ii view: Apple sales exceed $100 billion

iPhone sales are growing again, with the shift to 5G potentially a big pull for consumers. 

First-quarter results to 26 December

• Revenue up 21% to $111.4 billion
• Earnings per share down 35% to $1.68
• Cash dividend of $0.205 per share
• Returned over $30 billion to shareholders

Chief executive Tim Cook commented: 

“This quarter for Apple wouldn’t have been possible without the tireless and innovative work of every Apple team member worldwide. We’re gratified by the enthusiastic customer response to the unmatched line of cutting-edge products that we delivered across a historic holiday season.”

ii round-up:

Smartphone maker Apple (NASDAQ:AAPL) delivered forecast-beating quarterly results, with sales exceeding $100 billion for the first time, buoyed by the launch of its 5G iPhone 12.

iPhone sales jumped by 17% to $65.6 billion following its pandemic delayed launch in October. That's in stark contrast to a one-fifth sales drop suffered in the prior quarter. Overall sales for the Greater China region, recovering fast from Covid, jumped by more than 50% to $21.3 billion.

Apple shares retreated by around 3% in after-hours US market trading, having gained by more than 80% over the last year. Apple remains the highest valued company on the US stock market, worth over $2 trillion. Shares for rival smartphone software maker and Google owner Alphabet (NASDAQ:GOOGL) are up by around a quarter over the last year. Shares for desk-top software maker Microsoft (NASDAQ:MSFT) have gained around 40%.

Apple sales across its product categories rose by double-digits, including a 40% jump in iPad demand to $8.4 billion, and a 24% increase in service sales to $15.8 billion, which includes subscriptions to Apple TV, rival of Netflix (NASDAQ:NFLX). 

Again, under the ongoing pandemic, Apple offered no current-quarter estimates or guidance, but did underline the drag on sales which Apple stores, shut by the virus, had made.

Its total installed base for iPhones is now over one billion, up from 900 million previously. The 5G data capability of its new iPhone 12 could provide a strong reason for consumers to upgrade. Including all its products, the total installed base rises to 1.65 billion. 

Earnings per share of $1.68 exceeded Wall Street expectations of nearer to $1.40. The dividend payment of $0.205 per share matches that paid over the last three quarters - allowing for the July 4-for-1 share split. 

ii view:

The huge success of Apple’s iPhone products both pleases and concerns at the same time.  iPhone sales fell by 3% in its last full financial year and accounted for half of overall group sales. A new version of the iPhone to keep sales growing has become a regular autumn event. Developing other products such as wearables, including watches and services to diversify sales, is also ongoing. 

The pandemic has given Apple both opportunities and challenges. Consumer reliance on technology has increased under work and school from home conditions. Opportunity to test and upgrade devices at local stores has been hindered given virus disruption. 

For investors, the success of the new 5G enabled iPhone 12 is clearly important. Sales during this latest quarter appear to bode well, although some element of deferred sales from the previous quarter is likely to have occurred. Increasing government interest in the dominant positions of tech giants is also worth remembering, as is the ongoing debate on valuations and the possibility of raised corporate taxes under a new US government. 

That said, the move to 5G may provide just the catalyst iPhone sales have been waiting for. 5G is, in theory, 20 times faster than 4G. Service revenues are growing while product customer loyalty remains over 90%. In all, despite some potential for sales to slow as pandemic restrictions loosen, Apple has cemented its place in many investors' diversified long-term-focused portfolios.  

Positives:

• Diverse geographical markets
• Generated record operating cash flow of $38.8 billion

Negatives:

• Sales of its key iPhone product fell 3% over its last financial year
• Elevated valuation

The average rating of stock market analysts:

Buy