So, if you had over $220 billion in the bank, just posted a $10.7 billion profit on nearly $50 billion in sales and achieved a 75% market share in a totally new category you might say that is good news, right? Apple posted record 3rd quarter sales – the best in the company’s history, they increased sales and profit by over 33% year-over-year, and beat their own estimates for the quarter. Apple’s Mac sales went up 9% when all other computer manufacturers’ were declining by double digits. They sold 47.5 million iPhones and beat the Wall Street earnings estimate of $1.81 per share by posting $1.85 per share. Oh yeah, while they didn’t release actual numbers it is apparent that somewhere around 2-4 million Apple watches were sold in the face of constrained supply for much of the quarter. That’s more than either the initial sales of iPhone or iPad and more that all the other smartwatch manufacturers combined!
Okay that’s a lot of good news and certainly paints a picture of a successful company continuing to innovate and generate profits from the money machine that is Apple. But what happened? Apple’s common stock took a beating as it usually does regardless of how good the news may be. Apple’s conservative accounting also revealed that they consciously reduced channel inventory by over 1 million units. This is probably in preparation for new product introductions in the next quarter. If they had chosen to leave those 1 million units in the channel, they would have posted significantly higher sales and profits, too!
The concerns expressed were that perhaps the Chinese market was saturated. Please. There is a vibrant and growing middle class in China that is hungry for Apple’s products and they have just scratched the surface of the market with 40 retail stores. Sure there is some turmoil in the Chinese stock market but that is a very new and very different market and it does not necessarily reflect the state of the economy there. In fact, the Chinese stock market is up something like 99% even with the recent downturn. I agree with the several commentators that this summer sale on Apple stock is a good thing if you are an investor.
Another hidden gem in the report is that Apple’s investment in R&D has exceeded $2 billion for the first time. You can do some good work creating new products and improving existing products when you are spending that much money every three months! Apple set an all-time record for revenue from their “services” category which includes the App Store and reported that revenue from the App Store in China more than doubled year over year.
Apple’s quarterly financial report was mostly good news. There was an expected decline in iPad sales but that decline seems to have slowed a bit and Tim Cook continued to express a lot of confidence in the iPad. There are 35 new MobileFirst Apps from the IBM partnership and Apple expects 100 by the end of the year.
I don’t think you can expect any company to do better than Apple has done this past quarter; they are truly remarkable results with another record-breaking quarter under their belt. Every now and then Apple stock takes a little summer vacation and you can thank the perpetual pessimists on Wall Street for the Apple stock bargains now. Our congratulations to the entire Apple team for an astounding quarter!