By Daisuke Wakabayashi
Apple Inc. is pulling off a feat rarely seen in any industry,
much less the cutthroat world of consumer electronics: gaining
market share while also commanding higher prices.
Led by the larger-display iPhones it introduced last fall, Apple
on Monday said it sold 61.2 million iPhones in the three months
ended March 28, up 40% from the year-earlier period. Many of those
sales came in emerging markets, including a 72% gain in the number
of phones sold in China.
The average selling price of an iPhone during the latest quarter
was $659, up more than $60 compared with a year earlier.
The company said its newest phones are luring more customers
away from rivals. "We're seeing a higher rate of switchers than
previous iPhone cycles," Apple Chief Executive Tim Cook said in an
interview with The Wall Street Journal.
In the six months since Apple introduced the new iPhones, the
company's revenue increased by more than $29 billion, compared with
the year-ago period. That is roughly equal to Nike Inc.'s annual
revenue in 2014.
Apple said Monday its gross margin, a closely watched measure of
profitability reflecting the percentage of revenue that remains
after manufacturing costs, was 40.8%, above its estimated range of
38.5% to 39.5%.
Apple boosted its dividend 11% Monday and its share-repurchase
program by $50 billion, 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.
Buoyed by the strong earnings, Apple's cash pile continues to
grow, despite the company's aggressive efforts to repurchase shares
and pay dividends. At the end of March, Apple's cash totaled $193.5
billion, up from $178 billion at the end of December. That is
greater than the market capitalization of all but 15 other
companies in the S&P 500.
Since it began its capital-return program in 2012, Apple said it
has returned $112 billion to shareholders. Over the same period,
its cash hoard grew by $76 billion. The latest update means Apple
plans to return an additional $88 billion in cash to shareholders
over the next two years.
Apple's revenue growth is coming in large part from China. The
greater China market--defined by Apple as China plus Hong Kong and
Taiwan--passed Europe to become the company's second-biggest
region. Revenue grew 71% during the quarter, a peak shopping period
for the country because of Lunar New Year.
"There are more people moving to the middle class in China than
I've ever seen before or could ever imagine," said Mr. Cook. "The
size of the market and the love of the smartphone, in particular
the iPhone, is incredible."
Apple's revenue gains abroad come despite the impact of a
stronger dollar, which means sales in other currencies translate to
fewer dollars.
Apple said the foreign-exchange impact reduced its revenue
growth by six percentage points. In the current quarter, Apple
expects the currency impact to grow to eight percentage points.
Another worrying sign is the continued slump of the iPad in the
face of larger-screen smartphones and ever-lighter laptop
computers. Apple said iPad unit sales fell 23% in the second
quarter.
Chief Financial Officer Luca Maestri said demand was muted in
markets other than Japan and China.
On the other hand, Apple's Mac line of personal computers is
gaining market share against competitors. Mac unit sales rose 10%
in the March quarter from a year earlier, compared with a 7%
decline for the overall PC market, according to International Data
Corp.
Apple's latest hardware product, the Apple Watch, started
shipping Friday. So far, availability is limited for the new device
with Apple's website estimating that new orders won't be delivered
until June.
Nonetheless, the Apple Watch isn't expected to deliver a major
earnings impact for the company in the near future. Mr. Maestri
said the Watch would carry lower profit margins than the rest of
Apple.
Mr. Cook said he "feels really good" about the orders for the
Watch, noting that demand is still running ahead of supply.
Strong iPhone demand underpinned a 33% increase in profit for
Apple's fiscal second quarter. Net income totaled $13.57 billion,
versus $10.22 billion in the year-ago period.
Earnings per share rose more sharply, to $2.33, from a
split-adjusted $1.66, because the company's stock-repurchase
program reduced the share count.
Revenue rose 27% to $58.01 billion from $45.65 billion in the
year-ago period.
The results surpassed analysts' expectations. Analysts polled by
Thomson Reuters estimated that Apple would post earnings of $2.16 a
share on revenue of $56.1 billion.
For the current quarter, Apple again said it expects a gross
margin of 38.5% to 39.5%. It projected revenue of $46 billion to
$48 billion, in line with analysts' estimates for that period.
Apple shares rose 1.3%, to $134.40, in after-hours trading. In 4
p.m. trading on the Nasdaq Stock Market, Apple shares rose $2.37,
or 1.8%, to $132.65.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com
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