Apple reports record earnings despite softening economy and weakened currencies

By Gadjo Cardenas Sevilla

This is Apple’s biggest revenue and profit ever and likely the most revenue reported by any company, yet it is still dampened by falling short of expectations plus the first ever sales decline for iPhone in Q2, which will be the first downturn for Apple’s marquee product since its launch back in 2007.

Apple held its holiday quarter earnings call yesterday and reported $75.9 billion in revenue, $18.4 billion in profits which breaks previous records for the company despite the global ‘softening’ of the economy and devaled currencies.  Apple’s success is bolstered by iPhone sales, the company sold 74.8 million units for the quarter. iPad sales continued to fall at 16.1 million units sold despite the addition of the iPad Pro, and Mac unit sales were at 5.3 million units in what is traditionally considered Apple’s strongest quarter.

For the same quarter a year ago, Apple reported the following for comparison. $74.6b in revenue, $18 billion in profit, 74.4m iPhones, 21.4m iPads, and 5.5m Macs. Analysts were predicting around $76.6b in revenue, 75m iPhones, 17.3m iPads, and 5.8m Macs this quarter. 

Biggest quarter ever, active install base of 1 billion strong

“Our team delivered Apple’s biggest quarter ever, thanks to the world’s most innovative products and all-time record sales of iPhone, Apple Watch and Apple TV,” said Tim Cook, Apple’s CEO. “The growth of our Services business accelerated during the quarter to produce record results, and our installed base recently crossed a major milestone of one billion active devices.”

Other notable tidbits from the call included the statement that the last quarter saw the most switchers from Android to iPhone ever, which bodes well for Apple’s key business which is expected to receive a major update this year with iPhone 7 and iOS 10, plus the possible addition of smaller, more affordable 4-inch variants of the iPhone. Apple gets 68 per cent of its overall sales from iPhone.

60 per cent of iPhone install base still haven't updated to newer, bigger models

Tim Cook also mentioned that 60 per cent of Apple’s install base has not yet upgraded to larger iPhone 6/6 Plus/6S/6S Plus, which promises more potential sales once iPhone 7 is released.

It must be noted, however, that Apple makes its iOS updates available to older models and many of the tweaks and new features and fixes help the longevity of older devices.

This efficiency of distributing system updates is one of the reasons why iPad sales have slowed down.

Most users are happy with their three or two-year-old iPads that run recent OS updates and, for the most part, function like new devices for what they need.

iPad Pro, is the most niche-focused iPad in terms of large size, powerful specs and higher price. So, while his was well received by its designated user base, it was never designed to prop up overall iPad sales dramatically. Apple’s Luca Maestri did note that iPad accounts for 85 per cent of the U.S. tablet market.

Services are now in the picture

There was also the mention of Apple’s services and ecosystems, most notably that it is the thread that holds together the 1 billion total active devices that the company now has.

Apple described 'active devices' as Apple products that have been in operation for the past 90 days, Apple gathered this data from devices that engage with its various services such as iTunes, iCloud, App Stores, Apple Pay and the like.

This is Apple’s biggest revenue and profit ever and likely the most revenue reported by any company, yet it is still dampened by falling short of expectations plus the first ever sales decline for iPhone in Q2, which will be the first downturn for Apple’s marquee product since its launch back in 2007.

On a positive note, Apple’s thrust in China, where it has opened 33 Retail Stores, seems to be paying off. Revenues in that country are up 14 per cent year over year. Apple is preparing to open its 33rd store in China. China's growing middle class (now bigger than the US), and desire for higher-quality marquee products have driven iPhone sales in that country at an exponential rate in the past few year. Apple is banking on continued success in China which is its second biggest market and well positioned to become its first. 

Apple TV and Apple Watch add to earnings

Apple Watch, which is likely the most successful wearable device in the market in sheer volume of sales (despite no actual sales figures reported due to competitive reasons) set a ‘new quarterly record’ according to Cook with strong December sales.

Apple TV, once Apple’s moribund 'hobby' which was re-introduced as an app and entertainment platform last year, ‘had its best quarter by far.' Again, no specific numbers were cited, although both Apple Watch and Apple TV are bunched together with the ‘others’ category of products and services, which did see an increase of 62 per cent in revenue from last year.

This Apple Earnings report sets the stage for Apple in 2016 and how it navigates the issues affecting weakened economies, the desire for sustained product sales and innovation across its many lines as well as the creation of supplemental or entirely new product categories.

It is an unenviable challenge but one that a company with Apple’s DNA for innovation and creativity should be able to rise to, despite the increasingly difficult economic conditions.