Company Objective: Apple Inc. designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players. The Company sells a range of related software, services, accessories, networking solutions, and third-party digital content and applications. The Company's segments include the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. The Americas segment includes both North and South America. The Europe segment includes European countries, India, the Middle East and Africa. The Greater China segment includes China, Hong Kong and Taiwan. The Rest of Asia Pacific segment includes Australia and the Asian countries not included in the Company's other operating segments. Its products and services include iPhone, iPad, Mac, iPod, Apple Watch, Apple TV, a portfolio of consumer and professional software applications, iPhone OS (iOS), OS X and watchOS operating systems, iCloud, Apple Pay and a range of accessory, service and support offerings.


AAPL Details

While the market was lately flooded with worries over the dipping sale of iPhones, Apple Inc. (NASDAQ: AAPL) has not failed to help investors regain the confidence in the company based on its recent March quarter updates. In fact, the group announced a significant rise in dividend and a massive stock buyback to cap the falling momentum and buck the recent trend. This has curbed the concerns that rose basis the statements made by many Apple suppliers implying sluggish demand for iPhones. The group has also indicated to have a consistent strategy of pricing to value with regards to its launch of new iPhone and other products. Its services’ business has emerged as a good growth engine. The group is thus setting itself to stay well-poised with its diverse business segments and recent support from consumer computing products.

Record March quarter performance: Apple Inc. (NASDAQ: AAPL) delivered a record second quarter of 2018 performance with revenues reaching $61.1 billion marking a 16% rise against prior corresponding and representing the sixth consecutive quarter of accelerating revenue growth. Emerging markets also showed a solid performance with revenue rising 20% while there was 21% year-over-year growth in Greater China, which is the strongest growth rate from the segment in 10 quarters. Americas, Europe and Japan segments also performed well. Services business performance delivered a record performance with Revenue reaching $9 billion for the first time, as compared to $2 billion in the same March quarter last year. The group recorded an all-time revenue from the App Store, from Apple Music, from iCloud, from Apple Pay and more, indicating the significance of Apple’s wide active installed base of devices as well as the loyalty and engagement of their customers. Paid subscriptions surpassed 270 million across all of their services, which is an increase of over 100 million from a year ago and a rise of $30 million in the last 90 days alone, contributing to the overall increase in services revenue.
 

Regional performance (Source: Company reports)

Flat margins: Despite a solid top line, gross margins performance was flat at 38.3%, on the back of the seasonal loss of leverage with cost improvements and a shift in mix towards services.Net income rose $2.8 billion to $13.8 billion during the quarter. However, diluted earnings per share were $2.73, rising 30% against a new record for Q2, and cash flow from operations was very strong at $15.1 billion.


Overall performance (Source: Company reports)

Product performance highlights: iPhone revenue surged 14% on a year on year (yoy) basis during the quarter, with iPhone ASP rising to $728 as compared to $655 a year ago, boosted by solid performance of iPhone X, iPhone 8 and iPhone 8 Plus. They sold 52.2 million iPhones, rising 3% over last year. iPhone units’ growth doubled in several markets including Japan, Canada, Switzerland, Turkey, Central and Eastern Europe, Mexico and Vietnam. The group cut iPhone channel inventory by 1.8 million units. The App Store set a new record wherein Apple Music passed 40 million. iCloud storage revenue rose over 50% on a yoy basis while AppleCare revenue rose at its highest rate in five quarters. Mac set a new March quarter revenue record in Americas as well as Greater China. They sold 4.1 million Macs, generating year-over-year growth in many emerging markets including Latin America, the Middle East and Africa, Central and Eastern Europe and India. iPad sold 9.1 million iPads wit over half of purchases from new customers to iPad. Japan, Latin America, Middle East and Africa and Central and Eastern Europe drove the market share. Apple Pay generated a solid growth with active users more than doubling and transactions tripling year-over-year. Apple Pay’s availability at major transit systems is a key driver for adoption among commuters while in March, they launched Express Transit with Apple Pay in Beijing and Shanghai. Apple Pay is currently available in 21 markets and the group forecasts launch in Norway, Poland and Ukraine in the next several months.


Segment performance; Units in thousands, Revenue in millions (Source: Company reports)

Ongoing growth of wearable business: Apple reported a solid quarter for their wearables business, which includes Apple Watch, Beats and AirPods with combined revenue of over 50% year-over-year. Apple Watch reported a solid quarter with revenue rising at double digits year-over-year to a new March quarter record. The group launched carrier support for Series 3 with cellular in Mainland China, Hong Kong and Thailand during the quarter with more markets on the way.

Positive pipeline: The group has already delivered significant earnings in six months and is very bullish on their future. They built a pipeline of products and services and a huge installed base of active devices growing across all products pipeline. They also continue to maintain the highest customer loyalty and satisfaction in the industry. Given the recent corporate tax reform, the group forecasts their direct investment in the economy to exceed $350 billion over the next five years in the US including $30 billion in capital expenditures. The group aims to create over 20,000 U.S. jobs at Apple over that timeframe. They also approved a new $100 billion share repurchase authorization as well as a 16% rise in their quarterly dividend. For fiscal 2018 third quarter, the group forecasts revenues to be in the range of $51.5 billion and $53.5 billion with gross margin to be in the range of 38% and 38.5% and estimates OpEx to be in the range of $7.7 billion and $7.8 billion.

Rising Demand for Airpods: Demand for AirPods is rising given the device’s popularity in more and more places, like gym, coffee shops, and wherever people are enjoying music on their Apple devices. The group started shipping HomePod in February, which was widely recognized as having the best audio quality for its size and class. HomePod is a breakthrough speaker that delivers amazing sound, and the group believes it to change the way people listen to music at home. The device is available in the United States, the United Kingdom and Australia, at present, while the group intends to add new features to HomePod as well as launch in more markets around the world.

Other highlights: The group released iOS 11.3 during March which is a major update offering new immersive augmented reality experiences, access to personal health records in the Health app and more. In iOS 11.3, patients are in nearly 40 health systems representing hundreds of hospitals and clinics that would currently consolidate their medical records from multiple sources. During March, the group announced two new services with IBM to bring more dynamic and intelligent insights into apps. In healthcare, iPhones are being used across leading health systems including Cedars-Sinai, the Mayo Clinic and HCA Healthcare with iOS apps to support clinical workflows, communications and care delivery. HCA Healthcare is planning to deploy 100,000 iPhones across their hospital sites within the next three years. The group reported a positive performance from their retail and online stores which produced their highest March quarter revenue ever. iPhone reported a solid yoy growth driven by AirPods and introduction of HomePod.

Significant cash machine: The group continues to have a solid cash position with $267.2 billion in cash plus marketable securities and had $110 billion in term debt and has $12 billion in commercial paper outstanding for a net cash position of $145 billion. The group returned nearly $27 billion and paid $3.2 billion in dividends and equivalents and spent $23.5 billion on repurchases of 137 million Apple shares through open market transactions. They have over $300 billion capital return program, including $200 billion in share repurchases against their cumulative $210 million buyback program.

Stock performance: Apple continues to maintain a dominant market share and customer focus remains the key to success. iPad has been estimated to have about 53% of the U.S. tablet market share during the March quarter of 2018, which is a rise against 40% share a year ago. As per the recent customer survey from 451, Research measured iPad customer satisfaction ratings of 95% and among business customers who plan to purchase tablets in the June quarter, 73% plan to purchase iPads. The group is enhancing their dividend for the sixth time in less than six years. The quarterly dividend rose from $0.63 to $0.73 per share, which is a rise of 16%. Apple stock rose over 4.4% on May 02, 2018 and generated over 19.7% returns in the last one year. We give a “Buy” recommendation on the stock at the current price of $ 176.57.
 

AAPL Daily Chart (Source: Thomson Reuters)

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