The iPhone Is Still King At Apple


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If there was any doubt that the iPhone had a little more juice left in it, then those doubts can be put to bed after last night.

Apple (AAPL) reported fiscal second quarter results that blew past what Wall Street was expecting, as Apple shipped more iPhone units than anyone came close to imagining. Apple shipped 43.7 million iPhones during the quarter, on its way to earning $11.62 a share, generating $45.6 billion in revenue. Apple also shipped 16.4 million iPads, and 4.1 million Macs during the quarter.

As Wall Street increasingly became bearish on the company and its prospects, estimates came down. Wall Street consensus was around 37 million iPhones for the quarter, but Apple was able to show strength in several markets, including China and Japan to boost results.

"iPhone was key in driving our stronger-than-expected results," CEO Tim Cook said on the earnings call. "We gained smartphone share in many developed and emerging markets including the U.S., the U.K., Japan, Canada, Germany, France, Vietnam and Greater China, just to mention a few. In fact, we established a new all-time record for total iPhone sales in the BRIC countries."

What's really important to note is that demand for all three versions of the iPhone, the iPhone 4s, 5c and 5c, were strong, and they were pulling people away from Android, and helping people come into the Apple ecosystem.

Cook noted, "...I think it’s important to point out that if you look at some of the numbers we’re seeing on first-time iPhone buyers, people that bought the iPhone 4s, 85 percent were first-time iPhone buyers, and the 5c, 69 percent first-time iPhone buyers. So these are extraordinary, and as you would expect, these are also heavily Android switchers. 62 percent of the people that bought the 4s switched from Android. 60 percent of the people that bought the 5c switched from Android. And so we’re incredibly pleased with this."

UBS analyst Steve Milunovich, who rates Apple shares buy with a $625 price target, noted things weren't as bad for Apple as they appeared, going into the quarter. "Apple's quarter was far better than we expected and June guidance not as weak as we feared. It appears there is more life in the iPhone opportunity than recognized," Milunovich wrote in a note to clients.

Cantor Fitzgerald analyst Brian White had this to say: "Last night, Apple reported a strong [second quarter] with significant upside in the iPhone and offered up a muted [third quarter] outlook; however, we believe the market had factored in a much weaker forecast and thus we believe was pleasantly surprised last night. As we indicated going into the call, we thought the rollout of the iPhone 6 and entry into a new product category with the iWatch this year would prove more important than last night's financial results."

The next version of the iPhone, dubbed the iPhone 6, is expected to come in two sizes, a 4.7-inch and 5.5-inch version, which many are expecting will continue to reinvigorate growth for Apple, ahead of new product categories and services (most notably, mobile payments and the iWatch).

The lack of a larger iPhone has hurt Apple in some markets, mainly in foreign markets, where these are more common. CLSA analyst Avi Silver thinks the larger phone can make a difference. "Apple cited strong iPhone growth in several emerging markets in Asia (India, Indonesia, Vietnam), yet revenue from other Asia (ex-Japan/China) still declined about 16 percent [year-over-year] as iPhone struggled in other developed Asian markets," Silver wrote in his note. "We attribute this mostly to iPhone screen size, where Apple will be far more competitive [in the near future]... Our following installed base analysis suggests significant pent-up demand for the iPhone 6 product cycle."

Until a new product (or products) can match the breadth and scope of the iPhone, Apple will trade off of iPhone numbers for quite a while. With the company expanding in China and Japan via China Mobile and NTT DoCoMo, the iPhone looks like it's got a few more laps around the track before it's ready to hit the brakes.

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: News Headlines , Technology , Stocks
Referenced Stocks: AAPL

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Chris Ciaccia

Chris Ciaccia

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