Yesterday, Apple announced much better results for its second fiscal quarter ending March 31st, 2014 than many analysts had been expecting.
To the surprise of the analyst community, who have been demanding larger form factors for its key iPhone product, Apple sold 43.7 million iPhones in the quarter, far ahead of consensus estimates of around of 38 million units. Apple again sold more than 4 million Macs as well, with only the iPad disappointing a little due to sell-down of channel inventory in the same period.
Gross margins rose to 39.3%, its highest since 2012 and earnings per share rose by 15% on a share base reduced by steady share-buy-backs. Altogether Apple posted quarterly revenue of US$45.6 billion and quarterly net profit of US$10.2 billion, or $11.62 per diluted share.
Geographically Sales were strong in all major markets, including the UK, Japan and greater China where Apple is now selling an LTE enabled i~Phone for the first time since making a deal to supply China Mobile late last year.
Apple also announced a US$30 billion in crease in its cash return programme by way of both share buy-backs and larger dividends, for a total of US$130 billion to be completed by the end of 2015. Finally it is going to split the stock 7 to 1, which could very well allow it to enter into the Dow index for the first time.
Tim Cook, Apple’s CEO, also announced that Burberry CEO Angela Ahrendts, whom he hired last Fall to take charge of all of Apple’s retail activities, including the on-line store, would finally be coming on board at Apple next week after serving out her notice at Burberry.
In response to all this good news, after hours share trading last night saw Apple shares rise almost 8% to the US$565 level. And that is before any of the rumoured new products the company is working on have been announced, which won’t happen until later in the year when they are expected to be ready.
All of this is music to the ears of activist investor Carl Icahn, who last year pretended to have a big fight with Apple to make it sensitive to his views, only to withdraw his proxy motions when it became obvious there was not really much daylight between them.
In reality Icahn is a big supporter of the company, and of CEO Tim Cook, and he regards its shares as simply ridiculously cheap. Accordingly he tweeted last night after the announced earnings:
Agree completely with $AAPL’s increased buyback and extremely pleased with results. Believe we’ll also be happy when we see new products.
11:55 PM – 23 Apr 2014
As we said at conference yesterday, we continue to believe $AAPL remains meaningfully undervalued. Many analysts fail to understand company
12:01 AM – 24 Apr 2014
Icahn is certainly right about many of the analysts on Wall Street, who do not really “get`” Apple at all as it is such an anomaly in the high tech world – in their minds a gross margin in a range of 35% + is simply unsustainable in the high tech products world, and if achieved can only go down. Apple however has managed to break that mould and stay up there with such margins for a long time now, and has perpetuated what is effectively a unique business model of their own.
In addition, Wall Street hates an information gap as much as nature abhors a vacuum, and Apple does not provide product roadmaps or otherwise give guidance about its future product plans until they are ready. Whilst this can certainly be used to cover up mistakes at times, it also keeps competitors guessing, so analysts must just get used to it. Carl Icahn certainly has.