Tuesday, April 28, 2015

Apple Earnings Surge 33% On iPhone Sales -- April 28, 2015; Apple Announces Significant Increase In Dividend

Disclaimer: this is not an investment site. Do not make any investment or financial decisions based on what you read here or what you think you may have read here. Do not make any decisions about what type of computers to buy or whether to buy a new watch based on anything you read here. Do not make any travel plans based on what you read here. Don't change your views on water fluoridation based on what you read here or elsewhere. Memo to self: stay out of west Baltimore for a day or two.

Spoiler alert: the rest of this page will be devoted to Apple earnings 2Q15; there will be nothing about the Bakken. If you came here for the Bakken, leave now. If you hate Apple, definitely leave now.

Links to some stories that were posted yesterday regarding Apple's 2Q15 earnings:
The numbers:
  • With strong iPhone sales (and perhaps also lower memory prices) providing a lift, Apple had an FQ2 gross margin of 40.8%, up 150 bps Y/Y and above guidance of 38.5%-39.5%. FQ3 GM guidance is at 38.5%-39.5%.
  • Product line performance: iPhone revenue (69% of total revenue) +55% Y/Y to $40.3B; iPhone units +40%. iPad -29% to $5.4B; units -23%. Mac +2% to $5.6B; units +10%. Services (iTunes, App Store, AppleCare, Apple Pay, etc.) +9% to $5B. Other products (iPod, Apple TV, Beats) -10% to $1.7B.
  • Regional performance: Americas revenue +19% to $21.3B. Europe +12% to $12.2B. Greater China +71% to $16.8B. Japan -15% to $3.5B. Rest of Asia-Pac +48% to $4.2B. International sales were 69% of revenue, up from FQ1's 65%.
  • iPhone ASP was $659, down from FQ1's $687 but up from FQ4's $603 (iPhone 6 Plus boost). iPad ASP was $430 vs. $419 in FQ1 and $432 in FQ4. Mac ASP was $1,231 vs. $1,258 in FQ1 and $1,200 in FQ4.
  • GAAP SG&A spend rose 18% Y/Y to $3.46B. R&D spend rose 35% to $1.92B.
  • $7B was spent on buybacks, up from FQ1's $5B. Apple ended FQ2 with over $193B in cash/investments (much of it offshore), and nearly $44B in debt.
  • Apple's increased quarterly dividend of $0.52/share is good for a yield of 1.5% at current levels. The next dividend is payable on May 14 to shareholders on record as of the May 11 close.
The most interesting data point to watch next quarter: the margins on the Apple Watch.

The data points that jump out at me:
  • this was not the Christmas quarter, nor the beginning of the school year, and yet Mac computer sales increased 10%; one will find that PCs overall are decreasing in sales; Apple continues to increase
  • Apple sales in China, at $17 billion (just getting started) almost equal to US sales at $21 billion (mature)
  • average selling price for an iPad has increased
  • margins at 40% are huge (though down from some quarters; IIRC, Apple has had margins as high as 45%
Other data points from one of the linked articles above:
  • for its fiscal 2015 Q2 earnings, Apple posted a 27.5% y/y increase in revenue and a 30% y/y increase in operating income
  • Apple's growth has been fueled by the continuing success of the iPhone 6 and the company's rapid expansion in emerging markets, especially China
30% increase year-over-year! This is a mature company, in a very, very competitive space, been around since only about 1984.
Companies the size of Apple aren't supposed to grow by roughly 30% y/y. The reason Apple shouldn't be growing so fast has something to do with the Law of Large Numbers. Apple has now violated that "law" for the past two quarters. Perhaps that's why the analysts on the conference call seemed so subdued. They were still getting over their shock. 
  • During the company's earnings call, CEO Tim Cook said sales in Greater China rose about 100 percent year over year. 
100% year-over-year in the world's biggest economy.

As predicted:
As many expected, Apple announced an expansion of its capital return program. The program will be increased 50% to $200 billion through March 2017. Apple increased the quarterly dividend to $.52/share, and increased the share repurchase program to $140 billion. Share repurchase funds were about to run out, with $80 billion of the $90 billion allocated already spent. 
More from that fanboy:
According to Cook, the rapid expansion of the middle class in China is what's fueling Apple iPhone sales. As people become more affluent, they are tossing their white-box Android phones for something more upscale. Apple has intelligently positioned itself as that upscale alternative. Apple's retail presence in China, the beauty and elegance of its stores, serve to reinforce the upscale perception.

Most ridiculous column I've seen in the past 24 hours regarding Apple was in Forbes:
With Apple’s billions sitting in the bank, I’m constantly surprised that it hasn’t taken big steps to invest some of this cash into battery technology. If it could increase the power density of its batteries even by 10-15%, it could tempt many users away from  Android and other mobile platforms because the fact of the matter is, every smartphone currently suffers from this issue to some degree.
The writer needs to look at the battery technology used in the new Apple MacBook. 

Memo to self: avoid articles by Antony Leather in the future.

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