Let’s cover some ground on Apple’s (AAPL) calendar third-quarter report, its fiscal fourth-quarter release.
What management said:
“Our strong September quarter results cap a very successful fiscal 2016 for Apple,” said Tim Cook, Apple’s CEO. “We’re thrilled with the customer response to iPhone 7, iPhone 7 Plus and Apple Watch Series 2, as well as the incredible momentum of our Services business, where revenue grew 24 percent to set another all-time record…We are pleased to have generated $16.1 billion in operating cash flow, a new record for the September quarter,” said Luca Maestri, Apple’s CFO. “We also returned $9.3 billion to investors through dividends and share repurchases during the quarter and have now completed over $186 billion of our capital return program.”
The scoop:
Revenue and earnings per share were largely in-line with expectations in the period, but all key products segments experienced declining units sold, with the largest decline witnessed in Macs (down 14%); services revenue was the bright spot at 24% year-over-year expansion. We’re not reading much into management’s projections for its fiscal first quarter of 2017, where revenue is targeted at $76-$78 billion, gross margin at 38%-38.5%, and operating expenses at $6.9-$7 billion. Revenue guidance may have come in a little light relative to consensus expectations, and expansion in China (FXI) appears more challenging than originally thought, but the company’s gross margin rate is still quite healthy. The latest iteration of the iPhone, the iPhone 7 and iPhone 7 Plus, remain in high demand, and rumors about an “Apple car” and “Apply TV” continue to swirl. The company’s AirPods are highly-anticipated, though opinions vary.
Insight from the quarterly conference call:
“As you know, iPhone customers are the most satisfied and loyal customers in the world, and fiscal 2016 saw more customers switch from Android (GOOG, GOOGL) to iPhone than ever before. This is due to the superior customer experience we deliver with our products, and it’s something no other company can match.” – CEO Tim Cook
“iPhone sales in Greater China declined during the quarter, but the initial customer response to iPhone 7 and 7 Plus gives us confidence that our December quarter performance in China will be significantly better on a year-over-year basis than our September quarter results, even as we lap the all-time record period from a year ago.” – CFO Luca Maestri
Are we changing our minds with our position?:
No. Apple remains a core holding in both newsletter portfolios, and the company’s mindshare of the consumer is arguably as valuable as its ecosystem. Apple remains an innovator, and whether through internal R&D or through a future acquisition, we expect the company to remain at the forefront of the technology revolution in mobile and beyond. A huge net cash balance and a nice and growing dividend offer substantial support for a position in both newsletter portfolios.