iPhone sales lifted Apple profits for Q3 2014

iPhone sales lifted Apple profits, which rose by 12% to $7.75 billion or $1.28 per diluted share in Q3 2014 (ending June 28th). From March to June, the company sold 35.2 million iPhones, thirteen percent more than during the same period last year.

iPad sales, however, were down again, but Mac sales were strong. In a video interview, CNET describes Q3 2014 as an “off quarter”.

iPhone sales grew by 48% in China, and posted healthy results in the other BRICS nations – Brazil, Russia, India and South Africa.

Overall sales in China during the third quarter increased by 26% to $5.94 billion, compared to just 6% in Europe and 1% in the Americas.  The company said about 50% of all iPhone sales in China were being bought by first-time Apple customers.

Third quarter revenue reached $37.4 billion and gross margin was 39.4%, compared to $35.3 billion and 36.9% respectively in Q3 2013.

The company’s board of directors declared a cash dividend of $0.47 per share of Apple’s common stock, payable on August 14th.

Strong iPhone sales

Apple’s CEO, Tim Cook, said:

“Our record June quarter revenue was fueled by strong sales of iPhone and Mac and the continued growth of revenue from the Apple ecosystem, driving our highest EPS growth rate in seven quarters (EPS = earnings per share).”

“We are incredibly excited about the upcoming releases of iOS 8 and OS X Yosemite, as well as other new products and services that we can’t wait to introduce.”

CFO Luca Maestri said $10.3 billion was generated in cash flow from operations, with more than $8 billion in cash returned to shareholders in dividends and share repurchases during the last quarter. “We have now taken action on over $74 billion of our $130 billion capital return program with six quarters remaining to its completion,” Mr. Maestri added.

Apple’s fourth quarter guidance

Tim Cook
Mr. Cook says Apple is excited about the upcoming releases of iOS 8 and OS X Yosemite.

For its fiscal 4th quarter, Apple is predicting:

  • Gross margin: from 37% to 38%,
  • Revenue: between $37 billion and $40 billion,
  • Tax rate: 26.1%,
  • Operating expenses: between $4.75 billion and $4.85 billion,
  • Other income (expense): $250 million.

Weak 3rd quarter iPad sales

iPad sales slid for the second successive quarter. Unit sales declined by 9.2% in Q3 after falling by 16% in Q2.

Just two years ago, iPad sales had jumped by 83% in the third quarter.

All tablet makers are struggling with poor demand in Europe and North America, where growth has been strong during the last few years.

Strong tablet demand in emerging markets, especially in the Middle East and China, has not been large enough to offset the decline in the advanced economies.

The Wall Street Journal quotes Mr. Cook, who said in an interview regarding tablet sales “This isn’t something that worries us.”

The Cupertino-based computer giant is targeting the corporate market in the hope of raising its iPad sales. Last week, a partnership with IBM was announced whereby the two companies will create more than 100 corporate apps for mobile devices.

Strong Mac sales

Apple Macs are getting close to bringing in more revenue than iPads. The last time that happened was in 2011, when iPads were relatively new products. Mac sales grew for the third consecutive quarter, rising by 18% in Q3 to 4.4 million units.

The revenue gap between Macs and iPads is closing rapidly. In the third quarter, $5.9 billions’ worth of iPads were sold, compared to $5.44 billion’s worth of Macs.

Tablets are a type of halfway house between smartphones and computers – they are less portable than smartphones, but cannot fully satisfy corporate needs like computers can.

Video – Apple’s third quarter mixed results

CNET Senior Writer interviews Sumi Das about why analysts are more interested in Apple’s fourth quarter results.