Apple Q4 FY 2014 Fiscal Results - 21% Mac Growth And Strong iPhone Sales
by Brett Howse on October 20, 2014 7:30 PM EST
This afternoon, Apple released their financial results for Q4 2014, which ended September 27, 2014. Strong iPhone sales, as well as a resurgence in Mac sales, boosted the company’s revenue above the $40 billion USD guidance to $42.1 billion. Operating income came in at $11.165 billion, with a net income of $8.467 billion for the quarter. This resulted in an earnings per share of $1.43, which beat analysts’ expectations of $1.31 per share. Gross margin was a respectable 38% for the quarter, compared to 37% in Q4 2013.
Apple declared a cash dividend of $0.47 per share which will be paid out to all shareholders of record as of November 10th, on November 13th. Over $20 billion was returned to shareholders in Q4 as part of the share buyback program and other market transactions.
| Apple Q4 2014 Financial Results (GAAP) | |||||
| Q4'2014 | Q3'2014 | Q4'2013 | |||
| Revenue (in Billions USD) | $42.123 | $37.432 | $37.472 | ||
| Operating Income (in Billions USD) | $11.165 | $10.282 | $10.030 | ||
| Gross Margin (in Billions USD) | $16.009 | $14.735 | $13.871 | ||
| Net Income (in Billions USD) | $8.467 | $7.748 | $7.512 | ||
| Margins | 38.0% | 39.4% | 37.0% | ||
| Earnings per Share (in USD) | $1.43 | $1.28 | $1.19 | ||
As is the norm, the iPhone was the star of the show. In September, Apple of course launched two new iPhone models which brought the total volume of devices sold to 39.272 million for the quarter, which is up 11.5% from the previous quarter and 16.2% from the same quarter a year ago. The iPhone 6 and 6+ are apparently selling very well, with Apple selling all of the units they are making at the moment. iPhones accounted for 56% of Apple’s revenue this quarter. With the iPhone 6 only being available for a couple of weeks this quarter, expect the units to jump significantly for Q1 2015, which began September 28.
The surprise for this quarter was Mac sales, which grew an astonishing 21% year-over-year, and 25% sequentially. It is even more amazing when you consider that the MacBook Pro line only got a slight refresh last quarter, and the iMac, Mac Mini, and MacBook Air got no significant updates at all. Apple said that they “won back to school” and they certainly did as a percentage increase. Overall Mac sales were 5.52 million, as compared to 4.413 million last quarter and 4.574 million at the same time last year. With this increase, Apple stated that they have the highest PC sales percentage since 1995. Revenue for the Mac was also big, as would be expected with the gain in sales. Mac revenue is now back to number two overall for the company with $6.625 billion for Q4.
| Apple Q4 2014 Device Sales (thousands) | |||||
| Q4'2014 | Q3'2014 | Q4'2013 | Seq Change | Year/Year Change | |
| iPhone | 39,272 | 35,203 | 33,797 | +12% | +16% |
| iPad | 12,316 | 13,276 | 14,079 | -7% | -13% |
| Mac | 5,520 | 4,413 | 4,574 | +25% | +21% |
| iPod | 2,641 | 2,926 | 3,498 | -10% | -24% |
iPad sales continue to be the thorn in Apple’s side these days, with a sales decrease for the third consecutive quarter. iPad sales fell to just 12.3 million, down from 14.1 million last year, which is a 13% drop. Clearly they are not giving up on the market, and the two new devices launched last week as well as the holiday season should put an end to the decline in sales for Q1. Apple said that iPad sales were ahead of iPhone sales over the same initial four years, so they are happy with where it is at, but still three straight quarters of sales decline is not what they would have been hoping for.
The venerable iPod likely got the final unit and revenue breakdown, with the iPod going to be rolled into the new Other category, with the iPod being joined by Accessories, Beats, Apple TV, and other products in the new reporting category such as watches when they are released. iPod sales fell 24% from last year, with 2.6 million devices sold. Revenue came in at just $410 million (just!) for the quarter.
Finally, iTunes/Software/Services was up 8% year-over-year with $4.6 billion for the quarter, with the App Store continuing to drive revenues for the Apple ecosystem.
| Apple Q4 2014 Revenue by Product (billions) | |||||
| Q4'2014 | Q3'2014 | Q4'2013 | Revenue for current quarter | ||
| iPhone | $23.678 | $19.751 | $19.510 | 56.2% | |
| iPad | $5.316 | $5.889 | $6.186 | 12.6% | |
| Mac | $6.625 | $5.540 | $5.624 | 15.7% | |
| iPod | $0.410 | $0.442 | $0.573 | 1% | |
| iTunes/Software/Services | $4.608 | $4.485 | $4.260 | 10.9% | |
| Accessories | $1.486 | $1.325 | $1.319 | 3.5% | |
Outlook for Q1 2015 is a big boost for the holiday season. Revenue is expected to come between $63.5 and $66.5 billion with margins between 37.5 and 38.5 percent. Q1 will of course include more sales of the new iPhone, but also new product launches such as the iPads, and the Mac refresh we saw last week. Also new to the quarter will the Apple Pay, which was not available for Q4 2014. Apple divulged on the earnings call that it will not be charging anything to retailers or consumers for using the new pay system, but that they do have a financial arrangement with the financial institutions to earn money through the system. Details of those arrangements were kept confidential. In the end, if someone is paying, it will of course be the consumer even if it is just through product markups. We do not know though if the cost of the system will be any higher than the credit cards already charge, so it may amount to a zero anyway.
Apple has been a company which has been printing money for a long time, and with the latest product launches that does not seem to be ending anytime soon. The one key here is Mac sales, which were very high, especially when compared to the PC industry as a whole which has recovered somewhat, but is possibly still at small decline overall for the year.
Update: The story originally stated Software and Other would be a single category, but there will be two categories for Software and Other.
Source: Apple Investor Relations
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Brett Howse - Monday, October 20, 2014 - link
You are correct. I improperly read Software and Other, when it was actually Software, and Other. Article fixed!svan1971 - Monday, October 20, 2014 - link
If 10 is as big a disaster as 8 I'm guessing mac sales will continue to increase. I had never used a Mac but I have been for the past 2 years Microsoft can go pound sand.soulxfer - Monday, October 20, 2014 - link
Hope Mac sales grow, they had been in single digits for decades. Looks like tables are turningmelgross - Monday, October 20, 2014 - link
Mac sales were at their highest growth levels after Windows 7 came out. It could repeat with Windows 10.Scrogneugneu - Monday, October 20, 2014 - link
To put it into perspective : iPod sales are at about the same level (in terms of units) as Blackberry phone sales.przemo_li - Tuesday, October 21, 2014 - link
Good OSX sales are telling.High end flock to Apple. (Or run away from MS) As You wont find Macs in Your ordinary IBM PC clones* store, those are CONSCIOUS (or semi-conscious) choices.
Very good job Apple.
Same story with Chromebooks and low end. (Though there it could be matter of margins for OEMs, who needed to pay $$ to MS for licenses)
Lets see if Valve can eat out some of IBM PC clones gaming market.
That would leave business market for MS then.
Lets see if all the no-MS players can keep up their play after 'second release of Windows'** syndrome subside.
* In the early days of "PCs" there where many architectures of PCs. What we refer as "PCs" today (and mean Win+x86) was one of many, other included Apples, Comodores, Ataris, etc.
We are entering period when that will be true again. At least we will have Intel PCs, and ARM PCs, or even MIPs PCs if IT pool that off.
** XP -> OK. Vista -> NO! Win7 -> OK. Win8 -> NO! Win10 -> OK???
robinthakur - Thursday, October 23, 2014 - link
I'm not surprised by this. Oddly enough, I think it has alot to do with Apple giving away the OS for free these days and reliable battery life longevity. I'm impressed with Yosemite, it's very slick. The only fly in the ointment is that it is ever so slightly less smooth on my late 2011 Macbook pro owing to the graphics on it.When I had to buy a laptop for VM work on SharePoint, I went with the Macbook Pro as all the PC options just felt either tacky and dull or compromised in terms of spec. For a good all around spec such as what you find on the Macbook Pro, it generally requires lots of configuration and a cost very similar to a similar Mac. In the corporate market I've noticed a huge increase in people using Macbook Airs. At this point I wouldn't even consider buying or building a PC laptop or desktop until we see whether Windows 10 kills or cures the ailing market. My existing PC when I occasionally power it up, is fast enough. I always think you get what you pay for and PC laptops generally are cut-price, unfinished looking products because that is what they are. That's why Microsoft had to create the Surface in the first place.
Impulses - Tuesday, October 21, 2014 - link
What's causing the iPad downturn? Just the glut of cheaper tablets out here? Kinda curious the Nexus 9 went slightly upmarket when it seems the market is saying they prefer cheaper tablets or a premium laptop (tho 16GB for $399 & $120 keyboard accessory = /groan).I think iOS/Android functionality has to take a huge leap if they wanna keep selling $500+ tablets, as a pure consumption device the value's never been there and there's plenty of cheaper options (or even more capable x86 options if you really need to get work done).
Frankly I think MS/Intel aren't being aggressive enough in pushing and iterating devices like that ASUS T100... They should be able to decimate the high end mobile OS tablet market.
apunari - Tuesday, October 21, 2014 - link
I believe phablets are eating into tabkets marketshare. Larger than compact smartphones yet more portable than tablets.hrrmph - Tuesday, October 21, 2014 - link
People will accept compromises in phones that they won't accept in tablets. Local storage, high speed input / output ports (emphasis on the plural, as in multiple ports), high resolution displays, etc, and top-notch radios are all needed.Apple, Google, and Microsoft aren't building the right tablets, for various reasons. Samsung has it almost right, except for local storage which is stuck at a pitiful 160GB on Samsung devices.
Note that the fastest growing sector for Apple is the one that has USB 3.0, Thunderbolt 2, almost unlimited local storage, and high resolution (and physically large displays). And, it is the one that works well with trackpad, keyboard, and mouse input.
Getting back to tablets, it is also under-estimated by the manufacturers the importance of putting good telephony and global navigation radios in their slates. If you are going to sell a "mash-up" of a smartphone and a PC, then it needs to do almost everything that either one of them can do.
Apple has been pretty good, with the latest iPhones having more bands of LTE connectivity than just about any other manufacturer out there. So it is possible for them to have the very best radios in their tablets if they want to. They already tend to do better than the competition here, so I don't see why every Apple tablet doesn't automatically come with these things. In fact, I don't see why every tablet *period* doesn't come with these things. It's 'Basic Mobility 101' - put good radios in mobile devices. Otherwise they aren't really mobile devices. (Microsoft especially needs to write that one out on a chalkboard a thousand times).
I've heard all of the howling and excuses about telecom fees and complexity. What's more cpmplex than a tethering connection that can't be trusted to work correctly when you need it? It would be trivial for a giant like Apple to say "Okay, enough is enough - everything gets good radios." That would be all that it would take - the entire market would move to match them overnight. The costs of such technology would plummet within 8 months.
The one thing that Apple and Google are stubbornly refusing to do (and that remains the Achilles heel of their tablets) is putting decent storage sub-systems in them. By decent, I mean one that includes internal removable storage in addition to the more ho-hum internal fixed storage.
In fact, the inability to upgrade storage and RAM is also dragging down Intel's Ultrabook PCs. So why do I want a tablet that has hardly any storage to begin with and cannot have any added? It's simple, I don't. And a lot of other people feel the same way about tablets. They're a nice concept, but they just aren't capable enough to do enough, easily enough.
People who actually use their PCs and devices (to their fullest) have stuff on them. And at some point they have too much stuff for the local storage to handle. The manufacturers have to stop treating this as a user fault, and start selling devices that can hold a lot of stuff, and that can be upgraded... to hold more stuff. Because that's what computing devices are *supposed* to do. For the time being, the cloud is merely a sometimes convenient supplement. That won't change soon. So the manufacturers need to pony up and present some serious local storage.
The few niches where tablets have advantages that I regularly exploit are: vehicle navigation, multi-use traveling display (airplanes, trains, buses, boats, etc), e-reader, sharing underwater and vacation videos, and as a ready secondary device to take over if my phone dies. For these roles, tablets are nimble and irreplaceable. With further development, they could take a bigger chunk out of laptop sales, but they need to be able to do more.
Finally, Apple made it's mark as a premium PC and device builder by including premium displays when no one else would. How times have changed. Apple is behind and needs to get serious about display resolution again. Maybe the time isn't right for 4K on everything (it'll never be right on a phone, of course). But, there needs to be some serious thinking about what size tablet is the right size for 4K and make it happen. There might even be a significant visible difference with 4K on a 7, 8, or 9" display. Whatever the size cutoff is found to be, then everything below that size should be 3K.
While we're talking displays, PC displays are desperately in need of 4K (and for many users 8K, but that will understandably take time for the GPUs to develop the grunt to do the job). But, there is no excuse for the premium PC and device maker to ignore 4K. 4K's time is now. Apple should have it on something. And, then almost everything. There is still a small window of opportunity for them to show leadership here. But, it is a closing window.
There's plenty of good OSes around - it's the hardware that is lacking.