Yahoo Finance Apple’s earnings shine to the core
By any yardstick, Apple's second-quarter numbers are huge. The results make it Apple's most successful second quarter ever, and are doubtless good news to Apple CEO Tim Cook, who had watched his company's stock shed 13 per cent over the last month — including a streak of 10 losing sessions over the last 11 trading days leading up to yesterday's analyst call — as investors questioned his ability to sustain torrid growth and his ability to live up to the legacy of company founder Steve Jobs.
"We're thrilled with sales of over 35 million iPhones and almost 12 million iPads in the March quarter," Cook said in a statement. "The new iPad is off to a great start, and across the year you're going to see a lot more of the kind of innovation that only Apple can deliver."
Much of the credit for the rosy numbers comes from Asian-Pacific markets — and China, in particular, where Apple has been selling the latest version of the iPhone since January.
Handset sales are running five times last year's pace, and even Mac sales, which recorded a fairly ordinary 7 per cent rise globally, were up 60 per cent here.
Cook said China accounted for $7.9 billion in revenue during the quarter, 20 per cent of global totals and triple the proportion from only a year ago. A pending deal with China Mobile, the world largest mobile phone operator, will likely accelerate this growth through the rest of 2012.
"It was an incredible quarter in China," Cook said. "It is mind-boggling that we could do this well."
The blowout results buoyed the market's confidence, and drove an overnight resurgence in the stock as investors jumped back on the wagon. The share price, which topped out at an all-time high of $644 in early April, had slumped about $80 since then. The better-than-expected numbers drove prices back above $600 in after-hours trading. But a 9 per cent spike notwithstanding, the company isn't out of the woods yet thanks to a number of challenges in key areas.
Can Apple breathe a sigh of relief?
Chipmaker Qualcomm warned last week it may not be able to ramp production of a key chip for the iPhone 5, expected to bow later this year. Carriers are also increasing the pressure on Apple to accept reduced subsidy rates on handhelds — a move which if they succeed in breaking the vendor's contractual hold on them could erode margins on every device sold.
The company continues to be dogged by litigation on a number of fronts, including an antitrust lawsuit launched by the U.S. Department of Justice over alleged collusion with publishers to drive up the price of ebooks. A similar class action case was just approved in Quebec, and two others in Ontario and B.C. are pending. A bruising tit-for-tat patent war with Samsung continues in at least 11 countries worldwide, further driving fears of distraction and the potential for future royalty and licensing payments to competitors.
The company's need to push aggressively into new product categories also continues to weigh on investors wary of its ability to milk iPhone and iPad sales indefinitely. Its rumoured television offering, expected to be called iTV when it's introduced later this year, could allay those fears, but the TV market poses a uniquely complex set of challenges that could slow down Apple's advances on this new front.
Longer-term speed bumps aside, Apple's Q2 results and the market reaction to them signify the party is still raging in Cupertino, and investors are only too happy to keep dancing. They're content to leave the question of how long the music can play to another day.
A closer look at Apple's Q1 earnings results:
$39.2 billion (U.S.) in revenue, up 59 percent from the year-ago quarter and well above average analyst expectations of $36.8 billion.
$11.6 billion in net income - $12.30 per share — which almost doubled the $6 billion, $6.40 per share from Q2 2011.
Gross margins surged from 41.4 percent last year to 47.4 percent thanks to lower operational and component costs. Expectations had been just below 43 percent.
35.1 million iPhones sold, far ahead of the 30 million prediction on the street and 88 percent more than last year. Apple has sold 109 million of its iconic smartphones in the last year, and they now account for over 50 percent of its overall revenue.
11.8 million iPads sold in the quarter, a 151 percent year-over-year increase. Although this is slightly below the 12 to 13 million the street had expected, the device remains a solid contributor to the company's fortunes. Apple has now sold more than 67 million iPads since introducing the first generation device in 2010. In comparison, it took 24 years to sell the same number of Macintosh computers.
$110 billion in cash reserves, up $12.6 billion over the previous quarter and double over last year. The company recently announced plans to begin paying dividends to shareholders.
Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca
