Apple’s Mammoth Quarterly Results: Architosh Insights

Apple this week blew away all expectations with its biggest quarterly results in history, becoming the new record holder for the largest quarterly profit by a public company in history and astounding the experts and pundits on all accounts.

By the Numbers

Apple’s first fiscal quarterly 2015 numbers were a record revenue of $74.6 billion and record quarterly net profit of $18 billion, or $3.06 per diluted share. On a year-over-year (YoY) basis this compares to $57.6 billion and $13.1 billion, in 2014, respectively.

Macs and iPhones Steal the Show

Much like the last quarter (quarter 4 in 2014) the results were bolstered by record numbers of Mac computers and iPhones, with the latter powering the basis of its phenomenal results. iPad sales were down on a year-over-year basis, but in the conference call with press CEO Tim Cook had much positive sentiment for the tablet line-up going forward, noting that the iPad’s replacement cycle will likely fall somewhere between iPhones and computers, and also noting that first time buyers for iPads are still quite low, meaning their is much room in the market for growth.

“We’d like to thank our customers for an incredible quarter, which saw demand for Apple products soar to an all-time high,” said Tim Cook, Apple’s CEO. “Our revenue grew 30 percent over last year to $74.6 billion, and the execution by our teams to achieve these results was simply phenomenal.”

Apple reported 5.5 million Macs, a record in the last quarter, and for the second quarter in a row the company has pushed out another 5.5 million Macs. Of those 11 million new Macs in the past half year period, approximately 40 percent contribute to growing the installed base while the rest are upgrades and replacements to existing Mac customers. Apple is growing its installed base of Macs by approximately 6.7 million new users per year. And as Architosh has reported recently in another report, Apple is on track to have an installed base of 100 million Macs around the globe by 2017. (see, “Special Feature: The State of the Union on Mac CAD,” Architosh, 21 Jan 2015).

MORE: Special Feature: The State of the Union on Mac CAD

It’s a really exciting time for the Mac market, though the press in this latest conference ignored the Mac and asked about nearly everything else. Regardless, back to back quarters at 5.5 million Macs apiece is astonishing.

The best part is it’s no fluke. Apple is growing rapidly in emerging markets. News that China was about to sell more iPhones than the United States as the buzz just days ago. It turned out not to be true (yet!). What many do not realize is that the Mac is booming in emerging markets too, with year-over-year growth percentages over 40 percent. In fact, that happened last quarter, as reported in this excellent report here.

01 – The Apple Watch will not bear on earnings in Apple’s next quarter but will surely ship by late April, says CEO Tim Cook. It should be of increasing importance to earnings in the 2nd half of 2015. (image: courtesy Apple Inc. All rights reserved.)

Although the next quarter is historically one of the weakest in the calendar year for Apple, this author would not be surprised to see Apple sell another 5 million Macs (though a more likely number is 4.5 million) on the basis of Apple’s power in emerging markets and the Macs phenomenal year-over-year growth in those markets. When you combine that trend line with the popularity of the MacBook Air in developed markets, you get big Mac quarters.

IBM and Apple in Enterprise Partnership

This is one of the most interesting areas for Apple going forward. Its partnership with IBM is not to be ignored. Essentially, Apple is partnering with IBM with iPad to snuff-out Microsoft in new device innovation within the world’s largest data-centric enterprise corporations.

Tim Cook stated during the Q&A session that the partnership is on track to have 100 new enterprise apps by the end of 2015, specifically tailored to the work people do in numerous enterprise scale industries, from airlines to telecommunications, to health care and so on. Apple shipped 21.4 million iPads this quarter, still five times the number of Macs but 4.6 million fewer than a year ago. Interestingly, it is now the Mac who is eating into iPad share, not the other way around.

“There’s probably some level of cannibalization that’s going on, with the Mac on one side and the phone on the other.” stated Cook.

Looking Down the Road

Apple’s traditional weakest quarter lies ahead and the company is projecting up to $55 billion in revenue. Apple Watch will likely launch in April and will have no bearing really on this coming quarter.

In the second half of 2015 the Apple Watch will build momentum, as will Apple Pay. The iPhone 6 and 6 Plus will continue to be the star of the smartphone world over much of 2015 and Mac will continue to grow on a year-over-year basis and gain back PC marketshare. However, as stated in recent reports, people who put off a new computer two years ago to buy a tablet for the first time (iPad or Android) are now replacing their aging computers, principally laptops. This is where Apple is gaining traction, as users coming from Windows 7 and earlier are thinking the inevitable—if one must learn a new operating system (in the poorly regarded Windows 8) they might as well learn the Mac.

After all, the benefit of doing so is that their favorite phone, tablet and now computer would all work together beautifully as a digital system. That’s something Apple’s competitors (Microsoft in particular) can’t provide.

 Editor’s note: We would love to hear your thoughts so comment below.