By Daisuke Wakabayashi
Talk about a tough act to follow. When Apple Inc. last reported
earnings in January, it posted a quarterly net income of $18
billion--the most profitable quarter of any publicly traded company
ever.
Apple's encore comes on Monday, when it reports quarterly
results for the three months ended March 28. The numbers won't
surpass the prior quarter, when Apple rolled out a pair of
big-screen iPhones during the peak holiday shopping season to
consumers hungry for larger Apple phones.
Nonetheless, analysts expect strong sales of the iPhone 6 and
iPhone 6 Plus to underpin another strong quarter. The iPhone is the
company's flagship product--selling the most units and commanding
the highest profit margins.
The slowing growth of the smartphone market is pressuring prices
lower and intensifying competition among handset manufacturers, but
Apple is staying above the fray. With its latest iPhones, Apple is
pulling off a feat rarely seen in any industry--gaining market
share even as it raises prices.
Credit Suisse analyst Kulbinder Garcha said Apple is retaining
90% of iPhone users, and winning customers away from high-end
smartphones running Google Inc.'s Android software. He estimates
that 400 million iPhones were in use at the end of 2014.
As a result, Mr. Garcha said the seasonal drop-off in iPhone
sales in the March quarter won't be as sharp as in the past. He
estimates that Apple sold 60 million iPhones during the quarter,
down from 74.5 million in the December quarter, but 37% higher than
the 43.7 million sold in the same period a year earlier.
The new iPhones made their debut in September, so "it's fairly
early in the upgrade cycle," said Mr. Garcha.
Analysts estimate that Apple generated earnings per share of
$2.16 on revenue of $56.1 billion in the March quarter, according
to Thomson Reuters. In the year-ago period, Apple reported earnings
of $1.66 a share, adjusting for a subsequent stock split, on
revenue of $45.6 billion.
Apple has a problem that many others would love to have: It
can't spend money fast enough to prevent its cash from piling up.
It had $178 billion in cash at the end of December, up from $155
billion three months earlier.
Executives are expected to update investors on plans to return
some of that cash to shareholders. Through December, Apple had
returned $103 billion of a promised $130 billion through buybacks
and dividends. It said it would disclose a revised plan in
April.
Monday's results won't include sales of the Apple Watch, which
the company started shipping on Friday. Apple started accepting
preorders for the device two weeks ago and the supplies quickly ran
short. Apple's website says new orders won't ship until June.
The Watch is the first all-new piece of Apple hardware since the
iPad in 2010. It is an important litmus test of the company's
ability to continue to innovate, but its financial impact is
expected to be minimal, compared with the iPhone.
The Week Ahead looks at coming corporate events.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com
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