Apple's CC: iPad sales, margins, M&A, cash balances discussed


FQ3 iPad (NASDAQ:AAPL) sales were hurt by channel inventory cuts, Tim Cook states on the CC. He adds emerging markets tablet demand is holding up better than U.S. demand - PC sales have been rebounding in the latter - and that Apple is counting on its IBM partnership to boost business iPad sales; U.S. business penetration is pegged at 20%.

Over half of all iPad buyers are still first-time buyers - that points to both growing penetration and relatively low upgrade rates. The tablet market's growth has slowed considerably in recent quarters.

CFO Luca Maestri states cost improvements contributed to the FQ3 gross margin beat; a mix shift towards iPhones (have higher margins than iPads) also didn't hurt. He hints new products are partly responsible for the conservative FQ4 margin guidance.

Also mentioned: 1) Apple has bought 5 more companies since the end of FQ2. 2) The cash balance rose $13.9B Q/Q to $164.5B; 84% of it is offshore. 3) NAND flash, mobile DRAM, and LCD prices fell in FQ3, while PC DRAM prices rose. 4) iTunes revenue rose 8% to $2.6B.

With iPhone mix shifting towards emerging markets, iPhone ASP fell to $561 from $596 in FQ2 and $637 in FQ1; Cook suggests 5C sales were strong. iPad ASP was $443 vs. $465 in FQ2 and $440 in FQ1. Mac ASP fell to $1,255 vs. $1,334 in FQ2 and $1,322 in FQ1.

AAPL -0.5% AH. CC live blogs: I, II

Prior Apple earnings coverage

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Comments (27)
  • Sammy Lee
    , contributor
    Comments (339) | Send Message
     
    Investors have now OVERPAID for AAPL's tepid growth and free cash flows highly sensitive to new product introduction/disruption while iPhones n iPads approach the commoditized stage. This company needs an Elon Musk, not spreadsheet loving Tim Cook.
    22 Jul 2014, 06:45 PM Reply Like
  • Humble Eagles
    , contributor
    Comments (2759) | Send Message
     
    Sammy, AAPL is selling for about half the PE of the Nasdaq 100! Apple is cheap. If you back out $20+ a share for the cash, Apple is one of the cheapest stocks out there. With a whole bunch of new products due out in the next three+ months, it is a steal imo.
    22 Jul 2014, 06:51 PM Reply Like
  • xrugr
    , contributor
    Comments (73) | Send Message
     
    I'm with you H.E. No matter how the bears try to spin it, Apple is a cash-gushing machine. They can't spend their money fast enough, and now they have more cash than any other company (by a long shot). If Apple can just get that cash back to the States without having to pay our confiscatory tax rate, they will be able to return even more of that cash to it's rightful owners (the shareholders).
    22 Jul 2014, 07:46 PM Reply Like
  • digger5
    , contributor
    Comments (56) | Send Message
     
    I think Apple ought to devote some bandwidth to cracking the tax reform nut. Yes, politics is a fetid stew and getting things done in Washington is hard. But is it harder than making an iPhone?
    22 Jul 2014, 08:08 PM Reply Like
  • tstreet
    , contributor
    Comments (1035) | Send Message
     
    Yes, actually, it is a helluva lot harder than making an IPhone.
    22 Jul 2014, 08:20 PM Reply Like
  • scott trader
    , contributor
    Comments (7024) | Send Message
     
    Ipads just dont wear out...my ipad 4 is going as strong as first day I bought it....I. See no reason to upgrade with new ios updates....that is unfortunate for shareholders on a whole but not for consumers...
    22 Jul 2014, 09:13 PM Reply Like
  • Jhalgren
    , contributor
    Comments (284) | Send Message
     
    Yup, politics is harder than creativity--it's all about manipulation.
    22 Jul 2014, 11:45 PM Reply Like
  • littup
    , contributor
    Comments (506) | Send Message
     
    Sammy... you need to think again my man.

     

    You have absolutely no idea what you are talking about.
    I'm not saying you are stupid, but I am sure that you rushed to form an opinion.

     

    I know it's very difficult to destroy a way of thinking and try to see things differently. But I would argue its the best investment a person can make.

     

    Just to be more specific.
    1) how can apple have commoditized products when its earnings the best margins in the industry?
    2) why will apple be disrupted when it has proven to be the clear leader in the smartphone, the tablet, the app market etc etc.
    3) how exactly have investors overpaid for current apple profitability when the company is selling for like 10x earnings?
    4) why is tim cook spreadsheet loving?

     

    I would argue that the "physics envy" influenced, spreadsheet loving investors are people like you that go MAD when apple doesnt grow earnings/revenues and margins every quarter.
    Whilst in the same time stating that they know who is better to run Apple than STEVE JOBS.
    23 Jul 2014, 09:33 AM Reply Like
  • Sammy Lee
    , contributor
    Comments (339) | Send Message
     
    Humble, comparing PE in what may ultimately be an overvalued market is rather naive way to do a back of the envelope style valuation.
    22 Jul 2014, 07:00 PM Reply Like
  • Humble Eagles
    , contributor
    Comments (2759) | Send Message
     
    Earnings work pretty well for me. If the market is overvalued, then what do you want to own, an index at 23X earnings or Apple at 12X cash adjusted earnings?
    22 Jul 2014, 07:10 PM Reply Like
  • Davidoff
    , contributor
    Comments (409) | Send Message
     
    If market was overvalued I'd want to earn cash.
    22 Jul 2014, 07:22 PM Reply Like
  • GGjr
    , contributor
    Comments (1800) | Send Message
     
    @Davidoff -

     

    I made $2.14/share on the at the money calls this week. Is that enough cash for you?

     

    I'll do it again next week.

     

    Hmm, $2 per share per week. Sounds like a regular paycheck.

     

    Disclosure: I have an iPhone 5 and will upgrade to an iPhone X in a year when it's free..
    22 Jul 2014, 07:26 PM Reply Like
  • Davidoff
    , contributor
    Comments (409) | Send Message
     
    Since when do you need my approval on your earnings? You made cash, good for you! What do I care?
    22 Jul 2014, 07:30 PM Reply Like
  • GGjr
    , contributor
    Comments (1800) | Send Message
     
    Clearly I don't, I was just commenting that you can "earn cash" in any market regardless of the perceived value.

     

    YRMV
    22 Jul 2014, 07:34 PM Reply Like
  • Jhalgren
    , contributor
    Comments (284) | Send Message
     
    buy a hybrid bond fund:)
    22 Jul 2014, 11:46 PM Reply Like
  • Davidoff
    , contributor
    Comments (409) | Send Message
     
    iPhones still have a lot of potential buyers all over the world. In a year a lower end ~$300 iPhone must be released and it will conquer the developing markets. Asia, Africa, South America and Europe are about to be taken over. All Apple has to do is not to wait too long before the release, cause high end iPhone's tremendous demand is the key to success of the cheaper models. And Apple should obviously not release it in North America and the wealthy European countries.

     

    iPad is a completely different story. The upgrade cycle turns around 2-4 years for an average user. These tablets are so good, that no one feels the need to upgrade them every year. Personally (I know that it's not representative, but still), I bought the first generation iPad and iPad 4 about a year ago, but only because the first generation wasn't supported by the new updates and got way too slow. After over 6 years, my first iPad still works perfectly (bought in 2008), but specifications got too old for apps and the OS. It's the perpetual constraint in the industrial economy - quality vs. upgrading cycle (early 20th century Ford vs. GM).

     

    Nothing to say about Macs. Best computers on the market. Same thing with iPods even though they became quiet obsolete, besides for fitness.
    22 Jul 2014, 07:18 PM Reply Like
  • digger5
    , contributor
    Comments (56) | Send Message
     
    If I could only keep one electronic device, it would be my iPad. I don't understand why it is not more popular.
    22 Jul 2014, 08:14 PM Reply Like
  • chintan1671
    , contributor
    Comments (84) | Send Message
     
    I guess your use is very limited!!!
    22 Jul 2014, 09:30 PM Reply Like
  • Dodurgali
    , contributor
    Comments (131) | Send Message
     
    I guess we are all the same in different ways. Your is the iPad. Mine is a MacBook Air (13-inch) and an iPhone combination. I must have a conventional keyboard and a larger screen, and I am willing to put up with extra weight and size. If you go to Asia, a smartphone is the only device people can afford and they use it for everything.
    22 Jul 2014, 10:18 PM Reply Like
  • scott trader
    , contributor
    Comments (7024) | Send Message
     
    I am with you digger i benched my laptop and my desktop....soon my desk entirely....
    22 Jul 2014, 09:15 PM Reply Like
  • King Rat
    , contributor
    Comments (1740) | Send Message
     
    iPads are great for leisure but when it comes to work, desktops still win out. This is still a good quarter for Apple given the runup. Apple will have to accept continually lower ASPs and work on OS market share.

     

    Back in 1997 or 1998, Steve Jobs had a plan for Apple that began with survival and progressed into expanding the market. Apple is great at the first 2-3 years of penetrating a market but then cheaper competition eats away market share each time. The only exception was the iPod where Apple hit all major price points consumers wanted. With tablets and smart phones, Apple still only hits the high end. At this point of Apple's turnaround from those dark days of the late 1990s, Apple's refusal to expand market share is confusing. The company is still operating in "must maintain high margins in order to survive" mode, not the "ever hour of every day we are adding $4million to our coffers" mode. I will buy AAPL again when Apple remembers who they are and where they are. In the mean time I will buy an iPad.
    23 Jul 2014, 01:52 AM Reply Like
  • Jamesb927
    , contributor
    Comments (2) | Send Message
     
    Sounds to easy to me...I think Samsung going to drop a surprise phone also...i think the S5 was just a holdover phone..just think..there was nothing special about it and i don't think Samsung is going out like that.I don't think the watch is going to be a big deal..not to many people where watches.
    22 Jul 2014, 09:20 PM Reply Like
  • jpintoctr
    , contributor
    Comments (725) | Send Message
     
    Wishful thinking. Samsung has problems with Google to solve first. What phone they will release a Tizen or a Android. Sales are down and many are moving back to reliable iPhone
    23 Jul 2014, 03:08 AM Reply Like
  • dannyyoung56
    , contributor
    Comments (35) | Send Message
     
    So I have this weird feeling that Samsung may release a newer iteration of their high end model to go against the iPhone 6. Just to slow iPhone momentum
    22 Jul 2014, 10:43 PM Reply Like
  • armenaubar
    , contributor
    Comments (64) | Send Message
     
    If Google and Samsung continue to hit in the face as it seems now, w'll go straight to a terrible breakthrough of Apple's ecosystem in 2015. In addition to being a respectable value and dividend stock, there is a tremendous opportunity that Apple will sweep away everything on its way. Strong Buy with no meaningful setback : such a cash in hand and low P/E ratio.
    23 Jul 2014, 04:46 AM Reply Like
  • armenaubar
    , contributor
    Comments (64) | Send Message
     
    If Google and Samsung continue to hit in the face as it seems now, w'll go straight to a terrible breakthrough of Apple's ecosystem in 2015. In addition to being a respectable value and dividend stock, there is a tremendous opportunity that Apple will sweep away everything on its way. Strong Buy with no meaningful setback : such a cash in hand and low P/E ratio.
    23 Jul 2014, 04:46 AM Reply Like
  • armenaubar
    , contributor
    Comments (64) | Send Message
     
    If Google and Samsung continue to hit in the face as it seems now, w'll go straight to a terrible breakthrough of Apple's ecosystem in 2015. In addition to being a respectable value and dividend stock, there is a tremendous opportunity that Apple will sweep away everything on its way. Strong Buy with no meaningful setback : such a cash in hand and low P/E ratio.
    23 Jul 2014, 04:46 AM Reply Like
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