Apple financial report: Cook hints at strong watch sales after shares sink

July-22 Apple beat analysts’ expectations for its second quarter on Tuesday but its shares dived in after-hours stock trading, as investors seemed disappointed by the results and a lack of fireworks over Apple Watch sales figures, which the company was not expected to break out (and didn’t).

Shares plummeted after hours with investors apparently unhappy with the results, despite strong third-quarter iPhone sales.

If there’s one thing Apple told investors clearly, it’s that the iPhone is still the cornerstone to the success of the Apple Empire. And the watch? Unknown. The company gave no solid sales figures although chief executive Tim Cook suggested it was already a $1bn business and told analysts the possibilities for the watch were “enormous”.

The tech behemoth reported strong sales of its signature phone in its third-quarter financial report – fully 47.5m iPhones, up more than a third year-over-year, for a net revenue of $31.4bn. Sales in China were particularly robust, doubling from last year. Mac sales reached 4.8m units, up 9%, and the company sold 10.9m iPads, down 18%. Gross margin came in at 39.7%.

But, as expected, it didn’t break out the sales of its newest product (the watch) into a separate category for the first report since its 24 April launch, instead lumping them into the “other” section of the filing it created last quarter.

Year-over-year, “other” revenue doubled, when compared with the “accessories” category for the same period last year: $1.3bn in the third quarter of 2014 compared with $2.6bn this year. “Other” also now includes revenue from Apple’s acquisition of audio equipment maker Beats (which closed a month after the 2014 report), so Apple Watch sales do not account for all of the $1.3bn difference between the two numbers.

However, Cook said: “It would not be an inaccurate thing to look at the sequential revenue, the year-over-year change and assume that was the total watch revenue.” That suggested Apple Watch accounted for most of the growth and is already a $1bn business.

Apple comfortably beat Wall Street’s expectations: its earnings were four cents better than predicted, which still wasn’t enough to stave off investor disappointment. Shares dropped 7.48% in after-hours trading before rebounding slightly.

“We beat our internal expectations” for the watch, chief financial officer Luca Maestri told the Associated Press, adding that the number of watches sold in the first nine weeks was greater than the number of iPhones or iPads that the company sold in a comparable period after those products launched. Maestri said sales of the other products in the “other” category had declined.

Apple has previously said it sold 1m iPhones in the first 74 days, or more than 10 weeks, after sales began in 2007. Apple has said it sold 2m iPads in the first 60 days, with iPad sales hitting 3m in 80 days after the iPad was launched in 2010. With its official on-sale date of 24 April, the watch has been on sale for 64 days.

Apple’s results came as Microsoft reported a $3.2bn quarterly net loss, attributable largely to charges related to its Nokia phone business and job cuts, and to weak demand for its Windows operating system. On Monday the company said the new (and “last”) edition of Windows would have mandatory updates for the next ten years, citing user security.

The company recorded impairment, integration and restructuring expenses of $8.4bn in the fourth quarter ended 30 June and Microsoft reported a net loss of 40 cents per share. Net income was $4.61bn, or 55 cents per share, the same time last year. Revenue fell 5% to $22.18bn.

Source: Theguardian.com