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The 5 Biggest Revelations from Apple’s Earnings Call

6 minute read

Apple’s earnings report may not have revealed any huge surprises, but don’t let that fool you: There was plenty of interesting information packed inside the quarterly financial report card it delivered to investors Oct. 27.

Unlike Google last week, Apple’s stock didn’t surge after it reported earnings. Unlike Twitter, it didn’t tank either. Apple’s stock bumped up about 2% in after-hours trading. The company reported revenue and profit slightly above Wall Street estimates. Again, nothing exceptional. Apple typically manages to come in slightly above expectations.

Apple, though, is not only the tech industry’s biggest and most obsessed-over company, it’s the closest Silicon Valley has to a single-proxy stock. So it’s worth digging into its details for insightful nuggets. Here are five we found:

-China is becoming Apple’s most important market. Apple’s sales to China have doubled in the past year. The company can thank the iPhone 6 Plus for that, having tailored the super-sized smartphone and its assortment of shiny colors especially for that market. All told, iPhone sales rose 120% in mainland China last quarter, a period when the market for other smartphones contracted. App Store sales rose even faster, at 127%.

If Apple has its way, that’s just the start. It’s opened 25 retail stores in the country and will open another 15 by next summer. It’s signed up a million developers to work with its App Store and will introduce Apple Music later this year. China’s economy may be growing more slowly than in years past, but CEO Tim Cook says he can’t see it. “I wouldn’t know there was any economic issue at all,” he said in the conference call discussing earnings.

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The iPhone has been resilient in China, where there are countless knockoffs, because Apple is an aspirational brand for the middle class. And that middle class will keep growing for years. “We’re investing in China for the decades ahead,” Cook said. “Our own view is that China will be Apple’s top market in the world.”

-iPhone sales are in a lull, but there’s plenty of growth left. Wall Street loves to debate about Apple and how long its growth can continue. Bears have been arguing that the iPhone–now 63% of Apple’s revenue–is reaching a saturation point in many countries. The bulls maintain that things will pick up next year when the iPhone 7 ignites sales, just as the release of the iPhone 6 did last year.

Apple’s earnings offered both sides ammunition. iPhone shipments may be up 22% over the past year (before the iPhone 6 sales fully took off) but they’re up only 1% from a quarter ago. Shipments to emerging markets ex-China are slowing. Overall, Apple shipped 48 million iPhones in the quarter, below the 48.7 million analysts had expected.

Apple had some encouragement for bulls too. The current quarter is the first one when Apple will have to face direct year-over-year comparisons with iPhone 6 sales. Bears had warned that Apple wouldn’t top the $74.6 billion sales of the December 2014 quarter, but yesterday the company forecast sales as high as $77.5 billion, which would mark a 4% gain.

That’s not great, but remember that this is an “S” year for the iPhone–an alternate year without a major release. Still, the company said, demand for phones continues to outstrip supply. Part of that demand is coming from a growing number of Android phone users switching the iPhone. Last quarter, Apple said, a record 30% of iPhone sales came from people abandoning Android.

-The iPad, however, isn’t doing so hot. Sales of iPads fell to 9.9 million units, down 20% from a year ago and down 10% from a quarter ago. It’s also short of the 10.2 million figure that analysts had been expecting.

Apple certainly isn’t failing in tablets. It still claims 73% of the market and a 97% satisfaction rate among iPad owners. It’s just that people are happy to hang onto their iPads for several years–longer than the typical two-year replacement cycle that many smartphone users have grown accustomed to.

The iPad is also competing against Apple’s own products. The 8-inch iPad Mini isn’t much bigger than the iPhone 6 Plus. The 12.9-inch iPad Pro isn’t a far cry from the MacBook Air. CFO Luca Maestri told Bloomberg he’s seeing “cannibalization” of the iPad, but that he’s not worried. Neither are analysts. “Nobody’s asking about iPad on the call,” Cook noted when talking to analysts yesterday. For now, that’s probably a good thing.

-Those old-school Macs are selling better than newer products. iMacs and MacBooks may look like dinosaurs in this era of mobile computing, but they are still key to Apple’s growth. Apple sold a greater-than-expected 5.7 million Macs last quarter, a 19% increase over the previous quarter thanks to back-to-school season.

Revenue from those Mac sales totaled $6.9 billion, or 21% of Apple’s total revenue. Meanwhile, the “other products” segment including Apple Watch and Apple TV made up only 9%. Apple has signed up only 6.5 million paying subscribers to Music—a fraction of its iPhone user base—while Apple Pay continues to struggle against its entrenched competitor: cold, hard cash.

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-Apple continues to generate ridiculous amounts of money. It’s a game that never seems to get old: How much cash does Apple have? Current tally: $206 billion, including marketable securities, up from $155 billion a year ago. That’s after Apple returned $47 billion to investors through dividends and buybacks.

In other words, Apple has more cash on hand than Microsoft ($99 billion), Google ($73 billion), Amazon ($14 billion) and Facebook (also $14 billion) combined. In the past year alone, Apple’s business generated $81 billion in cash, more than the entire cash Google has on hand right now.

Apple’s revenue growth this coming year will almost certainly fall below the 22% rate of fiscal 2015. Analysts are predicting something closer to 5%. An iPhone 7 or newer products could revive growth beyond that.

In the meantime, Apple can lay claim to being a company with well over $200 billion a year in revenue and one that earns nearly a quarter for every dollar of revenue it brings in. That alone puts it among the most successful companies in any industry.

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