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Apple-China Relations Greatly Responsible for Apple’s Great Third Quarter

July 27, 2014 | About:
Quick Pen

Quick Pen

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According to a latest Reuters report, Apple (AAPL) iPhone sales in China skyrocketed by nearly 50% in its recently concluded fiscal 2014 third quarter. This development matters a lot to the Cupertino company since it draws almost 52% of its revenues from this device alone. Apple recently came out with the numbers for the quarter and reported better than expected EPS, but failed to satisfy the revenue estimates of the street. Let’s dive into the iPhone maker’s latest quarter and check out what developments took place.

The Quarter and Its Numbers
The quarter turned out to be a good one for the tech goliath as both top line and bottom line surged. Apple reported consolidated revenues of $37.4 billion, up 6% year on year, but fell short of analyst estimates of $37.98 billion. However, according to some analysts, this is one of the best revenue figures for the company for third quarters. The EPS came at $1.28, expanding by 20% from last year’s third quarter, beating analyst estimates of $1.23.

The primary factor that pushed up the revenue and the net income was robust iPhone sales in China. The geography is the world’s biggest smartphone market with population of more than 1.3 billion. During the quarter, Apple sold as many as 35.2 million iPhones, translating into a 13% yoy improvement from prior year period’s 31.2 million. However, iPad sales slumped by 9% at 13.3 million. Analysts had been expecting this kind of a performance from the segment. Shrinking iPad sales is a problem that the company is trying to counter. Both iPhone and iPad are important to the company. These two devices together accounted for 70% of Apple’s 2013 revenues.

Among the other segments, Mac’s performance deserves special mention. Mac revenues were up 18% despite the market conditions being unfavorable. The PC market is witnessing a lull and consumers are opting more for tablets. This just portrays how strong a hold Apple has over the market and its offering products that’s beating competition outright. Even the software services revenue was impressive, displaying a 12% yoy growth.

Apple’s Sweet Partnership with China Mobile, And More
Apple’s iPhone sales got a huge boost from China as sales in the region improved by almost 50%. The new iPhone 5S and the iPhone 5C both were received very well by the consumers. Analysts had no doubt about the popularity of the iPhone 5S, but many were questioning how successful the 5C would be.

The 5C, in fact, sold quite well according to Apple management, and this also brought down the average selling price of iPhones to $561 from year ago period’s $581. One thing that was quite interesting about this was that Apple could manage to report better profits despite falling ASP. In contrast to the iPhone ASP, the iPad ASP increased from $436 to $443 over the same period. This could have been due to higher proportions of the latest iPad Air being sold against iPad Mini, and higher storage capacity versions getting the preference from consumers.

The good news doesn’t end here for Apple. Industry experts believe Apple is going to have another brilliant quarter once it launches the iPhone 6. Usually the sales of iPhones shrink ahead of the launch of the next model of the device. This claim has turned true on several occasions. Consumers hold off from purchasing iPhones in anticipation of the latest model. The point is, if this is the sales volume when consumers are holding off, imagine what might be the sales of the next iPhone.

Departing Thoughts
To drive home the discussion, Apple had a wonderful quarter with high probability of an even better performance in the next quarter. Analysts following the stock are pretty optimistic about it and even the management is pretty sure of the company’s growth prospects. I personally believe China will again play a huge role in making the iPhone 6 a huge success. Let’s keep a close watch on Apple’s latest developments and enjoy the action as it unfolds.

About the author:

Quick Pen
A seasonal writer with a Management Degree in Finance and interests in automotive, technology, telecommunication and aerospace sectors.

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