Notes of interest from Apple's Q1 2016 conference call

AppleInsider · January 26, 2016 10:07PM

Apple's biggest quarter ever was something of a mixed bag for the company --?it sold more iPhones than ever, but the company also expects revenues to fall next quarter. Following the announcement of its first quarter of fiscal 2016 results, executives from the company participated in a conference call with analysts and the media, and notes of interest follow.

Participating in Monday's call were Apple Chief Executive Tim Cook, and Chief Financial Officer Luca Maestri.

Highlights

To start the call, Cook highlighted currency fluctuations impacting Apple's results
Revenue in China was up 14 percent year over year, representing Apple's best quarter ever
Cook admitted there is some short-term volatility in China, but he's confident about the country's economy longer term
Apple TV had its "best quarter by far," Cook said
Apple Watch set a new quarterly record, with an especially strong December
Apple has nearly $216 billion in cash, or $39 per diluted share of AAPL stock
Product install base has grown to over 1 billion active devices

Apple's iPhone business

Cook cited stats that show iPhone satisfaction levels twice that of the next closest competitor.

Sales were up 300,000 from the same period a year ago.

ASP of iPhone was $690, up about $3 year over year.

Number of Android switchers was highest ever last quarter. Cook said Apple was "blown away" by the numbers.

Cook believes emerging markets and improving LTE penetration will help the iPhone going forward.

Cook admitted that Apple believes iPhone units will decline year over year, for the first time ever, in the current March quarter.

60 percent of Apple's install base has not yet upgraded to a larger iPhone 6, iPhone 6s, iPhone 6 Plus, or iPhone 6s Plus.

Apple's iPad business

Maestri cited stats saying that the iPad accounts for 85 percent of the U.S. tablet market.

Apple Watch

Apple once again declined to give any specifics on Apple Watch sales, but did say that the December quarter was the product's best yet.

Revenue in Apple's "other products" category was up 63 percent year over year, thanks to Apple Watch and the new Apple TV.

Apple's Mac business

Though Mac sales were down slightly year over year, Apple still gained overall marketshare amidst a slumping PC market.

Apple's next (Q2 2016) fiscal quarter

Apple is projecting revenue between $50 billion and $53 billion, with gross margins between 39 and 39.5 percent.

Operating expenses are expected to be between $6 billion and $6.1 billion, with other income of $325 million, and a tax rate of 25.5 percent.

ireland · January 26, 2016 10:18PM

The biggest news in iPad sales are down 25% YOY. I think they are levelling out. I also believe what's hurting iPad sales (relatively speaking) is iPads are overpriced and the product family matrix is confusing. Apple needs to cull old iPads and sell new iPad minis and iPad regulars starting at 32 GB for $299 and $399. And add $99 for 64 GB and $219 for 128 GB.

This would be the agreesive move needed the kickstart sales numbers higher again.

jonl · January 26, 2016 10:24PM

Tim's "mother of all balance sheets" and talking at length about services may suggest the direction of future acquisitions.

lowededwookie · January 26, 2016 10:28PM

And expect the stocks to drop because they didn't reach the anal-cysts expectations of $76.9 billion.

ac1234 · January 26, 2016 10:45PM

jonl said:

Tim's "mother of all balance sheets" and talking at length about services may suggest the direction of future acquisitions.

Yes - the Mother of all Balance Sheets and no idea on how to use it to propel AAPL to levels well beyond where it was 3.25 years ago. Listening to Cook lull us to sleep on the call makes me think of Toto pulling the curtain back on the Wizard of Oz - not much behind the curtain.

macky the macky · January 26, 2016 10:50PM

66% of Apple's sales come from outside the USA. I see that as a good sign that Apple is drawing business from all over... no longer relying on USA business like pre-2010.

foggyhill · January 26, 2016 10:54PM

ireland said:

The biggest news in iPad sales are down 25% YOY. I think they are levelling out. I also believe what's hurting iPad sales (relatively speaking) is iPads are overpriced and the product family matrix is confusing. Apple needs to cull old iPads and sell new iPad minis and iPad regulars starting at 32 GB for $299 and $399. And add $99 for 64 GB and $219 for 128 GB.

This would be the agreesive move needed the kickstart sales numbers higher again.

Most of that drop occurred earlier last year and the 2014 holiday season. I think it's mostly going to stabilize.

jfc1138 · January 26, 2016 10:57PM

ac1234 said:

jonl said:

Tim's "mother of all balance sheets" and talking at length about services may suggest the direction of future acquisitions.

Yes - the Mother of all Balance Sheets and no idea on how to use it to propel AAPL to levels well beyond where it was 3.25 years ago. Listening to Cook lull us to sleep on the call makes me think of Toto pulling the curtain back on the Wizard of Oz - not much behind the curtain.

3.25 years ago? THIS "3.25 years ago"?

"

Apple Reports Fourth Quarter Results

26.9 Million iPhones Sold; Record Fourth Quarter Revenue and Profit

Board Declares Quarterly Dividend of $2.65 per Common Share

CUPERTINO, California—October 25, 2012—Apple® today announced financial results for its fiscal 2012 fourth quarter ended September 29, 2012. The Company posted quarterly revenue of $36.0 billion and quarterly net profit of $8.2 billion, or $8.67 per diluted share. These results compare to revenue of $28.3 billion and net profit of $6.6 billion, or $7.05 per diluted share, in the year-ago quarter. Gross margin was 40.0 percent compared to 40.3 percent in the year-ago quarter. International sales accounted for 60 percent of the quarter’s revenue.

The Company sold 26.9 million iPhones in the quarter, representing 58 percent unit growth over the year-ago quarter. Apple sold 14.0 million iPads during the quarter, a 26 percent unit increase over the year-ago quarter. The Company sold 4.9 million Macs during the quarter, a 1 percent unit increase over the year-ago quarter. Apple sold 5.3 million iPods, a 19 percent unit decline from the year-ago quarter."

ETA: I'd drop the title size from my cutandpaste off Apple's news release from back then but I don't know how....

jonl · January 26, 2016 10:59PM

macky the macky said:

66% of Apple's sales come from outside the USA. I see that as a good sign that Apple is drawing business from all over... no longer relying on USA business like pre-2010.

Unfortunately the dollar is so high, and they can't repatriate the money anyway without triggering a huge tax bill. The EU is probably going to hit them up for retroactive billions, and Ireland will no longer be the great tax haven going forward.

rogifan_old · January 26, 2016 11:00PM

The entire conference call was about economic headwinds. Translation: sales were down due to higher prices necessary because of currency headwinds. What stood out to me was 60% of install base hasn't upgraded to a 6 series phone yet. That seems awfully high. So Apple is getting a lot of Android switchers but existing iPhone owners are choosing to stick with smaller phones?

paulmjohnson · January 26, 2016 11:02PM

Apple Watch does actually seem to be a bit of a missed opportunity at the moment, and I can imagine them building on that hugely. I've actually been surprised by how many of them I see around, despite it being limited to iPhone users only.

I get why it has to be paired with a phone, but it doesn't have to be paired with an iPhone. I would assume Apple could release a watch app for Android the same as Android Watch can pair with an iPhone.

The watch at the moment seems a little like the iPod was at launch. The fact is, iPod only really found it's legs when it could be synched via Windows. iPod also proved to be the "gateway drug" for me to get into Apple products (bought my first Mac shortly after my first iPod), and I suspect Apple Watch could be another path to coax Android users across to the Apple ecosystem.

rogifan_old · January 26, 2016 11:06PM

paulmjohnson said:

Apple Watch does actually seem to be a bit of a missed opportunity at the moment, and I can imagine them building on that hugely. I've actually been surprised by how many of them I see around, despite it being limited to iPhone users only.

I get why it has to be paired with a phone, but it doesn't have to be paired with an iPhone. I would assume Apple could release a watch app for Android the same as Android Watch can pair with an iPhone.

The watch at the moment seems a little like the iPod was at launch. The fact is, iPod only really found it's legs when it could be synched via Windows. iPod also proved to be the "gateway drug" for me to get into Apple products (bought my first Mac shortly after my first iPod), and I suspect Apple Watch could be another path to coax Android users across to the Apple ecosystem.

The only reason Apple brought iPod to Windows is because the majority of consumers owned Windows PCs. I have a hard time believing there are many Android phone users that want an Apple Watch. And considering a big chunk of iPhone sales right now are Android switchers why give anyone a reason to stay?

sebastian37 · January 26, 2016 11:08PM

"60% of iPhone users have not upgraded to an iPhone 6, 6s, 6Plus or 6s Plus". Translation: A giant portion of iPhone users is not interested in a bigger iPhone and we left them without an adequate offering for two product cycles in a row. After the niche iPhone 5c this is the second miscalculation concerning the iPhone product line under Tim Cook. Rumors are there will be a new 4inch iPhone this spring. That should help propel sales. I know plenty of people who are still on an iPhone 5 because of the size of the new models.

jonl · January 26, 2016 11:10PM

rogifan_old said:

The entire conference call was about economic headwinds. Translation: sales were down due to higher prices necessary because of currency headwinds. What stood out to me was 60% of install base hasn't upgraded to a 6 series phone yet. That seems awfully high. So Apple is getting a lot of Android switchers but existing iPhone owners are choosing to stick with smaller phones?

The new phones don't do a whole lot more than the older ones (5s, anyway), which still perform pretty well. This will only be an accelerating phenomenon, and it will stretch the upgrade cycle ever longer.

jfc1138 · January 26, 2016 11:11PM

rogifan_old said:

The entire conference call was about economic headwinds. Translation: sales were down due to higher prices necessary because of currency headwinds. What stood out to me was 60% of install base hasn't upgraded to a 6 series phone yet. That seems awfully high. So Apple is getting a lot of Android switchers but existing iPhone owners are choosing to stick with smaller phones?

Well all those older iPhones Amazon, Gazelle etc. buy wind up somewhere so the legacy base just builds and builds (I wonder at what point an iPhone just drops from everywhere and becomes a paperweight?).... and right now 40% of those did drop the smaller iPhones....

jfc1138 · January 26, 2016 11:15PM

paulmjohnson said:

Apple Watch does actually seem to be a bit of a missed opportunity at the moment, and I can imagine them building on that hugely. I've actually been surprised by how many of them I see around, despite it being limited to iPhone users only.

I get why it has to be paired with a phone, but it doesn't have to be paired with an iPhone. I would assume Apple could release a watch app for Android the same as Android Watch can pair with an iPhone.

The watch at the moment seems a little like the iPod was at launch. The fact is, iPod only really found it's legs when it could be synched via Windows. iPod also proved to be the "gateway drug" for me to get into Apple products (bought my first Mac shortly after my first iPod), and I suspect Apple Watch could be another path to coax Android users across to the Apple ecosystem.

The bridging might be a tough one: the code for the watch apps would be iOS while the app on the phone would be Android. That's a lot more than managing music I would think and also the phone does manage the watch to a degree....

But an interesting future option I'd agree.

paulmjohnson · January 26, 2016 11:24PM

rogifan_old said:

paulmjohnson said:

Apple Watch does actually seem to be a bit of a missed opportunity at the moment, and I can imagine them building on that hugely. I've actually been surprised by how many of them I see around, despite it being limited to iPhone users only.

I get why it has to be paired with a phone, but it doesn't have to be paired with an iPhone. I would assume Apple could release a watch app for Android the same as Android Watch can pair with an iPhone.

The watch at the moment seems a little like the iPod was at launch. The fact is, iPod only really found it's legs when it could be synched via Windows. iPod also proved to be the "gateway drug" for me to get into Apple products (bought my first Mac shortly after my first iPod), and I suspect Apple Watch could be another path to coax Android users across to the Apple ecosystem.

The only reason Apple brought iPod to Windows is because the majority of consumers owned Windows PCs. I have a hard time believing there are many Android phone users that want an Apple Watch. And considering a big chunk of iPhone sales right now are Android switchers why give anyone a reason to stay?

I don't know how many of them there will be, but at the same time, even the most ardent Apple fan would have to concede that while Apple have the profits, Android does have the market share in terms of user base.

I concede your point about giving Android users a reason to stay as opposed to switching to iPhone, but you could have made the same argument about the iPod going to Windows.

To me it seems like Apple are seriously limiting their available market by only allowing the watch to work with iPhone, though obviously there is a cost benefit calculation as to whether possibly less Android switchers would be offset by more Watch sales.

paulmjohnson · January 26, 2016 11:26PM

jfc1138 said:

paulmjohnson said:

Apple Watch does actually seem to be a bit of a missed opportunity at the moment, and I can imagine them building on that hugely. I've actually been surprised by how many of them I see around, despite it being limited to iPhone users only.

I get why it has to be paired with a phone, but it doesn't have to be paired with an iPhone. I would assume Apple could release a watch app for Android the same as Android Watch can pair with an iPhone.

The watch at the moment seems a little like the iPod was at launch. The fact is, iPod only really found it's legs when it could be synched via Windows. iPod also proved to be the "gateway drug" for me to get into Apple products (bought my first Mac shortly after my first iPod), and I suspect Apple Watch could be another path to coax Android users across to the Apple ecosystem.

The bridging might be a tough one: the code for the watch apps would be iOS while the app on the phone would be Android. That's a lot more than managing music I would think and also the phone does manage the watch to a degree....

But an interesting future option I'd agree.

Oh absolutely, I'm not suggesting it wouldn't be difficult. Actually even when they did release iTunes on Windows iPod still wasn't "easy" since it was Firewire only at the time, and most PCs didn't have Firewire. I went to buy a Firewire card specifically so I could use an iPod!

Apples got smart software engineers though, and stuff like that can be overcome.

tzeshan · January 26, 2016 11:43PM

I believe China growth is primarily fueled by the availability of LTE on China Mobile the largest China telecom company. And with a larger screen many Chinese are using iPhones as their primary computing device instead of PCs. The question is what is the coverage of LTE worldwide? I think it is not very good in the second and third largest nations in the world, India and Brazil. Without LTE and larger screen why would people willing to spend a fortune buying an iPhone?

rarild · January 26, 2016 11:44PM

Re: upgrading: 60% of iPhone users AS OF Sept. 2014, when the iPhone 6 and 6 Plus were announced, have not upgraded to a 6/S or 6 Plus/S, AS OF December 2015. Those people. That does not mean, however, that only 40% of users NOW have a newer iPhone. Of ALL iPhone users, that is, the installed base, as of December 2015, the percentage of users with a newer iPhone must of course include the expansion of the user base SINCE September 2014 and the apparently very high rate of sale of 6/S and 6 Plus/S iPhones in the last year and half. So, what percentage now, with a new big iPhone, of all users? We dunno. But over 40, it is reasonable to assume.

rogifan_old · January 26, 2016 11:52PM

rarild said:

Re: upgrading: 60% of iPhone users AS OF Sept. 2014, when the iPhone 6 and 6 Plus were announced, have not upgraded to a 6/S or 6 Plus/S, AS OF December 2015. Those people. That does not mean, however, that only 40% of users NOW have a newer iPhone. Of ALL iPhone users, that is, the installed base, as of December 2015, the percentage of users with a newer iPhone must of course include the expansion of the user base SINCE September 2014 and the apparently very high rate of sale of 6/S and 6 Plus/S iPhones in the last year and half. So, what percentage now, with a new big iPhone, of all users? We dunno. But over 40, it is reasonable to assume.

I'm just reporting what Tim said. Clearly the expansion of the install base is driven in large part by Android switchers. I think Apple should launch a 4" iPhone with 4.7" specs to capture those who don't want a larger screen. It could be a larger % of the install base than Apple thought.