Apple
Inc's quarterly results beat Wall Street estimates on
stronger-than-expected demand for the iPhone, especially in the greater
China region where sales jumped five-fold.
While iPad sales were a little lighter than expected, the overall
results sent the stock up 7 percent, recouping some losses from the
past two weeks that had stemmed from concerns about weakening sales
growth for iPhones.
Apple sold 35.1 million iPhones - which accounts for about half its
revenue - in the March quarter, outpacing the 30 million or so expected
by Wall Street analysts.
Margins blew past forecasts - helped by lower-than-expected commodity
costs - while a five-fold iPhone sales surge in China, Taiwan and Hong
Kong bolstered revenue in the region to $7.9 billion.
Some investors had feared intensifying competition from Google Inc's
Android phones - made by the likes of Motorola Mobility and Samsung
Electronics - might pressure margins and eat into its market share.
"That shows they are able to maintain their pricing without compromising on growth," said Morningstar analyst Michael Holt.
"There are lower-priced alternatives from the Android world that are
becoming more compelling. The concern was that Apple might sell more
older models to be more competitive. That would have shown up in the
gross margin. But aggregate gross margin and average revenue per device
show that this hasn't happened."
Apple sold 11.8 million iPads, the latest version of which hit store
shelves in mid-March. That compared with the average forecast of up to
13 million.
"There's no doubt looking in the last quarter and the Christmas season,
Apple has executed very well. But you are starting to see the iPad ...
reach some sort of saturation with the current product," said Patrick
Becker, a principal at Becker Capital Management, which does not own
Apple shares.
"These are the transitions you start to have without coming out with a
brand new device. They have been extremely successful at bringing out
new categories and it is new products that will drive up the stock
price."
RETURN TO FORM?
But it was Apple's flagship iPhone, which has helped revolutionize the
smartphone industry, that hogged the spotlight on Tuesday.
"International iPhone sales were on fire," Apple Chief Financial
Officer Peter Oppenheimer told Reuters in an interview, adding that
sales of the smartphone in the Greater China region jumped five-fold
from the previous year.
Responding to concerns that wireless carriers may reduce subsidies for
the iPhone, thereby lowering Apple's profit margin, Chief Executive Tim
Cook said the subsidies aren't large anyway, compared with what
carriers can recoup from consumers over a 24-month contract period.
The so-called churn, or rate that customers switch from the iPhone to
other models, is the lowest of any phone they sell, which has a
"significant, direct financial benefit to the carrier," Cook added.
As for patent litigation battles with rivals, Cook said he preferred to
settle if Apple could get a fair settlement. The company is fighting
court battles with several Android phone makers, including Samsung, HTC
Corp and Motorola in the United States and other countries.
Apple's strong results came after a 13 percent decline in its shares -
long considered a must-have in most U.S. equity portfolios - over the
past couple of weeks in unusually volatile trading, as investors
fretted over potential competitive and pricing pressures.
Gross margins in the fiscal second quarter climbed to 47.4 percent from
41.4 percent a year earlier, surpassing Wall Street's average forecast
of 42.8 percent.
The consumer electronics giant said its fiscal second-quarter revenue
rose 59 percent to $39.2 billion, better than the average analyst
estimate of $36.8 billion, according to Thomson Reuters I/B/E/S.
Net income rose to $11.6 billion, or $12.30 a share, from $6 billion,
or $6.40 per share, a year earlier. That also outpaced Wall Street's
target of $10.04 a share.
Apple's stock gained more than 7 percent to $601, from a close of
$560.28 on Nasdaq. That is still far below its intraday high of $644
reached this month.
"When you have a strong rally in a stock it often sells off for no
better reason than uncertainty. I think you're going to see the
naysayers go away," said Michael Yoshikami, chief executive of
Destination Wealth Management.
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