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  (Source: Bloomberg)
Apple's holiday quarter was one for the record books, in the face of potentially adverse geopolitical conditions

Apple, Inc. (AAPL) reported its Q1 FY2015 earnings results on Tuesday after hours.  For the holiday quarter, Apple's financial performance was -- simply put -- a blowout.  Unlike perennial rival Microsoft Corp. (MSFT), Apple showed no signs of a geopolitical hangover or slump on the strong dollar.

In spite of its pullout from the Russian market, a higher sales tax rate in Japan (a key market), and mounting political pressures in China, Apple managed to grow iPhones sales to a record 74.5 million units, up from 51 million a year prior.  The iPhone 6 and 6+ have been among the best-received models in recent years, in spite of early concerns over initial technical flaws ("bendgate").

The iPhone remains Apple's strongest product.  The popular smartphone is currently driving over $51B USD in revenue -- just over two-thirds of Apple's total sales.

iPhone 6 sales

Mac sales rose 14 percent to reach 5.52 million units, up from the 4.84 million Mac units Apple moved during Q1 FY2014 (calendar Q4 2013).  One small black mark on an otherwise sterling earnings report was iPad sales, which fell from 26.04 million units in Q1 FY2014 to 21.42 million units last quarter.  That fall comes in spite of increasingly aggressive price cuts on older models and the introduction of the iPad Mini 3 and the new iPad Air 2.

Apple CEO Timothy Cook says he's still "bullish" on the iPad (sound familiar?), but acknowledged that the upgrade cycle is "more PC-like" than analysts initially hoped (they were hoping for an iPhone-like model of yearly upgrades among fans).  Cook revealed that much of the iPad sales for the quarter appeared to be new buyers, which is both good news in terms of Apple's reach and bad news in terms of the pace of upgrades.

It's been a year since we've seen growth in iPad unit sales and it remains to be seen when exactly things "bottom out", so to speak.  While the
 iPad is arguably Apple's weakest product growth-wise at present, but it is still outselling Macs roughly 4-to-1.  Revenue wise, though, Macs (9.31 of Apple's total revenue in Q1) have nearly drawn abreast of iPads (12.04 percent of Apple's total revenue in Q1).

new iPads
The iPad Mini 3 and iPad Air 2 didn't save the line's stuttering sales.  The iPad is reportedly suffering from a slow upgrade cycle.

Gross margin -- a measure of profitability based on the amount of revenue retained after production costs are subtracted -- rose from 37.9 percent a year ago to 39.9 percent.  Total profit came in at a cool $18B USD ($3.06 USD/diluted share), up more than a third from the profit of $13.1B USD ($2.07 USD/diluted share) which Apple posted in the 2013 holiday quarter.

Revenue grew 30 percent to reach $74.6B USD.  Apple CEO Timothy Cook cheered the news, stating in an earnings release:

We’d like to thank our customers for an incredible quarter, which saw demand for Apple products soar to an all-time high... the execution by our teams to achieve these results was simply phenomenal.

Apple's chief financial officer (CFO) Luca Maestri added:

Our exceptional results produced EPS growth of 48 percent over last year, and $33.7 billion in operating cash flow during the quarter, an all-time record.  We spent over $8 billion on our capital return program, bringing total returns to investors to almost $103 billion, over $57 billion of which occurred in just the last 12 months.

Digging into the numbers, the biggest place where Apple bested Microsoft was in avoiding a slowdown in China.  Apple earned $16.14B USD in the "Greater China Region" (China/Hong Kong/Macau), up more than two-thirds from the $9.5B USD it posted during the 2013 holiday quarter.  Japan did see relatively flat sales, with revenue rising barely from $5.05B USD to $5.49B USD on a year-on-year (YoY) basis.  Americas and European sales both saw YoY revenue gains in excess of 20 percent.

Apple App Store sales also reportedly set records, as well.  The "Services" division, which includes the App Store and iTunes Store, as well as other subscription services (e.g. iCloud premium accounts) accounted for roughly 6.43 percent of Apple's total revenue -- roughly $4.8B USD.  That's up nearly 10 percent from the $4.4B USD the unit made in holiday 2013.

Tim Cook
Apple CEO Tim Cook celebrated another incredible quarter with Apple, thanks to the iPhone 6 setting sales records. [Image Source: Bloomberg]

Apple is forecasting that the first calendar quarter (Q2 FY2015), which ends in March, will see a gross margin of 38.5 to 39.5 percent and revenue of between $52B and $55B USD.  Apple also warns of a higher effective tax rate of 26.3 percent, which is not overly surprising given scrutiny in the EU and other regions over allegations of tax evasion.

Looking ahead, as I stated in a previous post, just before the earnings were announced, even if Apple performed strong on the back of pent-up iPhone demand, it will be critical to watch its performance in calendar Q1 (Q2 FY2015) for signs of issues mirroring Microsoft's.

So far the iPhone appears to be immune to the decrease in consumer spending that's afflicted Japan and to the buying backlash over political conflict between the U.S. and China.  It's also shown little impact of a strong dollar, which is particularly impressive, given that -- like Microsoft -- Apple now does the majority of its business overseas.

These issues could still come into play this quarter, but look at these results I have to wonder whether Apple doesn't have some secret panacea that's allowing it to escape the geopolitical realities that seem ubiquitous among many other tech firms and the general market malaise that brought us a slew of disappointing earnings reports over the last week.

Apple announced that it will pay a one-time dividend of $0.47 USD/share of common stock on Feb. 12.

Source: Apple [press release]





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