Analysis, Apple, Companies

Apple’s Q1 FY2015: Most Profitable Quarter in Corporate History

Apple (NASDAQ:AAPL) has reported its best fiscal quarter ever, with revenue and profit figures surpassing analyst expectations. The numbers speak for themselves, both in nominal terms and with respect to year-on-year growth. In fact, this is the most profitable quarter in corporate history, surpassing the quarterly earnings records of Gazprom, Royal Dutch Shell and ExxonMobil, which were previously in the top three.

For the first fiscal quarter of 2015 (ending December 31, 2014), Apple reports a quarterly profit of $18 billion from revenue of $74.6 billion, a year-on-year revenue growth of 29.5% and profit growth of 27.2%. In this fiscal quarter, diluted earnings per share (EPS) of $3.06, a 47.8% increase from last year’s $2.07 diluted EPS. This surpasses analyst expectations of $2.60 earnings per share.

Guidance for second fiscal quarter indicates that Apple is likely to earn $52 to $55 billion in revenue. The company has announced cash dividends of $0.47 per share, payable in February.

In this quarterly report, we can glean a few things about Apple’s business so far. In gist, the company performs well during holiday seasons. The iPhone has been the biggest driver of revenue for the company in this quarter, so far, even amid the iPhone 6 having a slow start. The iPad, however, has performed dismally. And in a surprising twist, China has become a big driver of growth for the company, even with some initial hiccups in the launch and sales of the iPhone 6.

iPhone in the stocking. Apple’s best quarters prior to this one had been the first quarters of fiscal years 2012, 2013 and 2014, which fall in the months of October through December. This suggests that, as expected, holiday sales are a big revenue driver.  For Q1 FY2015, Apple sold 74.5 million iPhones, up from 51 million in the same period last year — a 46% year-on-year growth.  This is the first full fiscal quarter after Apple launched the iPhone 6 and 6 plus, and even with some initial concerns about the whether the bigger form factor of the plus will sell, as well as supply issues at the start of the iPhone 6’s product cycle, sales figures for Apple’s smartphones will suggest that it’s a runaway hit.

Will the iPad be sustainable? The short answer is “yes” — at least Apple CEO Tim Cook thinks so. For this quarter, iPad sales actually fell 21% year-on-year, which may be an indication that the company’s latest tablet lineup has weakened, even as the prices for previous-generation iPad Air and iPad Mini models have been reduced. One school of thought will say that iPad sales are being cannibalized by the iPhone 6 Plus on the low-end and the MacBook air on the higher-end. However, Cook is still optimistic about the product line, and that these sales figures are still within expected range. Cook admits that “the upgrade cycle is longer” compared to smartphones, speaking during investor guidance. “I believe that over long arc of time that the iPad is the great business, I also have visibility obviously of what’s in the pipeline and feel very, very good about that,” he adds.

Scaling the great wall. Apart from record-breaking revenues and profits in the past quarter, Apple is also seeing promise in a market that had been considered difficult for western firms to break into: China. Today’s largest economy is also the fastest-growing market for Apple’s goods. Revenue for this market amounts to $16.1 billion, comprising 21% of the company’s earnings during the period. This is a 70% growth from the same quarter in Fiscal Year 2014, and a 157% quarter-on-quarter growth.

This means Apple was able to bounce back after a disappointing iPhone 6 launch, in which the product was severely delayed in the market. Another feather on Apple’s cap: the iPhone has taken top spot in smartphone shipments in China, according to Canalys, even beating Xiaomi.

Watch out for April. Since taking over the reins, there has always been question whether Tim Cook will live up to his predecessor’s legacy. It was, after all, during the second tenure of Steve Jobs as chief executive when Apple bounced back with the iMac, then followed up by other revolutionary products like the iPod, iPhone, iPad, MacBook Air and the like. This record quarter is testament to Cook’s ability as a strategist, even as Apple has only been continuing existing product lines, so far.

This April, however, Apple expects to launch its first wearable, the Apple Watch. “The creativity and software innovation going on around Apple Watch is incredibly exciting and we can’t wait for our customers to experience them when Apple Watch becomes available,” says Cook. It may be argued that Apple is already coming late in the smartwatch game. But perhaps the quality of the platform and ecosystem will be the main differentiator, just as the apps and the App Store had been a game changer in the smartphone industry in 2007. “The number of developers that are writing apps more for it are impressive and we’re seeing some incredible innovation coming out there,” Cook adds.

Will 2015 be Tim Cook’s year? With an expanding business, impressive cash stockpile and an ambitious foray into the wearables market, it looks like an exciting year ahead for Apple.