Apple Earnings: Strong iPhone Numbers Fuel Record Fourth Quarter

Yesterday was a big day for Apple (Nasdaq: AAPL). In addition to Monday marking the launch of Apple Pay, Apple’s new mobile payments system, Monday also saw the release of the latest Apple earnings report.
The numbers are in and Apple’s fourth quarter, the three months ending with September 30, was a huge quarter – the best ever September quarter for Apple.
Before I start discussing the many things that went really well this past quarter, let’s take a look at what went not-so-well.
iPad continues to be a weak area for Apple. Despite high satisfaction ratings and high market share, Apple’s iPad sales actually declined when compared to the same period of last year.
The company sold 24% fewer iPads last quarter than in the same period last year.
On the Apple earnings conference call Apple CEO Tim Cook shook off suggestions that the market for tablets is saturated. He pointed out that tablet consumers tend to replace their devices less often than users of laptops and smartphones. He also pointed out that he believes many consumers choose an iPhone over an iPad or a Macbook over an iPad, both of which are totally OK to him.

Apple Earnings News

Mac remains a bright spot for Apple.
Despite the fact that the market for laptops and PCs is forecasted to continue shrinking, Apple again defied the odds and grew revenues from its Mac division by double-digits.
This past quarter Apple sold 21% more Macs than it did in the same quarter of last year, boosting Mac revenues by 18%.
In emerging markets, where the market for laptops and PCs was expected to contract by 7%, Mac sales were actually up 54% compared to the same quarter of last year. That kind of growth bodes well for the future of Apple’s Mac division, especially in the face of a shrinking market for laptops and PCs.
One look at the chart below should tell you just how important iPhone has become for Apple’s financial health.

Source: Business Insider

This past quarter the iPhone was responsible for 56% of Apple’s revenue. That’s why iPhone sales figures are so important to the company. If iPhone sales are strong, chances are the rest of the company’s results were strong.
This was certainly the case in Apple’s fourth quarter.
iPhones sales rose 16% compared to the same quarter of last year, surpassing analyst expectations and even Apple’s own forecasts. Revenue jumped by 21%, suggesting that Apple is selling more of its higher-priced and higher-margin phones than it did last year.
The company sold 39.3 million iPhones in July, August and September, surpassing Wall Street expectations that it would sell around 38 million.

Apple Earnings: The Bottom Line

By all accounts this was a strong quarter. iPhone sales were strong, the launch of iPhone 6 and iPhone 6 Plus were successful and – due to supply constraints – will boost the next quarter’s numbers as well. Margins remain strong and the company clearly has a lot of momentum as it branches into mobile payments and prepares to launch the Apple Watch in early 2015.
The stock didn’t have a major reaction in after-hours trading and I don’t expect a major move in today’s trading. But if you’re an Apple investor looking for piece of mind or are waiting on the sidelines for confirmation that the Apple investment thesis is intact then yesterday’s Apple earnings report was exactly what you were looking for.
Disclosure: I personally own shares of Apple.

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