Apple's blowout: 74.5M iPhone sales, net profit of $18B

Apple (NASDAQ: AAPL) posted a blowout holiday quarter with sales of 74.5 million iPhones and $18 billion in net profit. The results were way above forecasts from most Wall Street analysts.

Click here for a chart of Apple's quarterly iPhone and iPad sales numbers since 2007.

"We'd like to thank our customers for an incredible quarter, which saw demand for Apple products soar to an all-time high," Apple's CEO Tim Cook said. "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." As CNET pointed out, the iPhone accounted for 69 percent of Apple's revenues in the period, above the normal 50 percent.

Apple released its new iPhone 6 and 6 Plus in September, and this most recent quarter reflected the company's first full quarter of sales of the new gadgets (Apple's fiscal 2015 first quarter ended Dec. 27, 2014, and contained its holiday sales figures). Apple sold 74.5 million iPhones during the quarter, up from the 39.3 million it sold in the previous quarter and the 51 million it sold in the same quarter a year ago.

During the company's earnings conference call, Cook attributed Apple's iPhone success to consumer demand as well as Apple's impressive worldwide distribution efforts--the company now offers the iPhone in 130 countries through more than 300 wireless carriers to around 75 percent of the world's mobile users. Apple executives added that, due to iPhone manufacturing efficiencies, the company sold 7 million more iPhones than it initially expected.

Bloomberg analyst survey showed expectations of 65.5 million iPhone sales during the period. The high end of analyst expectations, from KGI Securities analyst Ming-Chi Kuo, pegged iPhone sales at 71.5 million in the quarter--a figure that Apple handily topped.

Apple typically doesn't reveal how its various iPhone models performed, though there's little doubt that the company's new 6 and 6 Plus accounted for much of its iPhone momentum. A report from Consumer Intelligence Research Partners found that the iPhone 6 and 6 Plus models accounted for three-quarters of all iPhones Apple sold in the quarter, with the iPhone 6 at 45 percent and the iPhone 6 Plus accounting for 30 percent of sales. CIRP estimated the iPhone 5S accounted for around 14 percent of sales and the iPhone 5C accounted for the remaining 11 percent.

Interestingly, though, Apple did give a hint that consumers are moving toward more expensive iPhones, specifically those with more storage. The company said its average iPhone selling price during the period was $687, up $50 from the year-ago quarter. That increase could also potentially be due to the more expensive iPhone 6 Plus. Apple's Cook said that the iPhone 6 was Apple's most popular model during the quarter, but that "they were really all popular." He said that users in some countries preferred the 5.5-inch iPhone 6 Plus while others preferred the smaller, 4.7-inch iPhone 6.

Finally, Cook said that Apple expects continued iPhone momentum, pointing out that there remain a large number of mobile users who haven't upgraded to a smartphone. He added that there are a large number of Android users who could potentially switch to an iPhone.

"We saw more new customers to iPhone than we've ever had before," Cook said, and more switchers from Android to iPhone than in Apple's two most recent iPhone launches.

Apple's iPad shipments also popped during the quarter, to 21.4 million. The company shipped 12.3 million iPads in the previous quarter and 11.5 million in the year-ago quarter. The figure is notable considering Apple has reported several quarters of declining iPad sales.

"I am still very optimistic and bullish on the iPad over the long run," Cook said, noting that Apple continues to see high rates of first-time iPad buyers and high owner satisfaction scores. "The upgrade cycle [for the iPad] is longer. It's longer than an iPhone. It's probably between an iPhone and a PC."

During Apple's conference call with investors, Apple's Cook offered some metrics on the company's various efforts. He said Apple shipped its 1 billionth iOS device during the quarter, and he said Apple's Swift iOS programming toolkit has been downloaded more than 11 million times. He said 600 developers are working with Apple's HealthKit product, and that 30 automotive brands are planning to use Apple's CarPlay technology.

On Apple Pay, the company's mobile payments program that launched in October 2014, Cook said that 750 banks and credit unions now support the product. He added that three months after launch, Apple Pay now accounts for two out of every three dollars spend via contactless payment technologies. Cook added that, at the restaurant Panera, Apple Pay accounted for 80 percent of the venue's mobile payment options. "Adoption is strong," Cook said. "2015 will be the year of Apple Pay."

Cook said that the Apple Watch device remains on track and he said the device would begin shipping in April. Apple previously has said only that the device would ship early in 2015.

And Apple TV? Cook said Apple has sold over 25 million of the pucks so far, and that "it's something that we continue to look at and work on," though he declined to say more.

As for Apple's financials, the company reported record quarterly revenue of $74.6 billion in its fiscal first quarter. That's way above Wall Street expectations of around $67.7 billion, and above the range Apple gave in October of $63.5 billion to $66.5 billion. Apple reported revenue of $57.6 billion in the year-ago quarter.

Apple's gross margin was 39.9 percent, up from 37.9 percent in the year-ago quarter. The company said fully 65 percent of the company's revenues came from overseas sales. Analysts widely believe that this will be Apple's first quarter where it sells more iPhones in China than in the United States, though Apple executives said during the company's conference call that China was Apple's second-largest market, likely behind the United States. Apple did say though that iPhone sales doubled in China year over year.

Overall, Apple reported $16.1 billion in quarterly revenue from "greater China," which includes mainland China, Hong Kong and Taiwan, up 70 percent from the the year-ago quarter.

Looking toward its next quarter, Apple's fiscal 2015 second quarter, the company said it expects revenue between $52 billion and $55 billion and a gross margin between 38.5 percent and 39.5 percent.

"While the iPhones sold in Q4 was record breaking at 74.5 million, we believe Apple has an opportunity to grow the number of phones it sells in the December quarter of 2015," wrote BTIG analyst Walter Piecyk. "It is inaccurate to suggest that a big upgrade cycle in 2014 precludes a big upgrade cycle in 2015. Big upgrade quarters for wireless operators simply mean than more than 10% of their postpaid base upgraded to a new phone."

According to Strategy Analytics, Apple was the world's second-largest smartphone vendor in the third quarter of last year, just behind Samsung. According to the research firm, Apple commanded 12.3 percent of the global smartphone market in the third quarter, behind Samsung's 24.7 percent and below the 13.4 percent that Apple earned in the third quarter of 2013.

In the United States, however, Apple enjoys a much more commanding presence. According to eMarketer, 42.3 percent of all U.S. smartphone users in 2014 reported owning an iPhone, up from 40 percent in 2013. Those numbers were just below Android phone ownership numbers--eMarketer said Android ran 51.3 percent of all American smartphones in 2014, up from 50.5 percent the previous year.

For more:
- see this release
- see this BTIG blog post (reg. req.)
- see this CNET article
- see this Seeking Alpha transcript of Apple's conference call

Special Report: Wireless in the fourth quarter of 2014

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