It looks like the prophets of doom will have to wait for another day. For the last few months the Web has been awash with frenzied claims that Apple is in crisis, the share price has been plummeting, there was talk iPhone sales had collapsed which was then followed by research purporting to show iPad sales had collapsed. Finally, yesterday (23 April), we got to see the figures from Apple for its second quarter.
Surprise, surprise. Profits of $9.5 billion (€7.29 billion) and sales of $43.6 billion (€33.5 billion) were in line with Wall Street estimates. The company sold 37.4 million iPhones (three million more than Wall Street expected) and 19.5 million iPads (above the consensus of 18-19 million)-so much for collapsing sales. If Apple is a company in crisis, there are an awful lot of businesses out there that would love to be in Apple’s crisis right now.
Yes, profits were down on the $11.6 billion (€8.9 billion) from the same period last year (and yes, it was the first year-on-year decline since 2003) but sales were still up from $39.2 billion (€25.2 billion). Gross margins were down significantly from 47.4% in Q2 2012 to 37.5% and the company is expecting them to fall marginally to 36-37% in the next quarter with sales either slightly down or the same as last year. Again, though, there are an awful lot of businesses out there that would be very happy, thank you, with Apple’s "low" gross margins. In that context, it might be worth highlighting the recent analysis which suggested that although Apple made up only 5% of the PC market, it accounted for 45% of the market’s entire profits. There are quite a few suppositions in there but it makes for interesting reading.
On the subject of gross margins, it was interesting to hear CFO Peter Oppenheimer draw historical parallels with the launch of the iPod in 2001 when he said Apple was prepared to accept lower margins than the company average to reap the rewards further down the line. The lower margins at the moment are mainly down to changes in the product mix with the introduction of the iPad mini and the positioning of the iPhone 4 as Apple’s lower cost smart phone.
Apple also revealed plans for product releases from the Autumn and into 2014. CEO Tim Cook said the company’s teams were "hard at work on some amazing new hardware, software and services and we are very excited about the products in our pipeline". Needless to say, he wasn’t any more specific when he talked to analysts in a conference call later so we’ll have to wait to see just how "amazing" those new products turn out to be.
One notable aspect of the results announcement which suggested some capitulation to the campaign by selected analysts for Apple to give more back to shareholders was the decision to increase the dividend pay-out by 15% to $3.05, along with a huge increase in its share buyback programme from $10 billion (€7.68 billion) to $60 billion (€46 billion). The latter move also reflects Apple’s belief its shares are well worth buying back at their current price.
The bum note was the company’s plan to use borrowing to finance the share buyback because it doesn’t want to pay taxes on repatriating the large sums of cash it holds overseas. Apple is not alone among US technology companies in refusing to "bring the cash back home" but it leaves a sour taste nonetheless, even if it probably costs less to borrow money than pay the tax on the cash it has.
There are people busy describing Apple as a company managing its decline or urging it to be more like Samsung but to do so would go against the grain of the company’s ethos and tradition. Apple just doesn’t do cheap. It hasn’t done it with computers and it won’t do it with phones. The fact it has around two-thirds of the profits in the smart phone market with under 9% share tells you all you need to know about its business model. Yes, that share will come under pressure but Samsung will also face a battle to maintain its share against vendors making generic me-too Android-based smart phones at a lower price.
In the meantime, the prophets of doom can continue trying to convince the rest of us that a company predicting gross margins of around 36% and revenues of $33-35 billion in a quarter without any significant product launches is "in crisis" but unless that’s an address in Cupertino, they’re likely to be waiting again come July.
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