Apple’s accomplishments during fiscal 2013

‘We are pleased to report the results of the final quarter of Apple’s fiscal year ’13 with record four quarter iPhone sales, driving our highest September quarter revenue ever’ - Peter Oppenheimer - SVP, CFO.

Overview

Customers had an incredible response to Apple’s product line up, buying a 150 million iPhone, 71 million iPads and 16 million Macs across the fiscal year.

The company expanded the breadth and depth of its ecosystem and generated over $16 billion revenue from iTunes software and services. The company also welcomed almost 400 million visitors to our retail stores and opened or remodeled 49 new stores and for the second year in a row, produced over $50 million in revenue per store.

Apple generated record total company revenue of $171 billion, earnings of $37 billion and operating cash flow of $54 billion. The company paid over $8 billion in capital expenditures to both to supply chain, expand infrastructure and increased its retail footprint and also completed 15 strategic acquisitions. That’s an average of one acquisition every three to four weeks.

Apple more than doubled the size of capital return program to a $100 billion, including the largest share repurchase authorization in history and became one of the largest dividend payers in the world.

In fact, the company returned over $36 billion to shareholders through dividend and share repurchases in the last five quarters alone. The management remains firmly committed to objective of delivering attractive returns to shareholders through both business performance and return of capital. The company is participating in large and growing markets.

Today smartphone penetration of the global handset market is only a little over 50%. The smartphone category is expected to grow significantly in the next few years from about 1 billion units per year this year to over 1.7 billion in 2017. And the tablet market is growing at an even faster rate from about 225 million units this year to over 400 million in 2017. Apple is continuing to invest in R&D and distribution, expanding its geographic coverage and building upon a phenomenal, but still very young retail store presence.

Revenue for the quarter was $37.5 billion, up $1.5 billion or 4% from the year-ago quarter, and slightly above the high end of the guidance range. Gross margin was 37% at the high end of the company’s guidance range, and operating margin was $10 billion, representing 26.8% of revenue. Net income was $7.5 billion translating to diluted earnings per share of $8.26.

Dividends:

The company paid $2.8 billion in dividends in the quarter and executed an additional $5 billion in repurchases up 10.4 million shares of Apple stock during the quarter. This brings to a cumulative total of $36 billion in payments for dividends and share repurchases over the last five quarters of which share buybacks were $23 billion.

This has resulted in cumulative retirement of almost 47 million shares and represents 5% of the total shares outstanding prior to the launch of the company’s repurchase program. More than 44 million of these shares have been retired in the past two quarters alone. Board of Directors has declared a dividend of $3.05 for common share payable on November 14, 2013 to shareholders of record on November 11, 2013.

Outlook:

The company anticipates that the additional deferral per device sold coupled with its sequentially greater unit volume expectations in the December quarter will result in about a $900 million sequential increase in the net amount of revenue deferred for software upgrade rights and non-software services.

In total, Apple expects revenue to be between $55 billion and $58 billion compared to $54.5 billion in the year ago quarter and expects gross margins to be between 36.5% and 37.5% reflecting approximately a $105 million related to stock-based compensation expense. The company expects OpEx to be between $4.4 billion and $4.5 billion including about $585 million related to stock-based compensation expense and expects OI&E to be about $200 million and the tax rate to be about 26.25%.

  

Results by Segments

iPhone:

The company sold 33.8 million iPhones compared to 26.9 million in the year-ago quarter, an increase of 6.9 million or 26% and a new September quarter record. iPhone sales were ahead of company’s expectations and grew stronger year-over-year in each of its geographic segments.

iPhone sales remain very robust in the U.S with comScore estimating that Apple was the leading smartphone manufacturer with a 40.7% smartphone subscribership for the three months ending in August.

The company exited the quarter with about 14.3 million total iPhones in channel inventory, which represented a sequential increase of 3.3 million from the June quarter and placed at the low end of its target range of 4 to 6 weeks of iPhone channel inventory on a look forward basis.

Based on the most recently published research, ChangeWave measured a 96% customer satisfaction rate among iPhone users and Kantar measured a 92% customer loyalty rate, significantly higher than the competition. And Apple believes that a great customer experience translates to much higher usage. In fact, Experian reported that iPhone users spend an average of 53% more time each day on their phone than android phone users.

iPad:

Apple sold 14.1 million iPads during the quarter compared to 14 million in the year-ago quarter. iPad sales exceeded the company’s expectations in the September quarter as the company approached its new product introductions. iPad sell-through was roughly equal to sell-in, so Apple exited the quarter with about 4.1 million units of iPad channel inventory within target range of four to six weeks on a look-back basis.

In an August survey by ChangeWave, consumers who intend to purchase tablets within 90 days, 55% indicated they find the purchase of iPads more than four times the rate of the next most popular alternative. And of those who already own iPads, the survey measured a 99% customer satisfaction rate. The momentum of iOS devices in enterprise also remains incredibly strong.

In its latest Mobility Index Report, Good Technology indicated that the iOS platform accounted for 95% of enterprise mobile app activations and 72% of all mobile device activations in the September quarter while iPad accounted for 90% of total tablet activations.

Mac:

Sales with 4.6 million Macs were above the company’s expectations, which is a 7% decline from the year-ago quarter. IDC estimates that the global personal computer market contracted by 10% during the September quarter indicating that Macs continues to gain share just as they have with 29 of the last 30 quarters.

In late September, the company updated iMac with fourth generation Intel quad-core processors, new graphics, next generation Wi-Fi and faster PCIe flash storage options. Last week Apple launched new versions of MacBook Pro with retina display featuring fourth generation Intel core processors, faster graphics, long rate battery life and a more affordable price.

Also last week the company launched Mavericks, the 10th major release of OS X with more than 200 new features. Mavericks brings iBooks and Maps to the Mac, includes the new version Safari, enhances multi-display support, introduces Finder Tabs and Tags and delivers core technologies for breakthrough power efficiency and performance and is now free. Apple ended the quarter with Mac channel inventory that was just below its four to five week target range.

iTunes Software and Services:

The management continues to be very pleased with the growth of iTunes software and services in the strength of the Apple ecosystem. iTunes Stores generated record billings of $4.4 billion in the September quarter thanks to continued strong growth in sales of apps. The quarter's iTunes billings translated quarterly iTunes revenue $2.4 billion, up 15% from the year-ago quarter. The strong iTunes sales combined with other software and service revenue resulted in total quarterly revenue 4.3 billion from iTunes software and services, an increase of 22% year-over-year.

Cumulative app downloads have reached 60 billion and app developers have now earned 13 billion from sales to the App Store, half of which they've earned in the last year. The company had a tremendously successful launch of iOS 7 last month with hundreds of millions of downloads in the first few days alone, making it the fastest software upgrade ever.

Apple Retail Stores:

The revenue for the quarter was 4.5 billion, up 6% from the year-ago quarter. The storage produced very strong iPhone sales with unit growth of 36% per store per week compared to the September quarter last year. The company completed the remodels of two stores and opened eight new stores during the quarter ending with a total of 416 stores including 162 outside the United States. The management is projecting a total of approximately 30 new store openings in fiscal year '14, about two-thirds of which will be outside U.S.

The company also plans to remodel about 20 stores over the course of fiscal year '14. With an average of 411 stores opened in the September quarter, average revenue per store was 10.9 million compared to 11.2 million in the year-ago quarter. Retail segment income was 709 million.

The company hosted 99 million visitors to stores during the quarter which translates to 18,500 visitors per store per week. Operating expenses were 3.8 billion and included 467 million in stock-based compensation expense. OI&E was 113 million and the tax rate for the quarter was 25.9%.