Apple’s fantastic December quarter results weren’t enough
Apple announced its quarterly results for December after the market closed on Wednesday, and while they were pending, shares fell over the next two days. The expectations were high for the company, as the stock was up 16% in the six trading days prior to the announcement, so the decline is likely normal profit-taking.
It was nearly impossible for Apple to show big enough numbers and not at least stall, if not fall, the stock as it did Stocks were in an overbought condition. However, the results and positive comments should mean that Apple’s next quarters will be strong as the iPhone 12 with 5G technology is just beginning to roll out. The key question for the stock is whether its valuation above historical valuation will be held at or near current levels.
Blowout sales and earnings
Apple achieved a quarterly revenue of over $ 100 billion for the first time; in fact, it was over $ 111 billion versus the expectations of $ 103.3 billion. That was a year-over-year increase of 21% and the strongest year-over-year increase since the September 2015 quarter of 22%. The 72% quarter-to-quarter increase was the strongest since the December 2014 quarter of 77%, the first full quarter of the iPhone 6 and 6 Plus.
Earnings per share were $ 1.68 versus the Street’s average forecast of $ 1.41 and its range between $ 1.23 and $ 1.56. The $ 1.68 was a 35% year-over-year increase and was hard to compare to the 19% year-over-year increase.
The gross margin was also very strong at 39.8%. This was a combination of a hardware gross margin of 35.1% and services of 68.4%. The gross margin on services is the highest ever reported and more than 10 percentage points higher than three years ago (58.3% in the December 2017 quarter) when the company first started doing it.
Apple’s net cash position increased slightly to $ 83.5 billion from the September quarter, but declined $ 15.2 billion year over year. The company’s largest net cash quarter was December 2017 at $ 163 billion. At the current rate, Apple should hit its $ 0 net cash goal in about three years.
The operating cash flow of $ 38.8 billion and free cash flow of $ 35.3 billion were extremely strong. Note that any quarter’s cash flow can be skewed by a number of factors. It is best to look at cash flows over a multi-year period.
iPhones could have been even more powerful
Slightly surpassed iPhone sales of $ 65.6 billion Road expectations of $ 61 billion. The number of blowouts rose 17% year over year and 148% over the September quarter. The strong results seem to be due to a combination of larger quantities and also increasing average sales prices or ASPs. That result is even more impressive given that the first iPhone 12 models weren’t available until October 23, almost a full month in the quarter.
Counterpoint research analyst Aman Chaudhary estimates that Apple was the global leader in the smartphone market in the December quarter with explosive growth of 96% quarter over quarter. He wrote, “The pent-up demand for a new 5G iPhone, strong carrier advertising, particularly in the US, and the longevity of the iPhone 11 are some of the reasons for this growth.”
For the full year, Chaudhary’s analysis shows that Apple has moved up from third market share position to second and has significantly closed the gap to the front runner Samsung.
China’s sales are skyrocketing
Apple’s revenue in China rose 168% quarter over quarter to $ 21.3 billion. This was the sharpest quarter-to-quarter increase in a decade, when sales were nearly five times lower.
It was also 57% year-over-year growth which helped increase the company’s total revenue by 21%. Without China’s strong growth, the company’s total sales growth would have been 15%.
Comment on market dynamicssaid Mengmeng Zhang, research analyst at Counterpoint, “China’s 5G smartphone sales soared as Chinese OEMs aggressively rolled out more value-for-money offerings. The 5G penetration rate became even clearer in the December quarter with the launch of Apple’s iPhone 12. 5G smartphones accounted for more than 60% of smartphones sold in China, up from just 5% a year ago. “
Speaking of the competitive landscape, Flora Tang, Research Analyst at Counterpoint, said, “Among the major OEMs, Apple was the only one to see positive year-over-year growth in 2020. Apple’s strong growth can be attributed to the debut of the iPhone 12 series, which comes with 5G connectivity and models in a wider price range. Additionally, the iPhone 11 series continued to do well even after the iPhone 12 was launched, thanks to sharp price cuts and promotions. The iPhone 11 was the top-selling model on JD.com during the e-commerce festival sales. The impressive growth of both the iPhone 12 and iPhone 11 series helped drive Apple’s market share in China to 16% in the December quarter. “