Apple largest quarterly profit in corporate history

Expectations for Apple's (APPL) Christmas quarter were high but AAPL still blew them away. The introduction of a bigger screen lead to a record 74.5 million units blowing away expectations of 64.9 million with unit sales up 46% on last year. That's 35,000 phones sold for every hour of the past quarter. AAPL is bullish going forward they believe only a small fraction (mid-teens) of the current base of iPhone users have upgraded. The bigger screen attracted the highest number of new customers to the iPhone than any other launch. AAPL now has $177.96 billion in cash and securities.

The only disappointment was the iPad, a new thinner version didn't stop the decline in sales. It seems like the bigger screen iPhone is cannibalising iPad sales and that the replacement cycle for an Ipad is similar to the PC rather than phone. While its not material to profits 20-30% of users who buy the new iPhones have activated Apple pay.

Unlike most electronics the price of iPhones continues to go up bigger screens and more storage means we are paying $687 per phone up from $637 last year. Typically we normally see declines! China iPhone sales doubled during the quarter on a geographic basis sales were up 70%.

Source: Apple 10Q

The watch is coming. AAPL confirmed that their watches will be released in April. They reclassified segment reporting ahead of the launch to make the sale numbers more difficult to calculate. It will be interesting to see what apps and use cases developers come up with.

Source: http://www.apple.com/pr/products/apple-watch/Apple-Watch.html

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a long position in Apple (AAPL) stock.

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