Apple 2014 fiscal third quarter — the iPhone and iPad angle

Yesterday, Apple released the results for its 2014 fiscal third quarter (which ran from March 30, 2014 to June 28, 2014) and held a call with analysts to discuss the results.  This is typically not a big fiscal quarter for Apple; the important quarter for Apple every year is the first fiscal quarter containing the holiday sales season, and during the fiscal third quarter, most potential Apple customers wait to see what new products Apple will introduce in the Fall.  Even so, Apple reported record results for a third fiscal quarter:  revenue of $37.4 billion and net profits of $7.7 billion.  If you want to get all of the nitty gritty details, you can download the audio from the announcement conference call from iTunes, or you can read a rough transcript of the call prepared by Seeking Alpha.  Apple’s official press release is here. 

As always, I’m not as interested in the financial details as I am the statements of Apple executives during the call (Apple’s CEO Tim Cook and Apple’s new CFO Luca Maestri) that are of interest to iPhone and iPad users.  Here are the items that stood out to me as of interest to iPhone and iPad owners:

iPhone

• Apple sold 35.2 million iPhones.  That’s up from the 2013 fiscal third quarter, when Apple sold 31.2 million iPhones.  By my count, as of June 28, 2014, Apple had sold over 551 million iPhones. 
• Now that the iPhone is on China Mobile (the largest mobile phone company in the world), iPhone sales in China jumped 48% in the past quarter.  Cook stated:  “China, honestly, was surprising to us that it was — we thought it would be strong, but it well went past what we thought.”
• Maestri noted that at NASA, there are 26,000 iPhones in use, which raises an obvious question:  why isn’t there a website dedicated to astronauts who use iPhones?

iPad

• Apple sold 13.3 million iPads.  That’s down from the 2013 fiscal third quarter, when Apple sold 14.6 million iPads.  By my count, as of June 28, 2014, Apple had sold over 224 million iPads. 
• Cook noted that according to a survey by ChangeWave, there is a 98% satisfaction rate for the iPad Air, and an astonishing 100% satisfaction rate for the iPad mini. 
• Cook said that he expects to sell lots of additional iPads in the future; stating that in “a little over four years, we have now sold 225 million iPads, which is, I think, probably a larger number than anyone would have predicted at the time, including ourselves, quite frankly.  We still feel that category as a whole is in its early days, and that there is also significant innovation that can be brought to the iPad, and we plan on doing that.  When I look at the top level numbers, I get really excited when I see that more than 50% of the iPads that we’re selling are going to someone who is a first time tablet buyer.  I get excited when I see that our retail share according to the NPD in the month of June was 59% of units and over 70% in terms of dollars.  And of course, Luca has mentioned in his preamble that our education share is 85%.”
• Cook noted that while 60% of business employees use a laptop, only 20% use a tablet, so Apple sees room for growth in the enterprise market.  This is why Apple announced a new partnership with IBM last week, pursuant to which IBM will develop 100 mobile apps for businesses to use and IBM will sell iPads to companies.  Cook said:  “We’re very bullish about the future of the tablet market, and we’re confident that we can continue to bring significant innovation to this category through hardware, software and services.  We think our partnership with IBM, providing a new generation of mobile enterprise applications, designed with iPad’s legendary ease of use and backed by IBM’s cloud services and data analytics, will be one such catalyst for future iPad growth.”  As Cook reiterated later in the call, “mobile and enterprise is just an enormous opportunity. … We win if we can drive that penetration number I spoke about from 20[%] to 60[%].  That would be incredibly exciting here.  The walls would shake.  And so that’s what I hope for.”

iTunes Store / App Store

• I remember that back in the iPod days, the iTunes Store would break-even, which was okay with Apple because Apple used the iTunes Store as a way to promote iPod sales.  But the iTunes Store has started to make Apple lots of money, and Cook announced that for the first nine months of Apple’s fiscal year 2014, iTunes software and services were the fastest growing part of Apple’s business.  In the 2014 fiscal third quarter, iTunes saw $4.5 billion in revenue, a 12% increase from the 2013 fiscal third quarter.
• Apple also announced that there have been a total of 75 billion App Store downloads to date, and Apple has to date paid $20 billion to app developers.  In the January 27, 2014 call with analysts to discuss the 2014 fiscal first quarter, Peter Oppenheimer (who was then Apple’s CFO) said that there had been over 65 billion downloads and $15 billion paid to developers, so in the last six months there have been an additional 10 billion apps downloaded and another $5 billion paid to developers.  Apple keeps 30% of app revenues, so if developers got $5 billion in the last six months, that means that Apple received over $2 billion from App Store sales in the last six months.

iWatch?

• The big question on everyone’s minds seems to be what new product will be announced by Apple in the next three months.  The leading rumor seems to be some sort of wearable technology, perhaps called an “iWatch”.  Of couse, Apple isn’t spilling the beans yet, but Maestri did note, when discussing Apple’s next fiscal quarter, that “obviously in Q4, we got some transition costs because we’re expecting a very busy Fall.”  I look forward to it!