Where other companies disappoint their shareholders, Apple Inc. again demonstrates it is playing in its own league.
“Today we are reporting a historic quarter,” said Tim Cook on the earnings call and he did not exaggerate.
Revenue was $74.6 billion for the three months ending Dec. 27, 2014, a company record and much higher than the $67.4 billion analysts expected. Despite Apple’s knack for low-balling expectations and almost always beating them, this is outstanding.
After all expenses, the company took home $18 billion in net income, another record. The driver of these fantastic results: The iPhone, which now makes up 69 percent of Apple sales.
“Demand for iPhones has been staggering, shattering even our own high expectations,” said Cook. He said the almost flawless execution of the iPhone 6 and iPhone 6 Plus rollout ensured the company could meet demand—and sell 74.5 million units, 46 percent higher than the 51 million it sold during the quarter a year ago.
The iPhone filled a product gap in Apple’s products, the so called phablet, a mixture between a mobile phone and a tablet. Before the launch of the 6 Plus, the Samsung Galaxy Note was the only game in town, but Apple made sure to correct this—and how! Not only did volume go up, but also price, rising from an average of $662 to $687, according to Citigroup.
The success of the iPhone came at the expense of the iPad, however, which sold 18 percent fewer units than the year before. Analysts also point out that tablets have a longer replacement cycle than smartphones, which is dictated by the two-year carrier upgrade cycle.
Apple Macs also did well, selling 14 percent more, but in terms of total sales volume, they make up less than 10 percent of the total.
In terms of geography, China did the best, boosting revenue by 70 percent from $9.5 billion to $16.1 billion, mostly driven by iPhone sales after Apple finally came to terms with the country’s biggest carrier China Mobile Ltd. in late 2013.
And yes, Apple sold its one-billionth-device running iOS, in what Tim Cook calls an “unfathomable milestone.”
Another driver of strong iPhone sales: Apple’s move into the corporate market where it seems to get the better of Android and is taking over users who previously had a Blackberry. For this, Apple teamed up with IBM which is using its client network and systems to get companies to use iOS products. According to Apple’s CFO Luca Maestri, 77 percent of them want to buy iPhones.
Cook also thinks that Apple Pay is off to a good start, as it makes up 2 out of 3 dollars spent on major credit cards using mobile payments. “We are more convinced than ever that 2015 will be the year for Apple Pay,” he says.
Apple seems to defy the notion that nothing can be perfect in this world. It is sitting on a cash pile of $178 billion (another record) and just returned $57 billion to shareholders over the last twelve months.
The only thing preventing the company from doing better is the higher dollar. “Our results would have been even stronger absent fierce foreign exchange volatility,” says Cook.
During most of 2014, the dollar strengthened against most major trading partners, such as Japan and the European Union, but also countries like Brazil and Russia. Only China’s currency remained more or less unchanged.
“During the course of the quarter the biggest impact came from the Japanese yen, the ruble, but also from the euro and the Canadian dollar. Our revenue growth would have been 4 percentage points higher on a constant currency basis,” says Maestri.
He says a currency hedging program lessened the headwinds but he expects the problem to get worse in 2015 as hedges expire and foreign currencies weaken even further. “It goes without saying that at current levels the headwinds will continue to become stronger.”
For the next three months, Apple expects to keep growing, albeit at a lower pace than before, as the positive factors of the new iPhone launch as well as the holiday seasons will be removed.
The company expects revenues of $52 billion to $55 billion, keeping the gross profit margin stable at almost 40 percent.