor... that is; that even though you realize you'd be a fool to buy stock at a specific price- you rely on a greater fool, to pay even more than that.
This is a highly speculative type of investing style, and while it can be VERY lucrative, most of us common folk (& most particularly, holders of AAPL) adopt more of a "buy & hold" strategy.
Don't get me wrong... I sold GOOG to buy my house. I have not a lot of negative things to say about their stock. But I'd DEFINITELY take $10k in AAPL over $10k in GOOG. It feels more grounded in a "this is what we are going to do" approach vs a "won't it be neato if one of these products works out?" approach.

 

[Rogifan]

Yep that is the only worry I can see. Apple is a "one hit wonder" and iPhone must continue to hit on all cylinders or it's lights out.

Maybe the Apple Watch will be the next iPhone, but I doubt it. I think it will end up like the iPad. Start out moderately strong... hit a peak... and then go downhill from there.

Yeah that $17B in revenue from iPad, Mac, AppStore, iTunes, TV, Beats, etc. don't count for anything. Sheesh.

 

[TallManNY]

Or they can just buy something outside the U.S., such as Toyota motors, the bank of China, all the farmland in Africa, or the Amazon rain forest.

Ha ha. I know you are joking. But seriously, they can't buy anything super large without 1 changing the culture of the company by taking in huge numbers of new employees and 2 diluting their crazy high 40% margins.

We've had this discussion now for years. There is nothing for apple to buy with this level of cash. There is more money coming. Cook is really clear. He isn't lying. The smartphone market is not saturated with iPhone 6 users. Folks will buy the iPhone 6s is huge numbers. There is more money coming. The watch will be a success. There is more money coming. The new Apple TV will make iPhone and Watch more valuable. There is more money coming.

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Because the AW will be a failure.

Ha ha. It can't fail at this price. It might not succeed if folks don't like smart watches. But it can't fail, and by that I mean actually lose money. Not at the margins it sells for. And all the reports I read from folks who have the watch, they are basically pretty positive.

 

[ani4ani]

There are plenty of companies who only do wrong with phones.

I doubt Apple will ever fall into that category.

(and just to be clear... I'm not talking about the handful of smartphone makers who do well... I'm talking about the 50+ smartphone makers who only make garbage phones. Somehow the smartphone industry keeps going even if only 10 out of 60 make money. I don't know how.)

I think it is absolutely inevitable that at some point they will make a phone that just doesn't cut it, or someone else makes something that folks want more. Look what happens to Samsungs performance when it happens to them and they have a whole portfolio of other products to underpin them, whereas 70% of Apples revenue is pegged to to 2-3 handsets.

 

[sunspot42]

Next, they're going to iPhone the Mac

If you look at these numbers - which were just incredible for a non-holiday quarter - the one thing that stands out (as many have already noted) is just how much Apple depends on iPhone revenue. They really, really need another product to spread out their base a little more, and the iPad doesn't look like it's going to be that product anytime soon. They control a large percent of the tablet market - an even larger percent of the "not-junk" tablet market - and it's still only good for around 10% of their revenues. Maybe Apple can get the enterprise to adopt the iPad more than it already has, but I doubt that's going to carry them past 15%. The enterprise just doesn't have enormous demand for content consumption devices.

However, Apple only has something like 10-15% of the personal computer market, so there's tremendous room for growth there. They've been squatting on the high-end of that market for years now, but I think there's an opportunity for them to release machines that are still distinctly superior to their competitors in the space, but at more reasonable prices. I think if Apple could shave 25-30% off the price of their systems they'd pick up another 10-15% of market share, making them easily the dominant PC manufacturer and ultimately adding billions to the bottom line each year. I also think it would dramatically expand their position in the enterprise, which in turn would help the position of the iPhone and iPad in the enterprise.

I'd watch over the next 12 months to see if Apple moves toward making the Mac cheaper and more appliance-like. The new Mac Book might be the (high-end) example of the type of systems that are going to come from Apple going forward. At $1,300 that's not going to light the world on fire, but similar machines going for $800 a year from now would certainly attract a lot of interest and are not outside the realm of possibility. Likewise, with the iMac I think there's room to drop the price without scaling back the capabilities, and that would certainly buy Apple marketshare in the home.

 

[mcarling]

Ha ha. I know you are joking. But seriously, they can't buy anything super large without 1 changing the culture of the company by taking in huge numbers of new employees and 2 diluting their crazy high 40% margins.

We've had this discussion now for years. There is nothing for apple to buy with this level of cash. ...

Actually, there is one good investment for Apple to make with $200B in cash: repurchase and retire AAPL stock.

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[Apple] control a large percent of the tablet market - an even larger percent of the "not-junk" tablet market ....

Apple control 100% of the "not junk" tablet market.

 

[Velli]

It's ridiculous. Even the talking heads on CNBC and Bloomberg are surprised the stock isn't up more after hours. iPhone killed it, margins were good, capital return program to $200B and provided strong guidance. This was a record March quarter (and didn't even include new Macs or Watch) and the after market reaction is meh. Oh and yeah I mentioned Google, but I could have mentioned Amazon or Microsoft as well.

Well, that's the thing about the stock market. People say it's based on expectations of the future. I think that's misleading, it's actually based on expectations of future expectations... The stock market is not (only) about expectations of a companys future income. It's about expectaions of how much the stock itself will grow, so that I can make a profit. Whether the company itself makes a profit in that process, is, to the stock buyer, often less important. If the market thinks the stock is already high, a huge quarter just makes the risk of falling down later more plausible. Which in and of itself makes that happen...

I'm not a stock analyst, but to me it makes perfect sense that the stock doesn't soar. That the iPhone 6 kills it is old news, and as such already reflected by the stock. Precicely how much it sells, is less important in the grand scheme of things. What the market is waiting for, is to know how well the watch does, and this quarter doesn't tell us that. So, even though this is a fantastic quarter, the stock market won't really reflect that before we have evidence that the watch is doing well.

Trying to rationalize the stock market won't work.

 

[firewood]

Actually, there is one good investment for Apple to make with $200B in cash: repurchase and retire AAPL stock.

Better to buy the stock of some offshore companies with the massive tax advantage in equivalent buying power that that would give them over purchasing any U.S. based stock.

 

[Bigsk8r]

Well, it's nice to know that Tim, Jony, Eddie, and the rest won't be worrying about where their next meal is coming from.

 

[mcarling]

Better to buy the stock of some offshore companies with the massive tax advantage in equivalent buying power that that would give them over purchasing any U.S. based stock.

That Apple's cash is offshore is not as big a problem as people often seem to think. Apple USA can float bonds to raise cash in the US, which is not a taxable event. Apple's offshore subsidiaries could buy those bonds, which is also not a taxable event. That would move the cash, untaxed, to the US lawfully and would create debt from Apple to Apple which Apple could rollover forever.

Of course, since others are keen to own Apple debt i.e. keen to lend Apple money, Apple do not need to buy their own bonds.

 

[Michael Scrip]

I think it is absolutely inevitable that at some point they will make a phone that just doesn't cut it, or someone else makes something that folks want more. Look what happens to Samsungs performance when it happens to them and they have a whole portfolio of other products to underpin them, whereas 70% of Apples revenue is pegged to to 2-3 handsets.

I think that because Apple only makes 2-3 handsets... they'll be extra careful to NOT make a huge screw-up.

Hell... remember all the whining on this forum when the iPhone 6 had those horrible antenna lines? Or the protruding camera? Oh no! What has Jony done?

Best-selling quarter ever.

We're in the 8th year of the iPhone... I think they know what to do. Anything can happen though... I don't have a crystal ball. But I feel like I've heard all this before.

Apple usually plays it pretty safe. However... if they came out with something that looks like this... then I'd worry:

Also... it's difficult to compare Apple to Samsung.

Samsung has had their share of problems. The Galaxy S4 wasn't all that different from the S3... and the S5 wasn't all that different from the S4.

And then there's Apple who can literally sell the same design for two years!

Plus Samsung sold fewer phones year-over-year... which made their profits suffer.

Meanwhile... Apple's sales have increased.

But yeah... this is always a time when sales stop growing. When that happens though... Apple will be the #2 smartphone maker in the world (or maybe #1) selling over 200 million high-margin iPhones a year.

And that's the key: not only does Apple sell a ton of phones... they make a lot of money on each phone.

Even if iPhone sales slowed down to around 150 million iPhones a year... they'd still make more money than nearly every other handset maker.

 

[h00ligan]

I think it was only discussed by politicians as well as industry and there lobbyists. AFAIK, such a tax holiday would have to be passed by Congress (as part of the budget).

Eventually they'll reconcile a discount as they are more than aware half of what they could have is more than non of what they have.

 

[s2mikey]

If you look at these numbers - which were just incredible for a non-holiday quarter - the one thing that stands out (as many have already noted) is just how much Apple depends on iPhone revenue. They really, really need another product to spread out their base a little more, and the iPad doesn't look like it's going to be that product anytime soon. They control a large percent of the tablet market - an even larger percent of the "not-junk" tablet market - and it's still only good for around 10% of their revenues. Maybe Apple can get the enterprise to adopt the iPad more than it already has, but I doubt that's going to carry them past 15%. The enterprise just doesn't have enormous demand for content consumption devices.

However, Apple only has something like 10-15% of the personal computer market, so there's tremendous room for growth there. They've been squatting on the high-end of that market for years now, but I think there's an opportunity for them to release machines that are still distinctly superior to their competitors in the space, but at more reasonable prices. I think if Apple could shave 25-30% off the price of their systems they'd pick up another 10-15% of market share, making them easily the dominant PC manufacturer and ultimately adding billions to the bottom line each year. I also think it would dramatically expand their position in the enterprise, which in turn would help the position of the iPhone and iPad in the enterprise.

I'd watch over the next 12 months to see if Apple moves toward making the Mac cheaper and more appliance-like. The new Mac Book might be the (high-end) example of the type of systems that are going to come from Apple going forward. At $1,300 that's not going to light the world on fire, but similar machines going for $800 a year from now would certainly attract a lot of interest and are not outside the realm of possibility. Likewise, with the iMac I think there's room to drop the price without scaling back the capabilities, and that would certainly buy Apple marketshare in the home.

I believe the laptop and computer market is where their growth can come from. Tablets are stagnating and while they'll always be a market for them, they'd be wise to find something else heading forward. They've made gains in the personal computer market as of late and should keep pursuing it. Maybe go against their usual policy of avoiding lower end products and creating a $500 base Mac laptop or whatever just to get people "in"? This way, they will have tasted the apple way and many will likely buy a higher end Mac next time around.

I know quite a few people that would have loved to try a Mac laptop or whatever but didn't want to spend $1000+ to try one out.

 

[TallManNY]

Actually, there is one good investment for Apple to make with $200B in cash: repurchase and retire AAPL stock.

----------



Apple control 100% of the "not junk" tablet market.

Too bad Apple didn't buy that stock in greater numbers a year ago or two year's ago when the cash pile was only $100 billion.

The tablet market share numbers are ridiculous because they equate an $80 windows or android tablet (and yes that is a price you can get in the U.S.) to an $499 iPad. And that $80 tablet will never see a non-free App downloaded onto it nor a purchased bit of media (music or videos).

----------

That Apple's cash is offshore is not as big a problem as people often seem to think. Apple USA can float bonds to raise cash in the US, which is not a taxable event. Apple's offshore subsidiaries could buy those bonds, which is also not a taxable event. That would move the cash, untaxed, to the US lawfully and would create debt from Apple to Apple which Apple could rollover forever.

Of course, since others are keen to own Apple debt i.e. keen to lend Apple money, Apple do not need to buy their own bonds.

Are you sure about the subs buying the debt and that being a loophole to repatriate the money back into the U.S.? That would be such a large loophole that it would kind of eliminate the whole tax issue.

But yes, Apple can issue debt at insanely low interest rates in the U.S. (I just think it has to be a third party buying it or else it would count as repatriation of the funds to the U.S.) And the interest is tax deductible. That is why I'd really have liked Apple to do an even bigger share buyback last year. Also I think the dividend should have been higher.

 

[patrickcwelsh]

iPads and Services making up the same %. Oh my how quickly the market can change.

 

[sshambles]

Is it just me, or is the Quarterly graph a little odd reading that the grey section (being iPad) looks like it's sold more than iPhones in that they are the highest points and therefore higher on the scale meaning the most amount sold?

Anyone help me out on this?

 

[patrickcwelsh]

Is it just me, or is the Quarterly graph a little odd reading that the grey section (being iPad) looks like it's sold more than iPhones in that they are the highest points and therefore higher on the scale meaning the most amount sold?

Anyone help me out on this?

I see your confusion, but you're reading it a bit wrong. The gray section alone is iPad, not the gray section plus all of the colors below it. Think of it as a pile of gold (fitting). The gray section is only the gold that was earned by iPad sales. Everything underneath it are not from iPad sales, but the iPad sales gold looks really high because its laying on the rest of the gold.

The iPad's peak hits around $75b, but it starts at around $65b, so it actually only adds about $10b by itself ($12.6 according to the article). iPad total sales do not equal $75b.

Hope that helps a little?

 

[finnns2000]

Yep that is the only worry I can see. Apple is a "one hit wonder" and iPhone must continue to hit on all cylinders or it's lights out.

Maybe the Apple Watch will be the next iPhone, but I doubt it. I think it will end up like the iPad. Start out moderately strong... hit a peak... and then go downhill from there.

Spoken like someone who doesn't own one. iPad serves no purpose for many, you leave it at home and can forget about it, the watch will become part of your daily routine.

 

[onepoint]

Since the start of its capital return program in August 2012, Apple has returned over $112 billion to shareholders, including $80 billion in share buybacks.

1. Share buybacks = fewer outstanding shares, increased earnings per share, higher stock price, gains for those still holding shares
2. Higher stock price = price-linked executive compensation up, up, and awayyy!

 

[Rogifan]

So Apple beats on the top and bottom line, beats on gross margins and iPhone sales, increases share buyback and dividends and provides strong guidance for fiscal Q3 and the stock is down 2% this morning.

It's days like today that make me wish Apple was private. I know it's impossible. I know someone could list a million reasons why it's a stupid idea. But it seems absolutely absurd that Apple can report a record quarter and the stock drops 2%. In what universe does that make any sense?

 

[GuitarDTO]

So Apple beats on the top and bottom line, beats on gross margins and iPhone sales, increases share buyback and dividends and provides strong guidance for fiscal Q3 and the stock is down 2% this morning.

It's days like today that make me wish Apple was private. I know it's impossible. I know someone could list a million reasons why it's a stupid idea. But it seems absolutely absurd that Apple can report a record quarter and the stock drops 2%. In what universe does that make any sense?

What doesn't make sense to you? The markets in general are down to start with, the earnings report moreso than ever illustrated that they are the iPhone company and there will be a lot of risk to the stock if they should miss on iPhone sales, the stock has already doubled in a year, many people are taking profits. Makes lots of sense to me.

They need a new, large category (not watch), with lots of growth potential. Otherwise they will be continuing their transition from Growth stock to Stalwart stock. It's the cycle of business life.

 

[DakotaGuy]

Spoken like someone who doesn't own one. iPad serves no purpose for many, you leave it at home and can forget about it, the watch will become part of your daily routine.

Personally I feel the replacement cycle of the watch will mirror the iPad and not the iPhone. You have a lot of people spending between $500-1000 for the watch once the band is included... Are they going to upgrade that every year or two? I doubt it.

We'll see, but I just don't see the watch becoming the next iPhone. Just like the iPad it will take time to see what happens.