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Apple q3'14 commentary

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Apple announced its Q3 2014 results on 22nd July. This is a detailed summary, with analysis and commentary.

Apple announced its Q3 2014 results on 22nd July. This is a detailed summary, with analysis and commentary.

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Apple q3'14 commentary Apple q3'14 commentary Presentation Transcript

  • Aquilla Apple Results Q3 2014 Summary and Commentary ! ! Note: Apple Q3 = Calendar Q2
  • Aquilla Key Data Points Wall Street Reported YoY Revenue $ 38 B $ 37.43 B + 6% Net Income $ 7.5 B $ 7.7 B + 12% EPS (Diluted) (vs Adjusted) $1.23 $1.28 + 20% iPhone Units 35.3 M 35.2 M + 13% iPhone ASP $561 -3% iPad Units 13.8 M 13.3 M - 9% iPad ASP $444 2% Mac Units 3.9 M 4.4 M + 18% iPod Units 2.3 M 2.9 M - 36% Gross Margin 39.4% + 2.5 points Cash & Long Term Securities 164 B 9% * Q4 Revenue Guidance $ 40.4 B $ 37 - 40 B FY13: $37.5 B Q4 Gross Margin Guidance 37.5% 37-38% FY13: 37.0% * QoQ
  • Aquilla Source: Apple Results Annual Revenue Apple Still Growing •Revenues topped $140B after 3 quarters, and are heading for $180B in FY14 •This is over 4x growth in 5 years •Grew 6% YoY, pretty much in line with Wall Street expectations consensus •6% growth is still impressive for a company of Apple’s size (This is $10B annualised) •Growth was largely from iPhone in $ terms, but Mac and iTunes were also strong •Anticipation of new products on top of this brings confidence to the analyst community •Meanwhile the stock is becoming recognised as an income hold. 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 FY '07 FY '08 FY '09 FY '10 FY '11 FY '12 FY '13 FY '14 3Q ($B) Apple Revenue View slide
  • Aquilla Quarterly Revenue Source: Apple Results Apple Still Leads •Apple still leads the market in scale, and despite this size, has returned to growth •Comparisons with leading competitors are revealing, in particular with Samsung, whose revenues fell by 6%, and Microsoft, whose business is undergoing a complete restructuring. Comparative Revenues CQ2 2014 SamsungMobile Microsoft Google 0% 15% 30% 45% 60% 75% 90% 0.0 10.0 20.0 30.0 40.0 50.0 60.0 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 ($B) Apple Revenue Revenue B$ Revenue YoY Growth View slide
  • Aquilla Net Income Comparative Net Income CQ1 2014 Net Income Grows 12% •Net Income came in at $7.7B, or 22% of revenues, reflecting the still strong iPhone mix, this being the highest margin product line for Apple •With the iPhone 6 expected this quarter, a boost to both sales and margins is anticipated Source: Apple Results Google SamsungMobile Microsoft 0% 5% 10% 15% 20% 25% 30% 35% 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 $M Apple Net Income Net Income B$ Net Income %
  • Aquilla Source: Apple Results Diluted EPS EPS Up YoY •EPS Adjusted reflects the 7:1 stock split •EPS was well ahead of Wall Street expectations, and was up 20% YoY •Q3 being Apple’s slowest quarter, this was a good result for the company $ 0.00 $ 0.50 $ 1.00 $ 1.50 $ 2.00 $ 2.50 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Apple Diluted EPS $ (Adjusted)
  • Aquilla Source: Apple Results Gross and Net Margins Margins Strong •Gross Margins held up close to the 40% mark which many felt was unsustainable •GM of 39.4% was influenced by the strong iPhone and Mac quarters, as well as weaker iPad, which is the lowest margin product family •Upcoming quarter forecasts a slight decline QoQ, though gain YoY •A longer term gross margin trend rate of between 35 and 40% still seems likely •Wall Street was impressed by the GM number, and the consensus was that Apple may yet be able to avoid the deeply damaging price wars facing Android vendors 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0% Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Margins Gross Margin % Net Income %
  • Aquilla Source: Apple Results Cash and Investments Cash Pile Grows Again •Apple generated $10.3B of cash-flow from operations in the Quarter •Total Cash grew $13B to $164B •Stock buybacks and dividends returned $8B to shareholders •Much of the cash remains outside the US, held there for tax reasons •Apple is now increasingly positioned as an income stock, satisfying some on Wall Street who wanted access to this bonanza •Apple also completed the 7:1 stock split, and recent gains have made this a highly successful action 0 20 40 60 80 100 120 140 160 180 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 ($B) Cash Short Term Cash B$ Long Term Cash B$
  • Aquilla Source: Apple Results Inventory Stock Stable •Apple’s miracle stock management continues, ending the quarter with 3.9 days of stock •This is still nearly 100 annual stock turns! •And this despite having 428 retail stores with stock on the shelves 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Days Days of Stock
  • Aquilla Source: Apple Results Revenue by Product Line Apple as Phone Company •iPhone continues to dominate Apple’s mix, and while growth slowed a little (to be expected at this stage of the cycle, it was still up 13% YoY •Mac also had 18% YoY growth, a good 20% ahead of the PC market, and a great result for Apple •iPad disappointed again, declining 9% •iTunes/SW/Services continued their inevitable growth, 12% this quarter, with the App Store the main driver, meaning that iTunes overall grew 25% 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Product Line Revenue Streams iPhone M$ iPad M$ Mac M$ iPod M$ iTunes/SW/Svcs M$ Accessories M$
  • Aquilla Revenue Mix by Product Line Source: Apple Results Most recent $ Share YoY 4% 12% 12% 12% 1% -36% 15% 18% 16% -9% 53% 13% iPhone dominates •iPhone still dominates with 53% of Apple’s revenues •A strong quarter for Mac moved it to 15% of the mix •iPad declined again by 9%, but the IBM partnership opens potentially massive opportunities in enterprise •iTunes/SW/Services continues to grow, and now represents 12% in share iPhone M$ iPad M$ Mac M$ iPod M$ iTunes/SW/Svcs M$ Accessories M$ !"# $!"# %!"# &!"# '!"# (!"# )!"# *!"# +!"# ,!"# $!!"# -$# .!*# -%# .!*# -&# .!*# -'# .!*# -$# .!+# -%# .!+# -&# .!+# -'# .!+# -$# .!,# -%# .!,# -&# .!,# -'# .!,# -$# .$!# -%# .$!# -&# .$!# -'# .$!# -$# .$$# -%# .$$# -&# .$$# -'# .$$# -$# .$%# -%# .$%# -&# .$%# -'# .$%# -$# .$&# -%# .$&# -&# .$&# -'# .$&# -$# .$'# -%# .$'# -&# .$'# Product Line Revenue Mix
  • Aquilla iPhone Trailing 12 months - Soaring Tracking the trailing 12 months (current and 3 previous Quarters) eliminates seasonality, and gives a better indication of the longer term trends Source: Apple Results 0 30,000 60,000 90,000 120,000 150,000 180,000 0 10,000 20,000 30,000 40,000 50,000 60,000 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Trailing 12m Units (000s) Q Units (000s) iPhone Units iPhone Units kU iPhone Units Trailing 12m kU
  • Aquilla iPad Trailing 12 months - Peaked? Tracking the trailing 12 months (current and 3 previous Quarters) eliminates seasonality, and gives a better indication of the longer term trends Source: Apple Results 0 15,000 30,000 45,000 60,000 75,000 90,000 0 5,000 10,000 15,000 20,000 25,000 30,000 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Trailing 12m Units (000s) Q Units (000s) iPad Units iPad Units kU iPad Units Trailing 12m kU
  • Aquilla Mac Trailing 12 months - Ticking Up Tracking the trailing 12 months (current and 3 previous Quarters) eliminates seasonality, and gives a better indication of the longer term trends Source: Apple Results 0 4,000 8,000 12,000 16,000 20,000 24,000 0 1,000 2,000 3,000 4,000 5,000 6,000 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Trailing 12m Units (000s) Units (000s) Mac Units Mac Units kU Mac Units Trailing 12m kU
  • Aquilla iPod Trailing 12 months - Decline Tracking the trailing 12 months (current and 3 previous Quarters) eliminates seasonality, and gives a better indication of the longer term trends Source: Apple Results 0 15,000 30,000 45,000 60,000 75,000 0 5,000 10,000 15,000 20,000 25,000 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Trailing 12m Units (000s) Units (000s) iPod Units iPod Units kU iPod Units Trailing 12m kU
  • Aquilla iTunes/SW/Svcs Trailing 12 months - Soaring Tracking the trailing 12 months (current and 3 previous Quarters) eliminates seasonality, and gives a better indication of the longer term trends Source: Apple Results 0 4,000 8,000 12,000 16,000 20,000 0 1,000 2,000 3,000 4,000 5,000 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Trailing 12m Revenue ($M) Revenue ($M) iTunes, Software, Services Revenue iTunes/SW/Svcs M$ iTunes/SW/Svcs Trailing 12m M$
  • Aquilla Source: Apple Results Product Line Average Selling Prices iPhone ASPs Slip A Little •iPhone ASPs slipped to $561, which is to be expected at this stage in the product cycle, but are still healthy •Other product lines also ticked down slightly, but not enough to indicate any longer term trend •Indications are that Apple can continue to operate its premium approach to the market 0 200 400 600 800 1,000 1,200 1,400 1,600 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 $ ASPs iPhone ASP $ iPad ASP $ Mac ASP $ iPod ASP $
  • Aquilla Geographical Split Most recent Share YoY 11% 1% 6% 6% 7% 1% 16% 28% 22% 6% 39% 1% Source: Apple Results US Diminished •Minimal growth in the Americas again, but seasonality saw share back up to 39% (excluding Retail) Retail Flat •Angela Ahrendts now on board (1st May), but too early for impact. Store count grew by 5% China soars •28% growth was ahead of Apple’s expectations, and shows there is a market for premium phones in China Europe Gains •Healthy growth, and seasonality keeps EMEIA ahead of China (for now) Americas EMEIA Greater China Japan APAC Retail !"# $!"# %!"# &!"# '!"# (!"# )!"# *!"# +!"# ,!"# $!!"# -$# .!*# -%# .!*# -&# .!*# -'# .!*# -$# .!+# -%# .!+# -&# .!+# -'# .!+# -$# .!,# -%# .!,# -&# .!,# -'# .!,# -$# .$!# -%# .$!# -&# .$!# -'# .$!# -$# .$$# -%# .$$# -&# .$$# -'# .$$# -$# .$%# -%# .$%# -&# .$%# -'# .$%# -$# .$&# -%# .$&# -&# .$&# -'# .$&# -$# .$'# -%# .$'# -&# .$'# Geo Splits
  • Aquilla Geographical Split with Estimated Retail Allocation Most recent Share YoY 6% 5% 7% 1% 16% 28% 24% 6% 46% 1% Source: Apple Results, Q-end Apple Store counts, pro-rata revenue allocation Estimations •Estimations from allocation of Retail revenues by region (pro-rata by Q-end store counts) US Flat •US still shows only 1% growth. As flagship stores are a higher proportion outside the US, pro- rata allocation may be generous to Americas Europe Strong •With 101 Apple Stores, EMEIA is solid at 24% share Americas EMEIA Greater China Japan APAC !"# $!"# %!"# &!"# '!"# (!"# )!"# *!"# +!"# ,!"# $!!"# -$# .!*# -%# .!*# -&# .!*# -'# .!*# -$# .!+# -%# .!+# -&# .!+# -'# .!+# -$# .!,# -%# .!,# -&# .!,# -'# .!,# -$# .$!# -%# .$!# -&# .$!# -'# .$!# -$# .$$# -%# .$$# -&# .$$# -'# .$$# -$# .$%# -%# .$%# -&# .$%# -'# .$%# -$# .$&# -%# .$&# -&# .$&# -'# .$&# -$# .$'# -%# .$'# -&# .$'# Geo Splits Inc Retail
  • Aquilla Source: Apple Results Geo Share with Retail - 12m Trailing US/APAC Flat / Declining •Trailing 12 months shows clearly where Apple’s growth is coming from •China is consistently upwards (and has massive upside) •EMEIA is promising, despite ongoing problems in southern Europe. India could become a driver of future growth •Japan is an ongoing success story Tracking the trailing 12 months (current and 3 previous Quarters) eliminates seasonality, and gives a better indication of the longer term trends 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Revenue $M Geo Growth 12m Trailing Revenue Inc Retail Americas EMEIA Greater China Japan APAC
  • Aquilla Main Conclusions •A relatively dull set of results, with a few hidden gems •Highlights were iPhone, Mac and Gross Margins •iPhone matched expectations, and despite heading towards the end of its cycle, still saw 13% growth •Mac grew 18%, which is impressive, but even more so in light of the declines in the PC market (~ 2% down overall) •Gross Margin jump of 2.5% YoY had Wall Street salivating that GMs of close to 40% may be defendable in the long term •Another miss on iPad, down 9%, and below analyst expectations •Cook indicated some channel inventory adjustments, but also a sluggish US market •A broader view is that Phablets are eating into iPad in Asia, while developed countries see slower than anticipated upgrade cycles •If iPhone 6 has the rumoured larger screen, Apple may see overall upside, but not for iPad (this is good - iPhone is higher margin) •Cook again flagged iPad’s success in enterprise, alongside (or including) education, and put much emphasis on the IBM partnership •Strong gains in China, with EMEIA and Japan also growing • Every region saw growth, though Americas and APAC were minimal. Retail is also treading water • Cook reported overall strong performance in the BRICs, and with two of these being in EMEIA, this could prove significant (unless the Ukraine crisis derails Russia) •Guidance for Q4 Revenues on the low side of expectations, but GM is in line •Three big questions: •Will the iPhone 6 open new opportunities in the Asia Phablet market? (assuming the rumoured bigger screen materialises) •Can the App Store continue to support iTunes/Services growth while transitioning/developing subscription music services? •Can Apple develop a mobile payments business, perhaps as its “Next big thing”
  • Aquilla Data Summary
  • Aquilla 23