By Brian Fitzgerald
Apple continued to defy the problems gripping the rest of the
smartphone market, posting a 33% increase in quarterly profit on
the back of surging iPhone sales and explosive growth in China.
To access the live blog online, click here:
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6:09 pm | by Brian Fitzgerald
That's it from me. Thanks for sticking with the blog, and my
apologies for the technical snafus. We'll dissect the most
interesting pieces with another blog post or two, and make sure you
check out the main earnings story from Daisuke Wakabayashi, which
will be updated.
6:04 pm
I thought the best question was about the Watch. Cook was
challenged over his reaction to the launch, and what it means that
there weren't more "superlatives" around it. Cook held is ground,
saying he couldn't be clearer, but I think the analyst is right.
The color and commentary is more subdued around the Watch than you
might have expected.
6:02 pm
The numbers for iPhone and China were beyond strong, and the app
store and Mac are bright spots. Cook refused to bow to concerns
about the iPad. There will be growth again, he says.
6:01 pm
Analysts were fixated on the operating margin issue. I imagine
they thought the Apple Watch would have less impact as the company
gets away from the launch, but the impact is still there. It's fair
to say that the impact takes some time to work itself out.
5:59 pm
And that's it for the call, wrapping up in just under an
hour.
5:59 pm
"I don't want to speculate" on where it could go. Cook says the
analyst has as good a chance of doing it as he could. It's early
stage changes in media, which is great for customers, he says, and
Apple will be there.
5:58 pm
He is sidestepping the business aspect of this question by
talking about how great HBO content is.
5:58 pm
A question about Apple as a conduit for HBO and similar
products. Is it about selling devices? Expanding revenue. What's
the business here?
Cook says it is about giving the customers something they want,
with ease of use and in environments they are comfortable in.
5:57 pm
Cook reiterates its revenues are up 58% in emerging. BRIC
countries were up 64% -- that's Brazil, Russia, India, China. Cook
says it has to be coming from the middle class. There are only so
many upper-income people. You can't grow like this without the
middle class.
5:55 pm
A question about sales in China. In the past, seemed a lot of
middle class in China were buying. And any color on other markets?
Basically, do you have the right price points with your
demographics?
5:55 pm
A question on why guidance is lowering? Maestri mentions a loss
of leverage from the last quarter, the Watch issue, currency impact
-- all the same reasons.
5:54 pm
A question about that upgrade cycle - the 20%. Cook says he
doesn't have a lot of comparison data on hand or on head, but just
generally that there is significant opportunity for people to
upgrade.
The flipside is that perhaps people don't want to upgrade. But
that's not what Cook is going to say. He sees opportunity.
5:52 pm
A lot of room to fund its program, Maestri says.
5:52 pm
Maestri says there is great value in its stock. That's why so
much of its program is in buying back stock. He says he understands
that Apple has value investors, and he expects to increase the
dividend every year. Apple will continue to generate cash in the
U.S., but a good portion will be funded by debt.
5:50 pm
"We know Apple very well."
5:50 pm
Maestri says the logic hasn't changed over the years.
5:49 pm
He says there are continued investments in the pipeline. The
iPad is a strong business in the long term, Cook says, but he won't
predict when growth will happen again.
5:48 pm
And, as he likes to mention, the usage numbers are off the
charts. No comparison, people use their iPads.
5:48 pm
Cook: Stop having a situation when we don't have to have an
inventory correction. And has there been cannibalization? Yes, from
iPhone and the Mac. We haven't had to deal with that before. "It is
what it is." The IBM partnership is early stage.
The underlying data feels better than the sales numbers, he
says. He points to China data and the first-time buyer data. You
don't get those numbers in a "saturated" market. Cook says he
doesn't buy that theory.
5:46 pm
Follow up question: What will it take to reignite iPad
sales?
5:45 pm
"We're investing a lot across the board," Cook says. Chinese
developers are coming on board -- payments of almost $5 billion,
with half in the past year. He is pointing to the momentum
there.
5:44 pm
Cook is spending a good deal of time on app store and services
in China, and opening stores there.
5:44 pm
He says the iPad had its best quarter ever in China itself --
not the broader region -- at a time when the market contracted.
5:43 pm
He also mentioned that Mac sales are growing in China while the
overall PC market contracts.
5:42 pm
Cook says the 71% gain from a year ago was "incredible." He said
there was a strong holiday season with the New Year. The iPhone led
the way. He said the estimates from Kantar are Apple gaining about
9 points of market share.
5:41 pm
A question about what's going on in China, where the results
were pretty strong.
5:41 pm
I'll throw my lot in here. The iPad is like a giant iPhone, so a
lot of efficiency to capitalize on. Not so with the Watch.
5:41 pm
New categories are like this in the early going, Cook says.
5:40 pm
Cook says there won't be guidance beyond the third quarter. He
says, yes, it is right now lower and no surprise. That makes sense.
He then says the analyst must just be looking at it through a
different lens.
5:39 pm
Follow up question is about the Watch margins. Will they be
lower than the company average?
5:38 pm
Cook reiterates that when demand is greater than supply, it's
difficult to say. "I feel really great about it." Customer response
is "literally" about 100% positive.
5:37 pm
Cook says he is "thrilled," and that's how you should read it.
"Not sure how to say it any clearer than that."
5:37 pm
Asks to put it in context with the iPad.
5:37 pm
A follow up on the Watch. A hardball one -- in the past, Apple
has talked about product launches with superlative after
superlative. But not so with the Watch, where you are much more
modest. Are we reading you right?
5:35 pm
Cook says about 20% of the active install base has upgraded to
an iPhone 6 or 6 Plus, so a lot more to go he says.
5:35 pm
Maestri says the current margin represents the currency impact,
and the Apple Watch launch, where there is a lot of spending for a
new product.
5:34 pm
Question on the switchers. What will that mean for market share
going forward. And any question on margin impact on the Watch? Cook
says it is growing faster than the market itself in multiple
countries. So Apple is bullish, he says. He repeats strength with
first-time buyers.
"It's tough to find something in the numbers not to like," Cook
says casually.
5:32 pm
A follow on R&D spending. What's driving all the spending?
Any products driving it - or bigger bets? Maestri says the current
portfolio is broader than ever - two iPhones, two iPads, the Watch.
So that's a good deal of it. But also some core foundational tech
in house than in the past, he says. And yes, spending on projects
that won't deliver revenue until later. That's why R&D is going
up. It is the core of the company, Maestri says.
5:30 pm
Cook thinks that new countries can be sold in June. On a demand
point, he says it is hard to gauge when there is no product in
stores. He repeats the overwhelenmingly positive reaction. But
Apple is in much better shape in terms of apps, he says. Over 3,500
in the app store for the Watch -- way more than the iPhone or iPad.
Apple had wanted at least 1,000.
5:29 pm
Question about ramping up the Watch. Is it a slow ramp? Cook
asks if that means supply? Analyst says, well, all measures.
Cook wants to separate supply and demand. The latter is greater,
he says. He says Apple was able to give more people Watches over
the weekend than it had expected. So far, we know all this
already.
5:28 pm
Question: What's the effect of currencies? Are you managing it
by adjusting supply?
Maestri has numbers at the ready, cause he knows it is on
people's minds. He reminds that post-hedging impact was expected to
be about a percentage point on margins, and that's exactly what
happened. He expects the impact to continue through the next
quarter. He says the company deals with it in many ways.
"They are part of business," he says. Does that mean it isn't a
"one-time item"? Just asking.
Follow up is asking for more color on this, including on the new
iPhone rate. Cook repeats his comment about phone switchers. He
says a reasonable percentage of first-time buyers are coming in
emerging markets, where growth was up 58%. Would have been higher
without the headwinds.
5:19 pm
On share repurchases, 80 billion were at an average price of
$85.
5:19 pm
Maestri says Apple ended the quarter with $195 billion in cash
plus marketable securities, and more than $171 billion was
offshore. Cue the debate over the corporate tax rate.
5:18 pm
Maestri channels some significant third-party shade: According
toApp Annie, the Apple app store generated 70% more global revenue
in theMarch quarter than Google Play.
5:17 pm
A lot of time spent by Maestri on the iPad. This has happened in
recent quarters. He is touting the leadership of the iPad in
business, and how people who say they are going to buy a tablet
want an iPad. It's meant to counteract numbers that aren't
blockbuster.
5:16 pm
No surprise: the iPhone 6 and 6 Plus drove the 61.2 million
phones sold. That, plus a good mix of higher-capacity units sold,
led to the average selling price of a phone went up$62 to $659, he
says.
5:13 pm
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Maestri is going through the financials now, some of which Cook
already mentioned.
5:13 pm
No word on how many of those people actually received the
watches.
And a reminder that WWDC is only six weeks away. Already.
5:12 pm
Apple Watch. Talking about reaction from the customers who got
them. Response is overwhelmingly positive.
5:11 pm
Incredibly popular with Apple TV users. One of the top app store
downloads.
5:11 pm
HBO Now streaming service gets a nod.
5:11 pm
Moving on to products: New MacBook. "Very happy with response
from customers."
5:10 pm
More on energy farms and renewable energy for the data centers.
"Apple is deeply committed to these initiatives," he says.
5:10 pm
Apple is responsible for creating more than 670,000 jobs across
Europe, he says. He is touting the data centers being created, and
the environmental footprint, but also that a lot of the jobs are
through the app store.
5:08 pm
(And ResearchKit, the science data-gathering app family.)
5:07 pm
Cook is high-fiving on lining up retailers for Apple Pay. Best
Buy is in, but also a health-care payment network, he says. And he
is going through health apps that are being developed through
HealthKit.
5:06 pm
Talking about the $200 in total capital return. More to come.
Cook also mentions that the Discover is now on board with Apple
Pay. That's the last of the big card companies.
5:05 pm
We've made 27 acquisitions in the last 6 quarters.
5:05 pm
One of Cook's favorites: We are growing the Mac while the PC
industry contracts.
5:04 pm
App store had its best quarter ever. Services revenue of near $5
billion is a record.
5:04 pm
Cook: strongest March quarter ever. Higher rate of people
switching to the iPhone than in previous cycles.
5:03 pm
Safe harbor statements now, and Tim Cook and Luca Maestri can be
heard clearing their throats, getting ready.
5:03 pm
The call is under way. Thanks to everyone for hanging around
through the technical difficulties. Hope that doesn't happen
again.
5:02 pm
Interesting wrinkle in the data chart. All of Apple's geographic
revenue segments were down from that ridiculous first quarter. ...
Except China. That region, which includes HK and Taiwan, was
actually up 4%.
4:58 pm
Apple just posted its data sheet for the quarter. You can see it
here. Services revenue was nearly $5 billion. The "other products"
group had revenue of $1.69 billion, down 10% from a year earlier.
I'll be honest, I don't know if any Apple Watch preorder numbers
are included in there. But it does speak to the end of the
iPod.
4:53 pm
Here is the first cut at the earnings story from Daisuke
Wakabayashi.
4:50 pm
We've got a few minutes before the call.
4:50 pm
Revenue from Greater China was up 71% to $16.82 billion. That
compares with $21.3 billion in the Americas region, which was up
19%. Revenue in Japan fell 15% to $3.46 billion.
4:48 pm
Apple is boosting its dividend by 11% and its share-repurchase
program to $140 billion. In all, Apple pledged to return $200
billion to shareholders through buybacks and dividends by March
2017. It had previously promised to return $130 billion by the end
of 2015.
4:46 pm
I'll just chalk that hiccup up to overwhelming popularity and
demand for a live blog from yours truly. Cause the alternatives
just get me all enraged.
4:43 pm
Readers, my apologies. We had some technical difficulties and it
looks like a whole swath of my posts never showed up.
EPS: $2.33 .. this is above Wall Street forecasts.
Revenue is $58 billion, also above what Wall Street expected.
Apple sees revenue in Q3 of between $46 billion and $48
billion.
Net income was $13.6 billion.
The gross margin figure was 40.8%, above Apple's own
guidance.
Sales numbers:
iPad was 12.6 million
iPhone was 61.2 million
Mac was 4.6 million
4:35 pm
Apple does so much business overseas, I wonder what the bite
from the stronger dollar was. It's been a sharp blow to other
companies.
4:32 pm
iPad sales: 12.6 million
4:32 pm
Gross profit margin: 40.8%
4:31 pm
Revenue: $58.01 billion
4:30 pm
Numbers are out:
4:30 pm
I mentioned earlier that Apple doesn't give out guidance on its
profit, but it does talk about margins. Three months ago,
itestimated its profit margin would come in between 38.5% and
39.5%.
4:26 pm
Still waiting. Had I know, I would have made a coffee run. As my
kid says, dangit.
4:22 pm
Still waiting on the numbers. Checking in on the stock, it
finished up 1.8% at $132.65. After hours, the stock is up about a
half-percent.
4:20 pm
I was a big fan of this tweet earlier. Really sums up the past
few years.
Eight years, 9 products, $600 billion of new market value.
Apple's incredible journey in one simple chart. $AAPL
pic.twitter.com/ZFDfTSg4ei
--- Dennis K. Berman (@dkberman) April 27, 2015
4:17 pm
There is a super handy sheet on Apple's site you can look at,
too. Here is the table for Q1 results. And here is the one from a
year earlier, where we'd compare results.
4:11 pm
I still think it's a crazy coup that Apple gets free advertising
from big banks regarding Apple Pay.
4:10 pm
I also expect Apple to talk about how successful Apple Pay is.
There are a bunch of banks and retailers signed up, and Apple can
stay with this for the long hall. I don't know how you measure
financial success easily, and any money made it folded into the
services line on the balance sheet, along with iTunes and the App
Stores.
4:05 pm
I'd like to level set some expectations here: I don't type as
fast as a newswires! So when the numbers come out, I'll get them to
you. Just not like a robot.
4:04 pm
Thanks for the questions, readers. The call is at 5 p.m. ET, and
you can listen here. Mind the instructions about what device or
browser to use. The earnings can come any time after 4 p.m. ET.
4:02 pm
Good readers, you are always invited to share your thoughts in
the comments area. I'm not terribly interested in the Apple v.
Samsung flame wars. Outside of that tired commentary, let us know
what you are thinking. Specifically, if you were able to ask a
question on the conference call, what would it be?
4:00 pm
(Reminder that analyst forecasts on per-share profit are usually
compared with the adjusted figure, not the net income bottom
line.)
3:59 pm
With a few minutes to go before the closing bell on Wall Street,
Apple's stock is up 1.6%. Analysts surveyed by Thomson Reuters
expect earnings of $2.16 a share, compared with a split-adjusted
$1.66 a year earlier. (Apple had a 7-for-1 stock split in
June.)
Revenue is expected to be $56.08 billion, compared with $45.6
billion reported a year earlier. If Apple hits that forecast, it
would have to pass the top end of its own guidance last quarter, at
$55 billion.
3:56 pm
And, of course, we're looking for some sense of how sales of
Apple Watch went during the preorder period, and perhaps the launch
weekend. I'm not hopeful for specific numbers, but I wouldn't be
surprised if CEO Tim Cook doesn't say the activity has blown past
the company's expectations.
Remember, the Apple earnings sheet doesn't include the Watch on
its own line, like the phone, tablet and computer. That goes in the
"Other Products" category, which also includes Beats, Apple TV and
now the iPod. But we know Apple didn't make enough of the Watches
for the launch. Let's see what else the company has to say.
3:51 pm
Another area to keep an eye on is Apple's cash position. It was
at a staggering $178 billion three months ago. We're watching to
see if Apple ups its program to return money to shareholders. It
has less than $30 billion to go by the end of the year to fulfill
the current plan.
3:49 pm
Outside of the smartphone sales, there are a couple of other
things to watch in the earnings report and during the call. One is
sales in the Greater China region, which includes Taiwan and Hong
Kong.
China is an increasingly important market for Apple, and deals
struck there have helped the company push ever-more products. For
Q1, the company reported sales of $16.14 billion. A year ago,
revenue from the region was $9.29 billion.
3:46 pm
It's important to keep those numbers in mind. Apple Watch and
Apple Pay ate up the majority of news headlines in recent months.
The MacBook gets a lot of attention, and even Mac computer sales
have been shining. The iPad continues its downward trend, suffering
from twin challenges of a slower upgrade cycle and bigger-screen
phones eating into demand for tablets. Despite all of that, the
iPhone is the story.
3:43 pm
What will Apple do for an encore? Don't expect sales to match
that heady number from Q1. Still, Apple is expected to show robust
growth in phones from a year earlier.
Analysts polled by Fortune Magazine think Apple sold 56.8
million iPhones, 30% more than the same period a year ago. That's
still pretty impressive. Analysts at FactSet are expending a
similar number of around 55 million, according to CNN Money.
3:37 pm
Yes, it's second-quarter earnings even though the calendar year
is typically the end of the first quarter. Apple's first quarter
includes the holiday season. Three months ago, the company had a
bonkers quarter.
To put it more professionally, it was the most profitable
quarter of any publicly traded company ever. It was all thanks to
sales of the iPhone, with hit 74.5 million thanks to Apple's new
pair of bigger-screened phones.
3:34 pm | Welcome! | by Brian Fitzgerald
Hello everyone. Thanks for stopping by our live blog for Apple's
second-quarter earnings and the company's call with Wall Street's
financial analysts.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires