Apple surpassed analysts’ expectations with $42.1 billion in revenue in the back-to-school season, buoyed by unprecedented iPhone sales and surprisingly strong demand for Macs.
While breaking down the Q4 2014 numbers during today’s earnings call, Apple CEO Tim Cook and CFO Luca Maestri offered insights into the company’s Q4 performance in China, the struggling iPad and hints of new product categories coming down the pipeline.
Here are the biggest takeaways.
Apple destroyed expectations: Even with an iPhone 6 launch on the calendar, most analysts weren’t expecting Apple to bring in $42.1 billion in revenue for the quarter. Mac sales surpassed expectations, and iPhone 6 sales lived up to the hype Cook started last week when he called the latest model the “biggest iPhone launch ever.”
Macs rule: “Back-to-school season voted, and Mac won,” said Cook during today’s call. Mac sales continued to surprise with 5.5 million units flying off shelves last quarter even as the global market continued to shrink. Cook noted that Macs hit their highest quarterly market share since 1995.
Apple Pay is a feature, not a business: Cook confirmed that Apple has entered into contracts with banks to earn a small percentage off every Apple Pay transaction, but emphasized that he sees Apply Pay as an incredible feature, not a business. “What we wanted to achieve with Apple Pay was to have an incredible user experience…. We also wanted to focus on security and privacy. By doing so, we think we’ll sell more devices, because it’s a killer feature.”
Secrecy is key with Apple Pay: Apple Pay has scored rave reviews on launch day and secrecy has been a huge factor. Contrasting Apple Pay with competing services, Cook stressed that Apple doesn’t track users’ purchases. Apple doesn’t charge the customer or merchant for an Apple Pay transaction, but does take an undisclosed cut from the bank that issued the credit or debit card used. “Like any other contractual arrangement, those are a private sort of thing,” Cook said.
Apple is selling everything it makes: Demand for the iPhone 6 has far outpaced supply. Maestri admitted Apple is facing supply constraints on the iPhone 6 Plus and Cook revealed Apple is selling everything they make. “It’s unclear, looking at the data, when supply will catch up with demand,” said Cook, when asked about iPhone inventory bottlenecks. “It’s very difficult to gauge demand without first finding the balance…. We’re not nearly balanced. We’re not close. We’re not on the same planet.”
Next quarter is going to be huuuuuge! Apple CFO Luca Maestri set earnings expectations for next quarter at an all-time high of $63.5 billion. That’s more than Apple made in all of 2010.
Tim remains bullish on the iPad: iPad sales continued to slump for the quarter, but Cook isn’t backing down from his bullish expectations for the tablet. With the iPad Air 2 hitting the market, Cook says Apple’s data shows that people hold onto their iPads, but “over the long arc of time, my judgment says that the iPad has a great future.” Cook says he’s “very bullish on where [Apple] can take iPad over time.”
Don’t worry about China: Apple sales in China didn’t live up to expectations, but Cook blamed the shortcoming on the lack of an iPhone launch in the quarter (compared to Q4 2013, when Apple launched the iPhone 5s). Apple plans to double the number of retail stores in China, and Cook noted that iPhone unit sell-through was up 32 percent year-over-year. He also claimed that he still sees lots of positives, as China is in the early stages of its 4G rollout and the iPhone 6 is the first device to support the country’s three major carriers.
Don’t expect Apple Watch numbers anytime soon: Apple doesn’t plan to reveal Apple Watch sales numbers next year: Cupertino lumped the product into the “Other” category with the Apple TV and iPod. Cook says the move isn’t an indicator that Apple is expecting weak sales out of the gate, but noted that he’s not anxious to give competitors those sales numbers either.
More product categories are coming: When asked whether we can expect new product categories outside of Apple Watch and Apple Pay, Cook declined to reveal any details but said he’s “incredibly optimistic about the future.” He pointed to Continuity as one example of a product only Apple’s unique team can make, and teased investors to guess how the Apple ecosystem will expand. “If you use your imagination about where that goes — there’s no other company that can do this,” Cook said.
He also said Apple Pay is “classic Apple” product that takes something outdated and kludgy and makes it something quite elegant by focusing on the user experience. Investors — and Apple fans — can expect more of the same, he said, because Apple’s “creative engine has never been stronger.”
Lewis Wallace contributed to this report.