Apple expecting a huge festive season

Hey Apple. Remember the annoying orange? The little animated fruit that laughed at the demise of the other fruit around it? This is not it. This is a write-up on the fourth quarter of the Apple results, which were released after the closing bell last evening. Here goes, you can read along as we try and explain: iPhone Sales Grow 26% to Establish New September Quarter Record, with the key product sales numbers being as per the release:


The Company sold 33.8 million iPhones, a record for the September quarter, compared to 26.9 million in the year-ago quarter. Apple also sold 14.1 million iPads during the quarter, compared to 14 million in the year-ago quarter. The Company sold 4.6 million Macs, compared to 4.9 million in the year-ago quarter.


And since then, Apple announced that they would return cash to shareholders, an astonishing 36 billion Dollars. An amount that is larger than the market capitalisation of Anglo American. Or even Sasol. Marginally less than the whole of MTN. The original announcement of what the company would do with their cash pile came in March (the 19th, that is my birthday, diarise please) of last year, 2012. So it has been a little over a year and a half since the grand announcement.


If the buyback program were completed today, as far as I read, that would retire roughly 8 percent of the shares in issue at the current share price. And to think that if you add the cash and cash equivalents, short term marketable securities and long term marketable securities, you get to a number of nearly 147 billion US dollars. After that 36 billion buyback and reintroduction of the dividend. Remembering that the dividend is currently 3.05 US dollars per quarter, the current yield being 2.3 percent per annum, at the closing price last evening. Tim Cook suggested that the current program would be revisited during the first quarter of next year. Which if you needed reminding, today is the 303rd day of the calendar year. There are only 63 days remaining inside of this calendar year!!! Today is also exactly a year on from the landing of Hurricane Sandy on the East Coast of the US, which caused 70 billion Dollars worth of damage, and the loss of 286 lives.

The worrywarts will point out the obvious, even though there have been growth in iPhone sales, the other products have been slipping, or in the case of the iPods, not even worth mentioning! But also, the fact that the average selling price of the iPhone fell 6.6 percent must be worrying at some level. This current quarter hardly caught any of the sales of the newer products, only ten days of sales of the iPhone 5C and 5S. And in the current quarter that we are in, the first quarter of their 2014 financial year, the company anticipates that they will generate revenue of between 55 and 58 billion Dollars. To put that into perspective, the quarter past, the one that we are talking about now, saw sales of 37.5 billion Dollars. The expectations are for a whopping 20 billion more in festive season sales! Wow.


Sales of iPhones only? Well, not entirely, this is what Tim Cook, the CEO anticipates: We're excited to go into the holidays with our new iPhone 5c and iPhone 5s, iOS 7, the new iPad mini with Retina Display and the incredibly thin and light iPad Air, new MacBook Pros, the radical new Mac Pro, OS X Mavericks and the next generation iWork and iLife apps for OS X and iOS. iPad sales have been flat, and the newer fresher models could possibly wow folks to upgrade at Christmas time.


Margins have levelled out at 37 percent, but are comfortably off the highs. Again, the worrywarts will point out that Apple will continue to have to discount their phones, or search for more revenue by selling a cheaper phone, obviously something much cheaper than currently. But that is not going to be the plan I suspect. Apple are in the business of selling products that people really want. Well crafted and at the top end of the range. I am pretty sure that BMW and Daimler battle with this too. Ironically Apple generates more in annual sales than Daimler. Most of the companies globally that are ahead of Apple on the annual revenue list are the oil and gas businesses as well as utilities, energy is still the most important business by global sales!


Where to next though for Apple? I suspect that the company will continue to be hugely profitable, generating huge excesses of cash that will continue to be returned to shareholders either through share buybacks and increasing dividend payments. The company continues to invest nearly 1 billion Dollars a quarter in research and development, looking for better ways to maximise their current product offering and future product offering. Earnings for the full year ahead are expected to register a high teens growth, 18-19 percent. Expect EPS around 48 Dollars a share. We continue to accumulate the stock, but are always mindful that the next disruptive consumer device is just around the corner!