Record Q2, boosting buy backs and dividends

One of the most talked about retail products globally must be handsets, they go everywhere with you and they can help you with all sorts of tasks that you used to look out for elsewhere. From the weather to your friends, to news and updates on your stocks and the markets, there is an application for everything, but of course the beautiful devices in your pocket needs to be exactly that, beautiful. It is difficult to marry the term technology and beautiful, but somehow Apple have managed to do exactly that. And last evening, they reinforced the notion that it does not matter what your background is, we all share communication at our core.


Enough of that, Apple released results for their second quarter for the 2014 financial year last evening. The numbers, all except for the tablet, are eye popping, selling more iPhone's than anticipated, 43.719 million iPhones for the quarter in total. Estimates were for 37.7 million. Wow. China sales were strong, including demand for the prior model, the iPhone 4S is selling well in that geography. Strong performance too in emerging markets, really strong. It is a strong business tool now, with mention being given to Deutsche Bank and Elli Lilly on the earnings call.


The company saw 16.35 million iPads sold, the one disappointment, whilst 4.1 million Macs were sold. For the quarter only. Quarterly revenue (45.646 billion Dollars) topped forecasts and guidance, Chinese revenue grew 13 percent year on year, in Japan it jumped a whopping 26 percent, and that is in Dollar terms. Profits were 10.2 billion Dollars (wow, just wow), whilst on a per share basis clocked 11.62 Dollars per share. Margins actually improved, gross margins improved to 39.3 percent. International sales accounted for 66 percent of the total, and that is in Dollar terms of course, some good and some bad, depending on which geography one is in. Cash? 150.6 billion Dollars in cash and cash equivalents.


iTunes and services related revenues grew 11 percent to 4.573 billion Dollars, it accounts for nearly one-tenth of all revenue. Once you are in the ecosystem, you are stuck inside for a while. Retention rates on iPhone customers in the US are above 90 percent, more than any other phone. They still managed to sell 2.761 million iPods, but for all intents and purposes this product is dated. And this points to the shelf life of certain products in the consumer technology space, from the walkman through to the pager. We tried to think of a few others here. VHS, BetaMax, dare I say the compact disc itself. iTunes will become a bigger revenue contributor in the years to come, along with the App store, more people in the Apple ecosystem increasing paying for these services and products. There are now 800 million odd iTunes accounts with credit card information. More than one tenth of the world has an iTunes account.

But, a lot of excitement was generated around the boosting of the quarterly dividend by 8 percent and the accelerated and increased buy backs. 3.29 Dollars per share is what the quarterly dividend has been boosted to, that translates to 13.16 Dollars per annum. The closing price last evening was 524.75 Dollars, the yield then (historical) translates to 2.5 percent. Share buybacks have been boosted to 90 billion Dollars, which of course pleased activist investor Carl Icahn no end. He tweeted:

Agree completely with $AAPL's increased buyback and extremely pleased with results. Believe we'll also be happy when we see new products.

— Carl Icahn (@Carl_C_Icahn) April 23, 2014

Yes. About those new products, Tim Cook suggested that new products are in the pipeline. They no doubt come with a lot of scrutiny from tech geeks, investors and the retail market alike. But if they are not completely wow, then I suppose it is not "worth" their while unless the product is in a sense beautiful. As Tim Cook also pointed out, they are not the leaders with products, they perfect the mainstream ones.


Apple did not invent the tablet computer, nor the MP3, nor the smartphone. The PalmPilot touch was in a sense the first tablet, MP3, was it the Zune from Microsoft? And the smartphone? Blackberry? Maybe that was the one. Tablet sales are hitting a wall, in a sense, but Tim Cook in the conference call felt that 210 million odd iPads sold in less than four years since the release, and it has been embraced by retail consumers, business users and education as well. And Cook is very bullish on the tablet, perhaps a second adoption, or replacement cycle will see sales grow sharply. See the F2Q2014 Results - Earnings Call Transcript via SeekingAlpha, you will have to subscribe to check it out, but it is for free.

The other "big" thing is that Apple are undertaking their 4th stock spilt, the last one which took place was in 2005. This time it is a 7 for 1 split. Your value does not change of course, you just get six more shares on top of the one, and the share price adjusts accordingly, one seventh of the prior day. No biggie really, but rather wanting to have retail clients with greater access to their shares. I am indifferent on that, but I get the reasons behind the thinking. June the 9th this year, pencil that in.


The market likes the share buy back boost, the beat in iPhone sales (the best non holiday quarter ever) and as such the share price has rocketed in after/pre market to 564 Dollars. That is up seven and a half percent. Clearly the market enjoys all of the news, and in my mind the stock is still really cheap. "Things" move quickly, but I get the sense that Apple products may have the ability to entrench themselves into peoples lives. We continue to add.