Apple's Fiscal Q4 2013 Results Great - For Any Company Other than Apple?


Following the earnings call that took place yesterday evening at 5PM East Coast time, the world was flooded with a tale of two companies. By our count, roughly 50 percent of the tech and financial community thought Apple had done extremely well both in its fiscal Q4 2013 and for its full year. The other 50 percent were disappointed, as usual. We're not sure what Apple can possibly do to improve its numbers any more than it has given the world of competition in the marketplace. As long as the company delivers on innovation - and we believe it has with the Mac pro, the iPad Air and the iPhone 5s - there isn't much more we can ask. Well, we can ask other vendors to stop competing!

Apple delivered on its financial results for its fiscal Q4 2013 quarter, which ended on September 28, 2013. Apple posted quarterly revenue of $37.5 billion and a quarterly net profit of $7.5 billion - $8.26 per share. For the same quarter in 2012, Apple had revenue of $36 billion and net profit of $8.2 billion - $8.67 per share. The numbers are all in line with estimates and reflect anticipated lower gross margins of 37 percent for the current quarter as compared to 40 percent last year.

Apple noted that international sales accounted for 60 percent of the quarter’s revenue. And revenue from China appears to be back on track in a major way - something that can only improve significantly as the company's new deal with China Mobile kicks into full swing. With the NTT DoCoMo deal in Japan kicking in Apple has now surpassed 30 percent market share there.

Apple’s Board of Directors declared a cash dividend of $3.05 per share for its common stock. It will be payable on November 14, 2013, to shareholders of record as of the close of business on November 11, 2013.

Full year numbers are also impressive - or perhaps we should say the numbers would be enormously impressive if the company reporting them wasn't Apple. The company generated record total revenue of $171 billion, and earnings reached $37 billion, with operating cash flow coming in at $54 billion.

Apple CEO Tim Cook also said that Apple completed 15 strategic acquisitions over the course of the fiscal year - "That’s an average of one acquisition every three to four weeks," Cook noted.

Over the year, the company decided to double the size of its capital return program to a $100 billion, and Apple returned over $36 billion to shareholders in dividend and share repurchases over the last five quarters. Cook made no mention of Carl Icahn and his call for a $150 billion share repurchase, and no questions were asked about it. Generally Apple looks to be on the right track on this front.

During the call, Cook also noted that Apple sold 150 million iPhones, 71 million iPads and 16 million Macs over the fiscal year. The company also generated more than $16 billion in revenue from iTunes software and services. Also, 400 million people hit Apple's retail stores and the company opened or remodeled 49 new stores. For the second year in a row revenue came in at over $50 million per store. Again, if it was any company other than Apple reporting these numbers, the company would be sitting on a pedestal atop Mt. Everest this morning.

As expected, Apple beat quarterly estimates for sales and revenue. Apple also set a new record for fiscal Q4 sales of iPhones - that sometimes nebulous period that falls typically just after new products are announced and before the usually massive holiday quarter kicks in. For the current quarter, Apple sold 33.8 million iPhones compared to the 26.9 million it sold in the same quarter last year. Apple also sold 14.1 million iPads during the quarter, which just topped last year's sales of 14 million. Overall, as expected, Mac sales were down, with 4.6 million Macs sold compared to 4.9 million last year - although the numbers here, considering the general overall outlook for laptops and desktops, are quite good.

Of particular interest, Apple provided guidance for the holiday 2013 (Apple's fiscal Q1 2014) quarter as follows:

  • Revenue between $55 billion and $58 billion;
  • Gross margin between 36.5 percent and 37.5 percent;
  • Operating expenses between $4.4 billion and $4.5 billion;
  • Other income/(expense) of $200 million;
  • Tax rate of 26.25 percent

Cook said, “We’re pleased to report a strong finish to an amazing year with record fourth quarter revenue, including sales of almost 34 million iPhones. We’re excited to go into the holidays with our new iPhone 5c and iPhone 5s, iOS 7, the new iPad mini with Retina Display and the incredibly thin and light iPad Air, new MacBook Pros, the radical new Mac Pro, OS X Mavericks and the next generation iWork and iLife apps for OS X and iOS.”

Well, those are the requisite comments we would expect from Cook of course.

Peter Oppenheimer, Apple’s chief financial officer added, "We generated $9.9 billion in cash flow from operations and returned an additional $7.8 billion in cash to shareholders through dividends and share repurchases during the September quarter, bringing cumulative payments under our capital return program to $36 billion."

Oppenheimer also pointed out some interesting market numbers: 

  • ChangeWave recently measured a 96 percent customer satisfaction rate among iPhone users;
  • Kantar measured a 92 percent customer loyalty rate, significantly higher than the competition;
  • Experian reported that iPhone users spend an average of 53 percent more time each day on their phone than android phone users.

These survey results speak volumes for Apple customer loyalty. They also underscore why Apple must continue to deliver innovation at every turn.

When the earnings call itself began, Apple shares fell $12 per share in immediate after-hours trading - to $517.89. As the call progressed to its Q&A segment however, Cook and Oppenheimer began to provide color and details around the hard figures - and provided enough encouraging details so that the stock fully recovered its losses following the call. As we write this morning the stock is at $532.

As has been the case for the better part of 6 quarters now, the usual conversation emerged concerning Apple product ASPs (average selling price) and Apple's margins. We'll leave ASPs aside here, but in particular; analysts noted (or complained) that margins look to remain flat for the upcoming holiday quarter. Oppenheimer however, underscored that he is extremely happy with this and noted that the company has introduced a number of new products with higher build costs while Apple is also lowering or maintaining prices on its products. He also noted that a lot of software will now be free.

Oppenheimer also suggested that perhaps given that the new products have higher cost structures and lower prices the margin number might have been lower - but it isn't. Both he and Cook - while stressing they were not issuing guidance here - suggested that there will be room for margins to improve in the following quarters as the new products build up and the company achieves both sales and supply chain economies of scale.

We'll touch on the issue of Retina Display iPad mini availability here as well. Cook did not deliver a stern warning about shortages. He did note that the holdiay season is going to be "a tablet quarter." He said that "We know how many retina iPad minis we have in hand for the holiday season, and we believe it will be enough…" Well, far more likely it will not be enough but Cook is confident that people will simply wait to get them and that Apple won't lose customers to competitors. The only issue is if demand proves to be "enormous" - in which case Apple will appear to have left signficant opportunity on the table.

Finally, the underlying question for us is Apple guidance for the holiday season – is its fiscal Q1 2014 quarter an accurate estimate or is it perhaps being low-balled a bit (though not nearly as much as when Steve Jobs kept guidance artificially and perhaps comically low)? It’s a good question. We ourselves suspect that Q4 2013 will be a $60+ billion dollar quarter for Apple. That would make Apple a good buy today.

So then, good buy or goodbye? We'll see how investors choose to play it.

Edited by Stefania Viscusi
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TechZone360 Senior Editor

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