ii view: Apple sales boom, but no steer on iPhone 12

by Keith Bowman from interactive investor |

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Group revenue is up, but smartphone sales fell 20% and there's little news on its flagship product.

Fourth-quarter results to 26 September

  • Revenue up 1% to $64.7 billion
  • Earnings per share down 4% to $0.73
  • Returned nearly $22 billion to shareholders

Chief executive Tim Cook commented: 

“Apple capped off a fiscal year defined by innovation in the face of adversity with a September quarter record, led by all-time records for Mac and Services. Despite the ongoing impacts of Covid-19, Apple is in the midst of our most prolific product introduction period ever, and the early response to all our new products, led by our first 5G-enabled iPhone line up, has been tremendously positive.”

ii round-up:

Smartphone maker Apple (NASDAQ:AAPL) reported results which marginally exceeded Wall Street forecasts, although a 20% fall in iPhone sales year-over-year, and a lack of first-quarter guidance, left investors slightly unnerved. 

Apple shares fell by around 4% in after-hours US trading having risen by over 55% year-to-date. Shares for fellow TV streamers Netflix (NASDAQ:NFLX) and Prime owner Amazon (NASDAQ:AMZN) are up by 55% and 74% respectively.

The lack of guidance for Apple's current first quarter, although similar to the last two pandemic hit quarters, left investors without a feel for how well sales of its delayed iPhone 12, launched this month, were doing.   

iPhone sales accounted for half of overall revenues in the year to the end of September and were the only product category to decline.

Mac PC and iPad sales for the Covid hit quarter rose by 28% and 46% respectively, aided by demand from consumers still working from home under social distancing restrictions. Wearables sales including AirPods rose by 21% while services encompassing TV and music streaming grew by 16%. 

On a geographical basis, Greater China was the only region to suffer retreating demand. Sales of $7.95 billion for the quarter compared to $11.13 in the fourth quarter of 2019. US sanctions regarding Chinese phone maker Huawei are likely to be suffering some retaliatory action. 

A dividend of $0.205 per share was declared, the same as the last two quarters of $0.82 per share when allowing for the July 4-for-1 share split undertaken.  

ii view:

The huge success of Apple’s iPhone products both pleases and concerns at the same time. iPhone sales of $142 billion in the year to the end of September are close to the stock market value of fellow Dow Jones constituent and oil giant Chevron (NYSE:CVX). A new version of the iPhone to keep sales ongoing has become a regular autumn Apple event. Developing other products such as wearables, including watches and services to diverse sales, is also ongoing. 

2020 and the pandemic have offered both opportunities and difficulties. Consumer reliance on technology has increased under work from home conditions, although opportunity to test and upgrade devices at local stores has been disrupted. 

For investors, the success of the new 5G enabled iPhone 12 is clearly important. A 20% fall in iPhone quarterly sales may be the result of consumers deferring purchases until its latest smartphone is available. Increasing government interest in the dominant positions of tech giants is also worth remembering, along with the ongoing debate on tech sector valuations. But with the pandemic now underpinning demand for technology given social distancing requirements, and with the company sat on cash of over $190 billion, Apple’s place in an already diversified long-term focused portfolio looks likely to remain.  

Positives:

  • Diverse geographical markets
  • Over $190 billion of cash & cash equivalents held

Negatives:

  • Sales of its key iPhone product fell 20%
  • Elevated valuation

The average rating of stock market analysts:

Buy

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