Apple Earnings Q4 2015 Review

  • Apple earnings Q4 2015 were reported after market close on October 27th.
  • Apple earnings came in at $1.96 per share on a revenuw of $51.5B.
  • iPhone sales grew 22% YoY, driven by iPhone 6 sales in China.
  • iPad sales are down 20% YoY – iPad Pro and strategic partnership are expected to halt the segment's decline.
  • No specific numbers provided on Apple Watch progress; however, analysts estimate moderate growth.

Tech giant Apple (NASDAQ:AAPL) reported its Q4 2015 earnings results yesterday (October 27) with higher than expected revenue and EPS figures as shown in Chart 1. Apple’s week started on a negative note after Germany-based Dialog Semiconductors reported disappointing quarterly results and weak guidance explained by an expected decline in demand for its power management chips in Q4. As Dialog is the primary power management chip supplier for the iPhone which accounts for 80% of the company’s sales investors immediately inferred that Dialog results reflect an expected slowdown in iPhone sales. This event triggered a sharp decline in Apple stock price on Monday and Tuesday and also in the stock prices of its main chip suppliers that include Dialog itself (traded on Frankfurt), Broadcom (NASDAQ:BRCM)), Qualcomm (NASDAQ:QCOM)), Avago Technologies (NASDAQ:AVGO), Qorvo (NASDAQ:QRVO) and Skyworks Solutions (NASDAQ:SWKS)) to name a few.

Note: You might also be interested in our Apple earnings analysis video.

AAPL_Chart 5_102815

China drives iPhone Sales

Concerns of a possible slowdown in iPhone sales were dismissed as Apple reported in-line iPhone figures for Q4 and in-line Q1 revenue guidance which is around 65% dependent on iPhone sales. Not only that the iPhone sales are not slowing down, China is picking up iPhones rapidly, as unit sales nearly doubled YoY with more than 50% of the Chinese buyers being first-time buyers. Apple is heavily investing in China and recently opened its 25th store in the mainland expecting to reach 40 stores by the middle of next year. Total revenues in China increased 99% YoY to $12.5B and are expected to rise further in Q1 2016 as iPhone 6S sales moves into high gear (in Q4 6S was only available for two days in China).

iPad

The iPad segment Apple continued to experience a decline in quarterly sales, selling only 9.9 million units, which reflects a 20% YoY and 10% QoQ drop in unit sales. Apple still holds a significant portion of the U.S. tablets market, 73% according to CFO Maestri, however, as shown in Chart 2 below, the iPad segment is in a downtrend.

AAPL_Chart 6_102815

As I mentioned in an earlier article, Apple expects the iPad Pro and Enterprise sales to compensate for the declining iPad sales. Enterprise sales reached $25B in the last twelve months and are expected to grow as a result of the iPad Pro launch and Apple’s new partnerships with Microsoft (NASDAQ:MSFT), IBM (NYSE:IBM) and Adobe Systems (NASDAQ:ADBE) targeted to accelerate corporate adoption of the new iPad.

Other Segments

Other than the iPhone and iPad segments, Apple also disclosed detailed information of what used to be its core business – the Mac segment. Apple sold 5.7 million units of Mac computers which is a 3% YoY growth and 19% quarter-over-quarter maintaining a slow growth trend in this segment that generated revenue of almost $7B in Q4. On other segments Apple was much more vague:

  1. Apple Pay: No specific numbers were provided about Apple’s mobile payments service. However, the company did mention double digits growth in transactions month over month. Apple will rollout the payment service to additional countries in 2016 and announced that Starbucks (NASDAQ:SBUX) has joined the service. The Starbucks announcement follows Square’s (SQ) announcement of ending their deal with the giant coffee chain as it was not very profitable for Square. According to Apple’s announcements, it seems that Apple Pay is developing in the right direction, however, with lack of information it would be hard to assess how it stands in comparison to Square and Paypal Holdings (NASDAQ:PYPL).
  2. Apple TV, Music and Health: very little information provided beyond the information already released by Apple earlier this month. It’s hard to accurately assess Apple growth or progress in these segments.
  3. Apple Watch: This is probably the most interesting device in this list. Apple again did not disclose any specific information about the Apple Watch except that its availability increased significantly and shipments grew compared to the previous quarter. As I mentioned in the previous Apple article – not disclosing the Apple Watch figures leaves it open for guesses and estimations and fuels the assumption that Apple has failed in this segment. Analysts’ estimations set Apple Watch sales at 3.8 million units, good for only 5.5% growth over the last quarter – a disappointing growth rate for a fresh new device.

Conclusion

After a bumpy start to the week amid iPhone sales slowdown speculations, Apple earnings Q4 2015 came in higher than expectations. The company shipped 48 million iPhones (22% YoY), 9.9 million iPads (-20% YoY), 5.7 million Macs (3% YoY) and an estimated 3.8 million Apple Watches (5.5% QoQ). Apple reported a very strong quarter in China mainly due to iPhone 6/6 Plus sales and it plans to continue investing in the mainland to generate higher revenues there in the future. Apple reported strong results on Apple Watch and Apple Pay but did not disclose any specific number which leaves it open for speculation. While Apple Pay estimations are positive Apple Watch is speculated to fail with only 5.5% growth.

As Apple continues to grow iPhone and Mac sales, together with a strong plan to revamp iPad sales and reporting impressive progress in Apple Pay, Music and TV, I remain bullish on Apple stock for the long-term. The China results are very impressive as Apple succeeded to grow there during the economic slowdown and future expansion plans in China should sustain revenue growth in the future.

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