Apple Inc. (AAPL): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

By Zacks Investment Research,

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Apple reported better-than-expected fourth-quarter 2014 results, beating the Zacks Consensus Estimate for both earnings and revenues. Going by its standards, revenue growth (12.4% year over year) was modest, as iPhone sales suffered in China on account of postponements there. However, strong Macintosh sales came as a pleasant surprise. We believe that a refreshed product portfolio, Apple Pay and the upcoming Apple Watch will drive the company's top-line over the next several quarters. These should also improve Apple's competitive position in the near term. The partnership with China Mobile is a key positive in Greater China despite pricing-related issues. Moreover, the availability of Microsoft Office and the partnership with IBM will likely boost iPad adoption among enterprises over the long haul. We upgrade our recommendation from Neutral to Outperform and set a price target of $131.00.


Founded in 1977, Apple Inc. (AAPL) is headquartered in Cupertino, CA. Formerly known as Apple Computer, Inc., the company changed its name in Jan 2007. Apple designs, manufactures and sells mobile communication devices (iPhone and iPad), media devices (iPod, Apple TV) personal computers (Mac), and related software, services, peripherals and networking solutions, worldwide.

iPhone remains Apple's flagship product and generated 55.8% of net sales in fiscal 2014. In Sep 2014, the company introduced iPhone 6 and iPhone 6 Plus featuring larger 4.7-inch and 5.5-inch Retina HD displays.

There was still no respite for the tablet computer iPad in fiscal 2014, with net sales down 5%. In Oct 2014, the company introduced iPad Air 2 and iPad Mini 3 with Retina display. The iPod line (iPod Touch, Shuffle and Nano) continued to report weak results throughout the year (net sales down 48%).

Apple's mobile devices run on iOS operating system. In Sep 2014, Apple released iOS 8 with new features for Messages and Photos, predictive typing for Apple's QuickType keyboard and a new Health app.

In September, the company unveiled Apple Watch, which is set to hit stores in early 2015. Apple's mobile payment system, Apple Pay, was launched in Oct 2014. Apple Pay is available on iPhone 6, iPhone 6 Plus, iPad Air 2, iPad mini 3 and the upcoming Apple Watch.

Apple's Macintosh product line (iMac, Mac mini, Mac Pro, MacBook Air, MacBook Pro and MacBook pro with Retina Display) is supported by OS X, its latest version being Yosemite (October 2014). Macintosh net sales increased 12% in 2014.

As part of its overall product ecosystem, Apple launched iCloud service in Oct 2011. iCloud storing and updating music, photos, applications and much more is available on multiple iOS devices, Mac and Windows personal computers, and Apple TV. The company also sells digital content and applications through its iTunes Store, App Store, iBooks Store and Mac App Store.

Apple mainly reports revenues on a geographic basis, namely the Americas (North & South America), Europe, Middle East and Africa (includes India), Greater China (China, Hong Kong & Taiwan), Rest of Asia Pacific (Australia & other Asian Countries) and Retail.

International markets contributed 62% to revenues in 2014. Greater China was the fastest growing segment (up 17% from 2013), which accounted for 16% of the top line. Apple opened 21 new retail stores during 2014, of which 5 were in the United States.

No single customer accounted for more than 10% of revenues in 2014. Apple faces significant competition in most of its markets such as smartphone and tablet, in particular from Asian equipment manufacturers such as HTC and Samsung. In the personal computer segment, its competitors are Hewlett Packard and Dell. Apple's digital music and cloud services business is rivaled by Pandora, Amazon and Google.

Beginning first-quarter 2015, Retail will no longer be reported as a separate segment. Apple's product reporting categories will be iPhone, iPad, Mac, Services and Other Products. iPod sales will be included in the Other Products category along with sales of Apple Watch and revenues from Apple Pay.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: AAPL

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