Steering Apple to new highs: The iPhone 6 pays off for Apple boss Tim Cook. Source: The Wall Street Journal
Apple has posted a record quarterly profit, with the tech giant buoyed by booming demand for the iPhone 6 and the iPhone 6 Plus. But can the good times last?
With a net profit of $US18 billion for its fiscal first quarter ended December 27 and revenue coming in at a record $US74.6bn Apple has just had the biggest quarter in history.
We aren't just talking about Apple here, this is the biggest quarterly earnings posted by any company. Ever.
Here's the honour roll and Apple, which is no stranger to the list, has finally managed to top energy giants Gazprom, Royal Dutch Shell and ExxonMobil.
iPhone 6 beats out the competition
Apple's road to the top has been powered by the release of the iPhone 6, with the company selling a record 74.5 million units in the quarter.
That's around 34,000 iPhones sold every hour, 24 hours a day for the entire quarter. Pretty impressive but not entirely unexpected given that the company's belated move into bigger screens was always going to deliver a turbo-charged boost to iPhone sales.
The pent-up demand for larger real estate was there to be tapped and the iPhone 6 and its bigger cousin the iPhone 6 Plus have done their job. But is this just a one-time sugar rush for Apple or can this furious growth be sustained over a longer period of time.
Apple chief executive Tim Cook is confident that this isn't just a flash in the pan, telling analysts in a conference call that the big screen appeal still has some way to travel.
According to Cook, there is still a big chunk of the existing installed base of iPhone customers who are yet to make the switch. So, there's still plenty of room to sell iPhone 6's in established markets but also to emerging ones.
Cook highlighted that the quarter has also seen stronger new customer adoption, with the iPhone starting to cut into Android's turf. Some of that lift is coming from the Chinese market, where revenues were up 70 per cent in the quarter from a year earlier.
Apple's partnership with China Mobile is clearly paying dividends with the iPhone showing strong sales growth, and inevitably stealing some market share from Android phones.
According to research firm Canalys, the popularity of the iPhone 6 and 6 Plus in China in Q4 2014 has led Apple to take first place (by units shipped) in the Chinese smart phone market for the first time.
Given that the average selling price of Apple’s handsets is nearly double those of its nearest competitors, it's a striking illustration of Apple's ability to sway user preference through its brand appeal.
The average selling price of the iPhone was $US687 in the quarter compared with $US637 in the same period one year ago. The iPhone 6 Plus costs $US100 more than Apple's previous high-end model. Plus the company is also enticing consumers to upgrade to more expensive models with greater memory.
Apple has successfully tapped into the aspirational market in China, where customers are gravitating to the premium appeal of the iPhone.
"The company is finally riding the large screen and LTE trends in China, which have been vital to its success, along with a well-timed launch and a clampdown on gray exports of its products out of Hong Kong," Canalys says.
It's a bullish outlook for the iPhone and that means we are unlikely to see too much change on that front from a hardware perspective in the short-term. The form factor enhancement of the iPhone 6 has worked and Apple's focus will now shift to enhanced software offering delivered via its HealthKit, HomeKit, Apple Pay platforms and its new programming language Swift.
That's also where the Apple Watch comes into the frame because it's the sort of ecosystem enhancement that Apple can use to keep the momentum up on its Phone sales.
The rise of wearable devices, not as stand-alone products but as another extension of an app ecosystem, could prove to be handy for Apple to spur further adoption of the iPhone in the market.
Selling more Macs than ever before
The iPhone sales may have grabbed the limelight but this quarter is more than that for Apple. The company has also posted record sales for Macs, at a time when PC sales are in the doldrums. According to research firm IDC, overall PC shipments fell 2.4 per cent during the fourth quarter. Competing researcher Gartner said quarterly shipments rose 1 per cent.
Apple sold 5.5 million Macs during the quarter, a 14 per cent increase from a year earlier. Now that's an impressive feat given the ascendancy of mobile computing.
This lift in Mac sales may have to do with a interesting shift in the market, where a lot of users are starting to upgrade their desktop options. As the buzz around tablet PCs and iPads serving as viable replacements for desktops is tempered, many in the market are belatedly upgrading their desktops. The desktop still has a place in the new environment and this realisation could account for the stabilisation in the PC market and why Apple is selling more Macs than ever.
What's in store for the iPad
The one weakness in the latest numbers is the iPad, with the rampant iPhone sales helping Apple cover for the continued softness in tablet sales.
With 21.4 million iPads sold during the December period, an 18 per cent decline from a year earlier, the iPad is in need of a refresh. However, just what direction Apple takes with the tablet remains to be seen but Apple boss Tim Cook is pretty bullish on the iPad.
According to Cook, the iPad, in its current incarnation, still commands decent buyer rates, particularly in emerging markets. He adds that over the "long arc of time" the iPad is still a strong business.
That may be the case, but at some point Apple has to push enough buttons to replicate the sort of upgrade cycle we have seen with the iPhone.
There's no doubt that the iPad still has some work to do when it comes to enhancing its presence in the enterprise space. While iPads are present in most companies deployment is still very small and Cook said in the conference call that there's a definite room for improvement there.
Apple's partnership with IBM should bear more fruit this year in the form of enterprise-focused iOS apps, with 12 scheduled for release this quarter and more than a 100 in play by the end of 2015.
All of this lays the foundation for what many are saying could be the next iteration of iPad - The iPad Pro.
But the iPad Pro will need to be a lot more than enterprise-focused apps, bigger screens and a stylus.
Telsyte analyst Foad Fadaghi sums it up nicely when it comes to what the iPad Pro needs to be.
"The big question will be is it going to be a Pro product or just Pro branding," Fadaghi says.
It's a pertinent point, because when it comes to tablets, more screen real estate and a stylus aren't going to do the trick.
According to Fadaghi, the key improvement needs to be in how much grunt the next iPad is going to bring to the table.
"A lot will come down to the processing power that the next iPad is going to have, will it be able to do the type of robust applications that business need it to do," he says.
With the success of the iPhone 6, Apple would love to replicate that success on the iPad front, However, revitalising the iPad will require more than just form factor improvements and Apple is seemingly willing to bide its time.
"I'm not projecting something very different next quarter or the next," Cook said at the conference call.
"I'm thinking over the long run."