Apple Q2 15A– The mighty cycle

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iPhone replacement drives big Q2 15A results.

• Apple reported excellent Q2 15A results as the iPhone replacement cycle has remained strong.
• Apple increased its cash return program by more than 50% to $200bn.
• Q2 15A Revenues / EPS of $58.0bn / $2.33 comfortably beating consensus at $55.7bn / $2.13 despite the currency headwind that crimped the results of all its peers.
• 61.2m iPhones shipped compared to consensus at 58m, 4.6m Macs shipped compared to consensus at 4.7m and 12.6m iPads shipped compared to consensus of 13m.
• Once again the iPhone carried the day and more than offset the small miss in Macs and the ongoing weakness in iPads.
• This underpinned gross margins which came it at 40.8% nicely above the guided range of 38.5%-39.5%
• This allowed another $15.6bn of cash to be added to the pile, bringing it to $193.5bn.
• The problem is that 88% of the cash is held overseas and is unavailable for dividends or buybacks without paying the hefty repatriation tax of around 30% when bringing it back into the US.
• Guidance for Q3 15E was in line with forecasts with revenues / gross margin of $46bn-$48bn / 38.5%-39.5% expected compared to consensus of $47bn / 38.9%.
• Apple remains in the grip of a very strong replacement cycle which I suspect could continue until calendar Q3 15E.
• The larger screen has allowed Apple to address the single biggest shortcoming of owning previous devices.
• This combined with a nice design, superb radio and good enough battery life has encouraged existing iPhone users to upgrade sooner than they normally would as well as meaningful switching from Android.
• It popularity is also allowing Apple to hold pricing steady meaning that it continues to monetise ecosystem extremely effectively.
• Although Apple does not really have Digital Life services of its own, it distributes third party apps in an easy and fun to use way that remains unrivalled.
• The other ecosystems are catching up but still have a long way to go giving me confidence that Apple has time to plot its next move before the iPhone becomes commoditised.
• That being said, this is all pretty much in the share price of Apple already leaving me preferring the ecosystems with more growth (Google) or those mounting a credible challenge (Microsoft).