AWT News Update: October 25, 2016 (Q4 2014 Earnings Call Special Edition)

Ahhh, the joy of earnings calls. They provide a lot of information, and are usually as dry as Death Valley National Park. Today's Apple Q4 2016 Earnings Call was no exception, so today we're taking that one-hour phone call and condensing it down to a bit over 7 minutes. Highlights? Read the rest of this post and listen to the podcast.

  • Apple "kinda" beat the street estimates, slightly over for earnings per share and iPhone units sold, but was just a hair under estimates for revenues at "only" $46.9 billion.
  • One of the key points is that supply is constrained on the iPhone 7 Plus and iPhone 7. Apple is expecting the iPhone 7 to "catch up" during the quarter, but it sounds like supplies of the iPhone 7 Plus could be low until early in 2017.
  • Services now account for a huge percentage of Apple's revenues, and Apple CFO Luca Maestri noted that Apple Pay transactions were up over 500% since 2015. The company did more transactions in September of 2016 than in all of 2015.
  • The iOS App Store also contributed to that services revenue jump, creating 100% more revenue than the competing Google Pay app store.
  • As usual, shares of AAPL are sharply down in after hours trading, with the latest quote at 6:27 PM ET showing a share price of 114.90, down 2.83 percent.
  • There's more, so be sure to click the play button and listen to that podcast!

The text version of the podcast can be viewed below. To listen to the podcast here, click the play button on the player below.

Text Version

Hi, this is Steve Sande for Apple World Today, and this is an AWT News Update special edition for October 25, 2016. This week’s podcasts are sponsored by Spidercase, a rugged protective case for your iPhone that won’t cost a bundle. Check out the link in the show notes for more information.

Today’s podcast is a summary of the news from Apple’s Q4 2016 earnings call that just ended. All in all, Apple net sales were down from last year, as were margins. On the plus side, R&D expenditures climbed quite a bit, so Apple obviously has a lot coming up in the future that it is working on.

Apple did beat analyst estimates for earnings per share with $1.67 versus the street estimate of $1.66 per share, and in iPhone units sold 45.5 million vs. 45 million. The company didn’t meet street expectations of $47 billion revenues, coming in at $46.9 billion.

More customers switched from Android to iPhone than ever before, and the company made a record $6.3 billion on services. As part of services, CEO Tim Cook noted that Apple Pay transactions were up over 500% for 2016, with more transactions in September of 2016 than in all of 2015. The company has almost doubled the size of its services revenue in the last 4 years.

iPhone 7 and 7 Plus — Demand continues to outstrip supply. The company is also seeing a good response to the release of Apple Watch Series 2. Cook noted that Aetna is rolling out Apple Watch to its employees to supply motivation and fitness help.

Cook brought up HomeKit, and expected over 100 HomeKit-compatible products by the end of the year, emphasizing the security of HomeKit products after last week’s “Internet of Things” distributed denial of service attacks.

Cook noted that the company is increasing its R&D, focusing on how machine learning is being used in a number of ways. iPhone sales in India were up over 50%, and Apple has inked a partnership with a new carrier in the country to provide the best possible service over the carrier’s all-IP network.

Enterprise is a big area for Apple. Deloitte is creating an Apple practice with over 5,000 employees who will be working on integrating Apple iOS products into corporations.

45.5 million iPhones were sold during the quarter, but was well below its desired inventory — that means sales of the new devices are quite hot.

Apple CFO Luca Maestri said that he believes China sales will rebound in the 1st quarter of 2017 (ending December 31) due to strong demand for iPhone 7 and 7 Plus.

451 Research 65% will purchase an iPhone 97% customer satisfaction rating

In the September quarter, iOS App Store created 100% more revenue than Google Play.

Mac installed base is at an all-time high, and news of the new Macs is expected to boost sales.

Maestri said that over 120 partners are working with Apple now on mobility solutions. 34,000 Shell locations will soon start using iPad point-of-sale systems, which will support Apple Pay where available.

Apple ended the quarter with $237.6 billion in cash + marketable securities. That’s a lot of cash. At one point, Cook noted that Apple is open to acquisitions of any size that help the company.

Some highlights from the analyst Q&A follow:

Gene Munster of Piper Jaffray: Annual upgrades - Car - Cook talked around an answer, saying that Apple is “Always looking at new things, a lot of technologies that will become available or will revolutionize the car experience” iPhone 7 Plus may be in short supply through the end of the year

Katy Huberty was interested in R&D investments, and why they’re growing at such a high rate. “Confidently investing in the future”

Toni Sacconaghi: Company is benefiting from the Samsung fiasco and an extra few days in the next quarter compared to last year, but he is concerned that iPhone growth is actually flat as seen in the guidance for the 2017 first quarter. What should investors think about iPhone growth for the future? Luca Maestri said that the supply constraints are a bit of a concern for the next quarter. The company feels good for iPhone going forward, though.

Good question on having a home assistant that’s separate — Cook said that most people want it with them all the time, and that’s why it’s nice to have it on the iPhone and iPad. Apple gets 2 billion Siri requests a week, they’ve shipped more assistant-enabled devices than anyone else out there.

That’s all for today; We’ll be back tomorrow afternoon with another edition of the AWT News Update.