What’s behind Apple’s monster first quarter?
In a word: China. iPhone sales now constitute over 60% of Apple’s revenues, and Apple’s smartphone market share in greater China (Hong Kong and Taiwan included) went from 5% to 12%. That growth contributed to what was by any account a truly gargantuan report: $58 billion in sales; $13.5 billion in profit; 27% annual revenue growth. They plan to distribute $200 billion in cash to shareholders over the next 2 years. If present trends were to continue, Apple’s revenues would be equal to the entire world’s GDP in 20 years. Of course that won’t happen—and the stock isn’t priced for that kind of growth, either.
It is difficult to overstate how big a quarter this was. It seems like every dollar people saved from lower oil prices went to buying a new iPhone. Sales jumped 40% to over 61 million units. The large screens of the 6 and 6-plus seem to appeal to Asian consumers, where they are more fashionable. Apparently, there was a lot of pent-up demand for the bigger screen.
To be sure, local phone makers like Xiaomi and Huawei will work hard to build up their brands and re-capture some of the market. Consumers will benefit as companies compete for their business. And competition will cut into profit margins down the line. That will raise some concerns.
But for now, we should admire what Apple has done.
Douglas R. Tengdin, CFA
Chief Investment Officer
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