Apple Q4 14A – Beat and raise

Apple on course for a superb quarter to the detriment of Samsung.

• Apple reported Q4 14A results that comfortably beat estimates and guided above consensus as demand for the iPhone 6 continues to outstrip even the most bullish forecasts.
• Q4 14A revenues and EPS were $42.1bn / $1.42 compared to consensus at $39.8bn / $1.29.
• 39.3m iPhones shipped during the quarter compared to forecasts of 38m and I suspect that there is another positive surprise to come in January.
• 12.3m iPads were shipped compared to consensus at 13m which is a little disappointing but not a huge surprise given:
  • Most users knew there was a new iPad coming and probably held off purchases.
  • The tablet market is slowing to almost no growth at all this year compared to 44% in 2014.
  • I suspect that the iPhone 6+ is likely to cannibalise shipments of the iPad Mini.
• For the next quarter, weakness in iPad is not an enormous concern as all the attention is being focused on the surging demand for the iPhone 6.
• Apple sold 5.5m Macs taking its market share to its highest level in almost 20 years as back to school demand had a significant effect this year.
• Market share is still less than 10% globally but it is inching inexorably up with time.
• Guidance for the coming quarter (fiscal Q1 15E) was positive with revenues of $63.5bn – $66.5bn expected which compares favourably to consensus at $63.4bn.
• Q1 15E EBIT is implied to be $19.3bn in line with consensus at $19.4bn.
• However, I suspect that Apple is continuing to be pretty conservative and consequently, I think that number should be comfortably beaten come January.
• The popularity of the iPhone 6 is likely to mean market share gains both in unit terms and for the iOS ecosystem overall.
• The main loser here is Samsung which has owned the large screen phone market for the last 3 years and is now showing every sign of rapid decline.
• Google is likely to be unaffected in the short term as RFM estimates that 50% of its mobile advertising revenues are generated on iOS devices.
• Hence a shift in ecosystem share to iOS away from Google’s Android is unlikely to affect revenues in the short-term.
• However, this is not a great state of affairs for the long run as I am pretty sure that Apple would dearly love to remove Google from its devices and its App Store if it could afford to do so.
• Reliance on its biggest competitor for its revenue growth is a state of affairs that Google will be very keen to avoid.
• Google, Microsoft and Apple (for the next quarter) remain the top companies to look at for investing in the mobile ecosystem.