Closed Tracking Apple earnings: as it happened

Apple retains coolest brand

Apple confirmed investor fears about the first-ever declines in sales of iPhone in the current quarter with the release of its December quarter results. In speaking to investors, chief executive Tim Cook tried to assuage concerns that the slide would be as precipitous as some analysts had suggested,. Tim Bradshaw, US technology correspondent, and Tom Braithwaite, Lex writer in San Francisco, track the reaction to the results, with Emiliya Mychasuk, US Online News Editor, riding along.

What to expect – FastFT wraps up the Apple investor’s dillemma

@Tim’s preview of the results

Apple’s stock closes the day at $99.99. And back over $100 in after hours trading, immediately after the results.

Even so, it might not head off the race with Google

At $100, Apple shares are down 5 per cent this year – which is a better showing than the Nasdaq’s 8.8 per cent fall.

Apple is finally feeling the impact of the slowing economy in China – its most important growth market.

Three months ago, Mr Cook said he saw no sign of an impact to Apple’s business from wider economic concerns. But in the three months to December, overall revenue growth slowed to 14 per cent. Finance chief Luca Maestri said the iPhone continues to gain share in the region, given the smartphone market is slowing much more gradually, but warned of growing “volatility”:

“In spite of the fact we produced our best results in mainland China and Greater China, we can see some signs of economic softness, particularly in Hong Kong right now.”

Apple stock is pretty flat in the wake of the results, hovering around the $100 mark in after-hours trading – with so many cuts by analysts after supply chain warnings earlier in the quarter, was the bad news already priced in?

Wall Street looks at Apple as a hardware company, but Apple itself thinks it ought to be valued more like internet companies such as Alphabet (Google), Amazon or Facebook, which trade on far racier multiples.

So Apple revealed on Tuesday it has that a total of 1bn devices in “active” use, an increase of more than 25 per cent year-over-year, the first time it has disclosed the statistic.

The 1bn figure includes each iPhone, iPad, Apple Watch, Apple TV, Mac and iPod Touch that connected to Apple’s internet services such as the App Store, iTunes and iCloud in the past 90 days. However, many Apple customers own several of its products, and Apple did not disclose a de-duplicated “monthly active user” figure akin to those that Facebook, Twitter et al are measured by.

Luca Maestri, CFO, said the new disclosure is an attempt to refocus investors’ attention on Apple’s faster-growing services business.

“We have a huge number of devices actively engaged with our services and that number is growing very fast,” Mr Maestri told the FT. “If you think about it in the context of how [other] internet services businesses are valued, it seems very clear to us that our services business is not valued correctly.”

Peak iPhone?

Apple is saying little about exactly how its two big non-iPhone launches, the Apple TV and Watch, are faring. Their sales are buried in the “other products” line, which saw a year-on-year increase of 62 per cent to $4.4bn. Also included in that reporting line are iPods, Beats headphones and other accessories such as iPhone cases.

Mr Maestri told the FT that “other products” was “up very strongly thanks to the Apple Watch and Apple TV. In both cases we set a new all-time record for those categories.”

But seeing as we don’t know what their previous sales figures were, it is hard to tell whether these products could some day help to offset the iPhone slowdown.

Gene Munster of Piper Jaffray sees this as the bottom for the negative sentiment that has surrounded Apple’s stock in recent months. He said in a note just issued:

Our first take is that we believe this implies around 50-52 million iPhones for March vs the Street’s 54.6m and the buy side’s thinking for 48-50 million. 51m iPhones in Mar-16 would be down 17% y/y.

Overall we believe the guide eliminates the biggest overhang on the stock of how to think about iPhone units in March and will also result in the reset of June expectations.

Daniel Ives at FBR Capital Markets adds:

“Overall given the ‘white knuckles fears’ going into this print, we would characterize the overall headline performance as better than feared…. Cook and Apple have some more wood to chop over the coming quarters to give investors further confidence in the potential mega cycle around iPhone 7.”

Tim Cook’s dulcet Alabamian tones start us off… “an incredible number” of iPhones

Tour of world currencies, the Brazilian real is down more than 40%!

This is all to hammer home that Apple is facing severe currency headwinds.

Currency cost $5bn in revenues.

14% revenue growth y.o.y from China – “Great results”, says Cook.

BUT “some signs of economic softness in Greater China earlier this month, most notably in Hong Kong”

“New quarterly record for Apple Watch sales.”

This is hardly a surprise given it was only released 8 months ago.

“It is important to appreciate that a significant portion of Apple’s revenue recurs over time.”

This is the story that Apple wants to sell this quarter.

Coupled with new number that there are now 1bn active devices. “an unbelievable asset for us…. [leading to] one of the largest services businesses in the world”

In other words: please stop obsessing about the hardware and Peak Iphone. We sell apps too! Emoticon

$153bn of $200bn buyback programme completed, says CFO.

Now investors wait for the next one, promised in April.

Apple will be “very active” in debt markets to fund yet more buybacks.

Luca Maestri suggests things will get better after the next quarter: “March quarter faces the most difficult year-om-year comparison relative to the rest of the year.”

Now analyst questions….

Apple putting up prices to deal with currency shifts…

Inevitably over time that will affect demand, says CFO.

Tim Cook says we are not at Peak iPhone:

“We were blown away by the level of Android switchers last quarter… the highest ever by far. We see that as a huge opportunity. Brics… huge opportunity.”

He adds that Apple’s recently launched upgrade program where it tries to lure customers into a yearly subscription will be “meaningful” but less important.

Apple shares drifting back down now – hovering below $99

Toni Sacconaghi asks the question the market cares about: what is the future of the iphone which looks like it will fall 15-20% this quarter?

Interestingly, Cook disputes the idea that Apple’s revenue guidance implies a 15-20% decline – “We don’t think that they’ll decline to the levels that you’re talking
about.” but concedes: “we do think that iPhone units will decline in the quarter.”

On R&D, Tim Cook says “we’re continuing to invest without pause. We have some great things in the pipeline, and we very much believe strongly in investing through downturns such as the one that sort of everyone is going through.”

Apple stock is starting to turn now – down 1.7 per cent (after hours) with a few minutes left to go on the conference call.

Hot off the screen Lex note on Apple just now published:

Apple: changing the subject

Apple is trying to fix the reality distortion field. For decades it helped Steve Jobs inspire developers and customers. Now it is backfiring; the shares have fallen a quarter since July and were stagnant after-hours on Tuesday even following record quarterly results.

The most profitable company in the world is now valued at just 8 times earnings, excluding cash. That does seem unreal. Investors, though, have a laser focus on projections for iPhone growth, which Apple’s own revenue guidance now implies will fall into negative territory for the first time in the next quarter.

Apple’s solution is to provide new numbers on its installed base — 1bn active devices — and to remind people that they are enticing their users to part with billions of dollars for apps and music.

Apple is still “very bulilsh” on China but Mr Cook is now starting to talk about the opportunity in India too – where the iPhone’s market share has been very small so far. He says the young population is “incredibly great for a consumer brand”.

Revenues in the first quarter were up 38 per cent in the first quarter, despite the currency issues it also faces there.

“We’ve been putting increasingly more energy in India,” says Mr Cook.

For more on Apple’s new plans to open its own retail stores in India, see this recent FT story James Crabtree in Mumbai and Amy Kazmin in New Delhi

Why are you giving more data on services? Asks analyst. Because iPhones aren’t growing. Duh.

Apple shares now down 2 per cent…$97.85

That isn’t Tim Cook’s response. But he says it’s something the investment community might want to focus more on.

Mr Cook hints at more to come in the cloud and services generally, especially perhaps on the enterprise side.

“We wouldn’t be breaking this out if it wasn’t an area that was very important to us in the future,” he said.

That’s it. Slightly flat. Lacked the defiant edge of last time when Cook insisted China was fine and iPhones would be up. China was OK and iPhones were up but only just.

The stock, which has resisted moving much for almost 90 minutes, is now down 2.3 per cent after the call.

Is Apple stock down after the call because Mr Cook admitted that iPhone sales will fall this quarter?

Or because he pledged to continue investing “without pause” through this downturn?

Or just because investors wanted to hear about something more to look forward to from Apple (beyond, perhaps, something “really cool” in VR)?