updated 12:36 am EDT, Thu April 24, 2014
Apple products still finding new audiences even as leading lines mature
With the exception of iPads and the declining iPod, the numbers coming out of Apple's conference call with analysts mirror the title of Pixar's best movie: Up. Of primary importance to analysts were the better-than-expected iPhone sales, but Mac sales were also up from the year-ago quarter. Other numbers revealed in the course of the call were also positive; growth in China and Japan, strength in developing markets and new revelations on Apple TV and iTunes numbers.
One surprise was CEO Tim Cook's admission that iTunes now has over 800 million accounts, most of which have credit cards attached. This represents a doubling of iTunes account holders in the last 18 months, and when paired with the double-digit growth in what Apple now calls "iTunes software and services," which covers the various App, e-book, video and music stores.
Another unexpected uptick was that Apple has now sold over 20 million Apple TVs since the product's introduction in 2007. The income from annual sales, combined with the money spent on iTunes purchases made directly from Apple TV, led Cook to decide the product was no longer a "hobby." The last time Apple mentioned Apple TV sales was last May, when the company said it had sold 13 million -- meaning some seven million units were sold in the last 12 months, more than half of all Apple TV sales ever. By comparison, Roku says it has sold a total of about eight million of the various versions of its self-titled streamer.
Mac sales climbed to 4.1 million units, an increase of around 100,000 from the year-ago quarter. The iPod, which Cook has called a "declining business," nevertheless sold 2.8 million units. While a 52 percent drop in sales from a year-ago, the figure is not bad for a company that superceded the iPod seven years ago with the introduction of the iPhone. Apple's overall margin was up as well, reaching 39.6 percent -- the best gross margin since September of 2012.
Cook also made a point of reminding analysts that all three of the company's iPhone models -- the 5s, the 5c and the iPhone 4S -- were all outperforming their respective counterpart models from a year ago at the same point in the cycle. This was meant as a rebuke to media reports of the iPhone 5c not doing as well as hoped, but analysts were also surprised by the strength of the iPhone 4S in developing markets, which has helped Apple double sales in India and Russia, and increase sales 61 percent in Brazil. In Vietnam, Apple saw a remarkable 262 percent growth from a year ago.
Although Apple continues to sell the iPhone 4 in some markets, Cook addressed a question about it, saying that it accounted for "single digit" sales of the iPhone, while the 4S had turned out to be a much stronger performer in developing markets. Overall, 66 percent of Apple's sales were outside North America in the March quarter.
Crucially, Apple also reported growth in China and Japan. China revenue was up to $9.8 billion, with iPhone sales in the country up 28 percent, and -- to the surprise of many -- Mac sales in the country jumped 13 percent. The various App Stores and iTunes saw growth of more than 100 percent year-over-year in China, and the iPad grew six percent. Cook also pointed out that most of the iPhone customers Apple is gaining in China are switchers from Android. Sales are also up 50 percent year-over-year in Japan, with the iPhone now owning 55 percent of the market there.
Cook seemed particularly pleased to report that the company has added "tens of millions" of new iPhone and iPad buyers in 2014, mentioning later in the call that the total of new users was 60 million when counting all four product lines. He said that for the "Greater China" region (which includes Taiwan), 85 percent of iPhone 5s buyers were new to the platform, as were 69 percent of iPhone 5c buyers. The total revenue for the region was $19 billion, a 21 percent year-over-year increase.
Also revealed during the call was that Apple's revenues had topped $103 billion for the first six months of this year, and Cook noted that overall some two-thirds of the people registering an iPad during that period were new to the tablet, and that half of iPhone buyers were making their first iPhone purchase. He also pointed out "customers who have a great experience with their first Apple product often become loyal and happy owners of multiple Apple products over time."
Incoming Apple CFO Lucas Maestri also told the analysts that App Store revenue alone grew nine percent year-over-year, to $2.6 billion -- and added that according to App Annie, the stores generated 85 percent more revenue than Google Play during the quarter. He also mentioned that two-thirds of people planning to buy tablets in the next three months said they intended to buy an iPad.
Following the long string of increased statistics, there was one area where the company reported a drop: cash reserves were down $8.3 billion from a year ago, to $150.6 billion. This was largely due to the increased stock buyback activity, increasing dividends and active acquisitions -- Apple has acquired 24 mostly small companies in the last 18 months, with Cook describing the company as "on the prowl" for more buyouts.