Apple’s fantastic December quarter results weren’t enough

Apple released its December quarter results after the market closed on Wednesday and although they were in circulation, the shares fell over the next two days. Expectations were high for the company, as the stock had risen 16% in the six trading days leading up to the announcement, so the decline is likely normal profit taking.

It was nearly impossible for Apple to post large enough numbers and not see the stock at least stall, if not fall, as the stocks were overbought. However, the results and positive feedback should keep Apple’s next quarters strong as the iPhone 12 with 5G technology is just starting to roll out. The key question for the stock is whether its higher than historical valuation will hold up or come close to current levels.

Explosive income and profits

Apple easily generated over $ 100 billion in quarterly revenue for the first time; in fact, it was over $ 111 billion compared to expectations of $ 103.3 billion. This is a 21% increase from a year ago and the largest year-over-year gain since the 22% in the September 2015 quarter. The 72% increase in quarter over quarter was the strongest since the December 2014 quarter of 77%, the first full quarter of the iPhone 6 and 6 Plus.

EPS stood at $ 1.68 against the average street forecast of $ 1.41 and their range of $ 1.23 to $ 1.56. The $ 1.68 represented a 35% year-over-year increase and was against a difficult comparison to the 19% increase from the previous year.

Gross margins of 39.8% were also very strong. This is a combination of Hardware gross margin at 35.1% and Services at 68.4%. Services gross margin is highest ever reported and up more than 10 percentage points from three years ago (58.3% from the December 2017 quarter), when the company started reporting them .

Apple’s net cash position edged up to $ 83.5 billion from the September quarter, but was down $ 15.2 billion from a year ago. The company’s largest quarter of net cash was December 2017 at $ 163 billion. At the current rate, Apple is expected to hit its target of $ 0 net cash in about three years.

Operating cash flow of $ 38.8 billion and free cash flow of $ 35.3 billion were extremely strong. One thing to keep in mind is that a quarter’s cash flow can be skewed by a variety of factors. It is best to look at cash flow over a period of several years.

IPhones could have been even more powerful

IPhone revenue of $ 65.6 billion easily exceeded Street’s expectations of $ 61 billion. The number of explosions was up 17% year over year and 148% from the September quarter. The good results seem to come from a combination of larger unit shipments and average or rising ASP sales prices as well. This result is all the more impressive given that the first iPhone 12 models were not available until October 23, almost a full month into the quarter.

Counterpoint research analyst Aman Chaudhary estimates that Apple was the global leader in smartphone market share in the December quarter with explosive 96% quarter-over-quarter growth. He wrote: “The pent-up demand for a new 5G iPhone, the strong promotions from carriers, especially in the United States, and the longevity of the iPhone 11 are some of the reasons for this growth.”

For the full year, Chaudhary’s analysis shows that Apple has moved from third to second in market share and has significantly reduced the gap with leader Samsung.

China’s revenues exploded

Apple’s revenue in China rose 168% quarter over quarter to $ 21.3 billion. It was the largest quarter-over-quarter increase in a decade, as revenues were almost five times lower.

It was also a 57% year-over-year growth, which helped increase the company’s total revenue by 21%. Without the strong growth in China, the company’s total revenue growth would have been 15%.

Commenting on market dynamics, Counterpoint research analyst Mengmeng Zhang said, “Sales of 5G smartphones in China have jumped as Chinese OEMs aggressively roll out more profitable offerings. The 5G penetration rate became even more pronounced during the December quarter with the launch of Apple’s iPhone 12. 5G smartphones accounted for over 60% of smartphones sold in China, up from just 5% a year ago. “

Commenting on the competitive landscape, Counterpoint research analyst Flora Tang said, “Among the major OEMs, Apple was the only one to experience positive year-over-year growth in 2020. The strong Apple’s growth is due to the launch of the iPhone 12 series, which comes with 5G connectivity and models in a wider price range. In addition, thanks to steep price drops and promotions, the iPhone 11 series continued to perform well even after the launch of the iPhone 12. The iPhone 11 was the top-selling model on JD.com during sales. of the e-commerce festival. The impressive growth of the iPhone 12 and iPhone 11 series helped push Apple’s market share in China to 16% in the December quarter. “