By Tim Higgins
Apple Inc. signaled that the historic rise in sales it has
achieved during the pandemic is set to continue, addressing a key
investor concern as the company reported a profit that more than
doubled to a record high for the first three months of the
year.
New, more expensive models of the iPhone 12 have been a hit with
customers, and revenue from Mac computers and iPads also rose
during the quarter on strong demand from employees and students
conducting their work at home.
Apple's fiscal second-quarter results set new highs in what
could be a record-setting year for profit and revenue. Analysts
predict full-year profit will exceed $70 billion, nearly a third
more than last year.
Apple shares jumped 4% in after-hours trading Wednesday in New
York.
The Cupertino, Calif. company reported a profit of $23.6 billion
in the latest quarter as revenue rose 54% to $89.6 billion, far
exceeding Wall Street expectations. The company also announced a 7%
increase to its cash dividend to 22 cents a share and that the
board had authorized an increase of $90 billion to an existing
share-repurchase program.
"We feel very good, given the results we've had in the first
half of our fiscal year," Apple finance chief Luca Maestri said in
an interview. "And clearly as economies start to reopen,
particularly those economies where there are enough vaccines,
obviously we think that should be a positive."
While work-from-home trends helped Apple's performance, Mr.
Maestri said the company may see continued benefits from a hybrid
work model. A return to more normal conditions could also boost
other business lines, such as from an increase in the purchase of
AppleCare, an extended warranty service the company offers, and
advertising, which were negatively affected by the Covid-19
pandemic.
"It was obviously more difficult for us to sell iPhones and
watches -- that typically require a lot of interactions of our
customers, particularly in the retail stores and in the carrier
stores," he said. "So that may provide an offset."
After a year of hype about the potential for the iPhone 12 and a
rapid rise in the company's shares, Apple is one of a number of
companies that investors are closely watching to see whether
historic, pandemic-induced business success can continue.
Shares in Google parent Alphabet Inc. and Facebook Inc. rose
after they reported earnings this week. The results, which were
buoyed by an increase in digital ad spending, outstripped analyst
expectations. Still, investors have been underwhelmed in some cases
when company results failed to signal momentum in earnings after
the pandemic. Microsoft Corp. shares retreated Tuesday after the
company said its quarterly sales rose 19%.
Apple's revenue results beat estimates from analysts surveyed by
FactSet by 16% while profit was 42% better than expected.
Investors like Dan Morgan were looking for signs of continued
growth, even as the tech sector struggles with a microchip shortage
and other uncertainties tied to the coronavirus pandemic. "The
market always looks six months ahead," said Mr. Morgan, a senior
portfolio manager who focuses on technology at Synovus Trust Co.,
which counts Apple among its largest holdings.
Apple was able to avoid a microprocessor shortage in the March
period. But Mr. Maestri cautioned, during a public conference call,
that a shortage would contribute to a decline in revenue in the
current quarter steeper than the typical falloff following the
March period. Supply constraints will primarily affect Macs and
iPads.
Apple still expects "strong double-digit" revenue growth from
the year-earlier quarter, he said. The company stopped providing
detailed guidance about coming quarters last year, as Covid-19
upended daily life around the world and initially sent markets
falling amid fears of a global recession.
"This was a pretty unbelievable quarter," Katy Huberty, an
analyst for Morgan Stanley, told Apple executives on the call. "And
investors are going to ask about the sustainability of current
demand trends, especially as you lap some of the benefits from
Covid."
During the call, Chief Executive Tim Cook said there was still
room for iPhone growth with the newly introduced 5G cellular
version of the device. "The 5G cycle is important and we're in the
early days."
The real engine of 2021 is the latest iPhone: Overall iPhone
revenue for the March quarter rose 65% to $47.9 billion. Analysts
had expected a 42% rise.
Higher-end versions of the iPhone 12 appear to be providing a
boost. The average retail price in the U.S. during the past three
months rose $52 to $847 from a year earlier, according to data from
Consumer Intelligence Research Partners LLC, which surveys
buyers.
The most expensive version, the iPhone 12 Pro Max with a 6.7
inch display that starts at $1,099, saw its share grow to 20% of
sales from 13% a year earlier, the survey found.
The addition of faster 5G cellular connections to this year's
phone was expected to help Apple in China where competitors had
beaten Mr. Cook to market with more-advanced phones. Greater China
sales in the latest quarter nearly doubled to $17.7 billion.
Apple and other tech giants have benefited as students and
workers stuck at home turned to their products in record numbers,
pushing share prices to new heights. Apple's stock almost doubled
last year. Its current valuation, as a measure of its
price-to-earnings ratio, is the highest since December 2007,
according to FactSet.
Much of the growth last year was fueled in unexpected places.
Apple saw record demand for Mac computers and an 11% rise in iPad
tablet sales. That growth continued in the March period. On
Wednesday, Apple said Mac sales rose 70% to $9.1 billion and iPads
increased 79% to $7.8 billion. That beat analyst expectations for
increases of 27% and 29%, respectively.
Even as the world's biggest tech companies continue to post
record results, they remain in the crosshairs of regulators and
investigators who are scrutinizing how they wield market power.
Apple's strength in the market is being questioned by smaller tech
companies.
Apple this week rolled out software changes to iPhones and iPads
to make it harder for apps to track users across the internet, a
measure touted by Mr. Cook as a consumer safeguard. Facebook and
others have questioned Apple's motives in the matter.
Apple is on the eve of going to trial in federal court to defend
itself against claims by the maker of the popular videogame
"Fortnite" that the iPhone company is engaged in anticompetitive
behavior in its app store. Apple has denied wrongdoing. Observers
are also watching for regulators in the European Union to reveal
results soon of their investigations into claims of Apple's
monopoly behavior. Apple has said the complaints are baseless and
defended its role in promoting businesses on its App Store.
Write to Tim Higgins at Tim.Higgins@WSJ.com
(END) Dow Jones Newswires
April 28, 2021 19:30 ET (23:30 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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