ii view: iPhone helps Apple set new profits record

Business is booming, but something is keeping a lid on Apple's share price. Find out what it is here.

Third-quarter results to 26 June

• Revenue up 36% to $81.4 billion
• Earnings per share doubled to $1.30
• Dividend of $0.22 per share
• Returned nearly $29 billion to shareholders

Chief executive Tim Cook commented: 

“This quarter, our teams built on a period of unmatched innovation by sharing powerful new products with our users, at a time when using technology to connect people everywhere has never been more important. 

"We’re continuing to press forward in our work to infuse everything we make with the values that define us — by inspiring a new generation of developers to learn to code, moving closer to our 2030 environment goal, and engaging in the urgent work of building a more equitable future.”

ii round-up:

Smartphone maker Apple (NASDAQ:AAPL) delivered record third-quarter revenues of $81.4 billion as sales of its iPhone jumped by 50% to nearly $40 billion.

But accompanying outlook comments added some caution, with management pointing to a likely slowing in growth over the current quarter, given a combination of factors including chip supply constraints and foreign exchange headwinds. 

Apple shares fell in the aftermath, having added more than 55% over the last year. Apple remains the highest valued company on the US stock market with a value of over $2.4 trillion. Shares for rival smartphone software maker and advertising giant Alphabet (NASDAQ:GOOGL) are up by more than 70% over the last year. Windows desk-top giant Microsoft (NASDAQ:MSFT) is up just over 40%.

Apple sales across its product categories rose by double-digits, including a one-third gain in service sales to a new all-time high. Apple competes with Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) in offering its own online streaming content, along with other services such as music and data storage. 

iPad and Mac computer sales rose by 12% to $7.37 billion and 16% to $8.23 respectively, as many workers upgraded equipment under increased working-from-home options in the wake of the pandemic. 

Its total installed base for iPhones previously surpassed one billion. The 5G data capability of its latest iPhone 12 has provided a core reason for consumers to upgrade. 

Earnings per share of $1.30 beat Wall Street forecasts for nearer to one dollar per share. The dividend payment of $0.22 per share is unchanged from the previous quarter, although up from $0.205 paid in the first quarter. 

ii view:

The phenomenal success of Apple’s iPhone products both pleases and concerns at the same time. Sales of its smartphones account for 54% of overall company sales year-to-date. A new version of the iPhone to maintain sales momentum has become a regular autumn event. Developing other products such as wearables, including watches and services to diversify sales, is also ongoing. 

For investors, the success of the relatively new 5G enabled iPhone 12 is clearly important. Increasing government interest in the dominant positions of tech giants is also worth remembering. So is the ongoing debate on valuations and the possibility of a more consistent approach to corporate tax rates across international borders.  

That said, the move to 5G does appear to have had a positive impact in lifting sales over this latest quarter, and 5G is in theory 20 times faster than 4G. Service revenues are growing, and product customer loyalty remains high. In all, and despite what may have become management’s customary downplaying of prospects, Apple remains deserving of a place in most diversified long-term focused portfolios. 

Positives:

• Diverse geographical markets
• Eight years of consecutive dividend growth

Negatives:

• Sales of its key iPhone product fell 3% over its last financial year
• Souring relations between China and the West

The average rating of stock market analysts:

Buy