Earlier this week, Apple (NASDAQ: AAPL) announced a stellar quarter. Not only did it manage to turnaround the declining iPad sales, but it also promised a better outlook. The performance helped send the stock to record high levels.
Apple’s third quarter revenues grew 7% over the year to $45.4 billion, ahead of the Street’s forecast of $44.89 billion. EPS of $1.67 was also ahead of the market’s projected earnings of $1.57 per share.
By segment, Apple’s iPhone revenues grew 3% over the year to $24.8 billion. iPhone sales grew 2% over the year to 41 million units. The market was looking for sales of 40.7 million units. The iPhone was launched ten years ago and has sold more than 1.2 billion units since launch. Apple is gearing up for the much awaited tenth anniversary edition of the phone, to be released later this year.
The biggest surprise for the quarter though were iPad sales. For the quarter, iPad revenues grew 2% over the year to $5 billion compared with the market’s forecast of $3.95 billion. iPad sales increased 15% to 11.4 million units. Mac revenues grew 7% to $5.6 billion as units sold improved 1% to 4.3 million. This was also an impressive quarter for its Services segment which saw revenues grow 22% to $7.3 billion. Revenues from other products grew 23% to $2.7 billion.
By region, Apple’s revenues from the Americas grew 13% over the year $20.4 billion and sales from Europe grew 11% to $10.7 billion. Revenues from the Greater China region continued to fall and reported a decline of 10% to $8 billion. Revenues from Japan grew 3% to $3.6 billion and from the rest of Asia Pacific improved 15% to $2.7 billion.
For the current quarter, Apple forecast revenues of $49-$52 billion, with a gross profit margin of 37.5%-38%. The Street had a consensus of $49.2 billion in revenues with gross margin of 38.3%.
Apple’s iPad Surge
The big news in the quarter was Apple’s impressive iPad sales. Last quarter, Apple had recorded a 12% decline in iPad sales. In the current quarter, iPad sales grew 15% over the year. The impressive iPad turnaround was attributed to the lower priced options that were released in the March ending quarter. The lower-cost iPad and the iPad Pro saw significant adoption in schools and the enterprise segment. Sales of iPads to the US education sector grew 32% to 1 million. Apple had been losing this market to Chromebooks. It has also attracted organizations like Walmart and Bank of America as they plan to launch tablets across their business. The iPad is also being liked by first-time buyers from China and Japan who are looking for a cheaper tablet.
Apple and China
China continues to be a market of concern for Apple and it appears to be taking whatever measures are needed to make sure it finds an ally in the Chinese government. It recently announced the removal of an entire category of privacy apps from its Chinese market-oriented App Store. The move was to ensure that the Apps available on the store were in line with Chinese regulations. Apple had to remove apps that provided virtual-private-network services to deliver encrypted connections from a device to the rest of the Internet. The apps would ensure that the Internet providers and other third parties, including government agencies, are not able to see the websites that the user has visited.
It is also setting up a new data center in China as part of a planned $1 billion investment in Guizhou province, supporting the Chinese government plans of turning Guizhou into a tech hub.
Apple and Augmented Reality
Apple is increasing focus on the augmented reality (AR) segment. It is already gearing up the upcoming iOS 11 with AR capabilities and claims that once released, the operating system will become the world’s biggest AR platform. The new OS will be available in the upcoming iPhone, which is expected later this year. Apple will be releasing an AR toolkit in the OS so that software developers can create new AR apps. Besides helping drive iPhone sales, the AR capabilities are expected to help drive Apple’s services revenues upwards as well. Apple is targeting to double its Services revenues by the year 2020.
Its stock is trading at $157.14 with a market capitalization of $819.3 billion. It touched a record high of $159.50 in after hours session post the result announcement. It has recovered from the low of $102.43 it had fallen to in September last year.