John Paczkowski

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Apple Beats Targets, Boosts Dividend

If Apple’s recent stock market performance had you thinking 2013 would be a year to forget, you might want to reconsider. The company just turned in an old-school beat.

As expected Apple posted an 18 percent decline in profit and slowing revenue growth for the quarter ended in March, but it also reported earnings of $10.09 per share on revenue of $43.6 billion. That’s above the $9.98 per share on revenue of $42.3 billion analysts had predicted, and at the higher end of Apple’s own range of guidance for the period: Earnings of between $9.23 and $10.23 per share on sales of $41 billion to $43 billion.

Commenting on Apple’s Q2 performance, Ironfire Capital founder Eric Jackson told AllThingsD, “Jiminy.”

And there was plenty more good news where that came from:

  • Apple sold a ton of iPhones and iPads. This time last year, the company shipped 35 million iPhones and 11.8 million iPads — double the number it sold the year before. During the quarter reported today, Apple sold 37.4 million iPhones and 19.5 million iPads. Analysts were looking for 36.5 million and 18.3 million, respectively. That’s a nice bump in iPhone sales, but it’s a spectacular leap for the iPad. In the year ago quarter, Apple sold just 11 million. As Ironfire’s Jackson said, “The biggest story here is iPads: 19.5 million up from 11 million a year ago. Apple is going to be a screen and service company from here.”
  • Apple authorized a $60 billion share buyback plan, and raised its quarterly dividend to $3.05 per share.
  • And it said it would make a “significant increase” in its capital return policy, totaling $100 billion by 2015. That’s a $55 billion increase over the previous plan.

“We are pleased to report record March quarter revenue thanks to continued strong performance of iPhone and iPad,” Apple CEO Tim Cook said in the company’s earnings release, adding that there’s some “amazing new hardware, software, and services” in the pipeline.

The lone speck of disappointing news in an otherwise good report: Apple’s guidance for next quarter, perhaps the most closely watched data point of all today. The company said it expects revenue of between $33.5 billion to $35.5 billion in the June quarter, and gross margins of 36 percent to 37 percent. Analysts had been looking for revenue of $38.6 billion and margins of 38.6 percent.

Still, a good showing overall, and one that the Street seems particularly happy with. Shares of Apple rose 4.6 percent in after-hours trading following the report.

Notes from the call …

  • Cook: “In the first half of the year our net income was over $22 billion. During that time, we sold 85 million iPhones and 42 million iPads. These are very, very large numbers.”
  • Cook acknowledges that Apple’s growth rate has slowed and margins have decreased.
  • Cook: “The decline in Apple stock price has been very frustrating to all of us. … The most important objective will always be creating innovating products.”
  • Lots to look forward to later this year: “We are hard at work on some amazing new hardware, software and services we can’t wait to introduce this fall and throughout 2014.”
  • Cook on Apple’s plan to return $100 billion to shareholders by the end of 2015, largely via share repurchases: “We concluded that investing in Apple was the best.”
  • Oppenheimer on iPad: 65 percent more iPads sold year over year. Sales more than doubled in Greater China and Japan. “We sold significantly more iPad minis in the March quarter than the December launch quarter. The market suggests iPad mini purchasers are first-time iPad customers.”
  • Yow. iTunes revenue rose 28 percent year over year.
  • More on iTunes: Quarterly billings over $4 billion.
  • Cumulative app downloads: More than 45 billion.
  • iCloud now boasts 300 million users — up about 20 percent from the 250 million the service had in January.
  • Retail revenue $5.2 billion, up 19 percent year over year.
  • Oppenheimer says Apple’s cash pile now totals $145 billion, up $7.6 billion sequentially.
  • On the share buyback program: “This is the biggest by any company. … We believe in Apple strongly and we think this is a great investment.
  • Cook on China: “This was our best quarter ever in China. Revenue came in at $8.8 billion. That’s up 11 percent year over year. … iPad sales in greater China grew 138 percent year over year. … Our Greater China revenue was up approximately 18 percent, so it’s a bit better than it first looks. … we still see a significant opportunity in China, it’s a great market. We expect to double the 11 stores there in less than 2 years. This number is obviously too low, currently. … China has an unusually large number of potential first-time buyers, and that’s not lost on us.”
  • Cook on competitive landscape: “We have tough competitors, but we feel we have the best products by far. We continue to invest in innovative products and feel confident about our product pipeline. We have the best ecosystem by far, and we’re just going to keep making it better and better.”
  • Cook: “We see an enormous number of first-time smartphone buyers coming to market in certain countries around the world. We started last quarter making the iPhone 4 even more affordable, and that has made it more attractive to first-time buyers.”
  • Cook on the five-inch iPhone: “My view continues to be that iPhone 5 has the absolute best display in the industry. … we always strive to create the very best display for our customers. … Our competitors have made some significant trade-offs in many areas in order to ship a larger display. We would not ship a larger display iPhone while these trade-offs exist.”
  • Questioned directly about new product categories, Cook said explicitly that Apple is considering them.
  • Cook on Mac cannibalization by iPad: “It’s certainly true the iPads cannibalized some Macs. But I don’t think it’s a huge number. … It’s probably extending the upgrade cycle. I don’t think the PC market is a dead market or a bad market by any means, and we’re going to keep innovating.”
  • iPad now being tested or deployed in 89 percent of the global 500.

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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik