Apple Earnings: Strong iPhone Sales, iPad Sales Slump, $7.8B Profit

iPhone sales drove a strong third quarter for Apple, but iPad sales cast a shadow, with sales down year-over-year for another consecutive quarter, the company reported Tuesday.

Quarterly revenue was $37.4 billion and profit $7.8 billion or $1.28 per diluted share. That compares with $35.4 billion and net profit $6.9 billion or $1.07 per diluted share in the year-ago quarter. The gross margin was 39.4%, up from 36.9%, Apple Inc. (Nasdaq: AAPL) said.

The record June quarterly revenue was driven by strong sales in the iPhone and Mac and growing revenue from the Apple ecosystem, driving highest EPS growth rate in seven quarters, Apple CEO Tim Cook said in a statement.

But despite the record EPS, Apple did not meet analyst estimates of $38.31 billion for the quarter.

Apple traded at $94.18 at about 7:30 p.m. EDT, down $0.52 in after-hours trading.

For its fiscal fourth quarter, Apple expects revenue between $37 billion and $40 billion, and gross margin 37-38%.

Apple sold over 35 million iPhones, for a new third-quarter record, with "healthy growth" in entry level, mid-tier and lead iPhone categories, Cook said in a conference call with analysts after market close on Tuesday. iPhone sales were up a "very strong" 55% year-over-year in the BRIC countries.

Mac sales saw strong growth, 18% year-over-year in a market that shrunk by 2% according to IDC, Cook said.

The App Store and other Apple ecosystem services were strong performers as well. For the first nine months of the fiscal year, the iTunes software and services line items were the fastest-growing part of Apple's business, Cook said. iTunes billings grew 20% year-over-year in the June quarter, and reached an all-time quarterly high driven by App Store results.

Want to know more about mobile? Check out our dedicated mobile content channel here on Light Reading.

The 35.2 million iPhones sold in the third quarter was an increase of 4 million year-over-year, for 13% growth, Apple CFO Luca Maestri said. iPhones account for 41.9% of the smartphone subscriber base, according to ComScore, Maestri said.

Maestri bragged about iPhone business usage: Medtronic has developed 175 internal iOS apps for more than 16,500 iPhones used by employees to facilitate sales, improve productivity, and keep marketing materials up-to-date. Nestlé uses more than 25,000 iPhones, and NASA uses more than 26,000.

iPhone 5C sales were strong compared with last year's mid-tier model, the 4S, growing the highest year-over-year for any third quarter for mid-tier iPhones, Cook said.

But iPad sales were bad news. Apple sold 13.3 million iPads, compared with 14.6 million in the June 2013 quarter. "iPad sales grew overall in developing markets, with particularly strong year-over-year growth in the Middle East, where iPad sales were up 64%, in China, where they grew 51%, and in India, where they were up 45%," Maestri said. "This growth was more than offset by lower growth in more mature markets."

— Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to [email protected]

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Mitch Wagner 7/31/2014 | 2:45:53 PM
Re: iPAD, less frequently Kruz - A company with a 10-point lead over its nearest competitor is by definition by far the market leader. 

Which is not to say that position is secure. 

The tablet story is an intersting one. It's possible the whole thing was a bubble. That doesn't make sense to me -- the tablet seems to me to be a terrific device. But perhaps I'm just in a minority on that.
briandnewby 7/25/2014 | 8:38:01 AM
Re: iPAD, less frequently Mitch, I still think it would be fun to play second base for the Yankees, but wishing it will happen will not make it so.  I do think Apple wants to be a player in any market and Apple probably wanted that in the days it wasn't, also (contrary to what the company said).

I think the tablet story is far from told, mostly because it hasn't even been 5 years since the first iPad.  We know tablets have revolutionized so many things but the question is, I guess, is the tablet a commodity already?  Will it soon be akin to the caculator and someday you'll pull a tablet off the endcap before checking out of Walmart?

Then, where does that leave Apple?  I really think storage is the key strategic lever for the mobile device industry.  Back-up storage is a huge barrier to exit from one provider to another, yet Apple is pricing it ridiculously high.  If they are making any misstep right now, I think it's in this area and that iCloud should be free or at least priced in a way that it is free, unlimited, for a year each time you buy a device.  I have three "i" devices bought within a year, yet only 25g of free storage, the same as if I'd only bought one.

Wearables will be more of a thing if they are the same technology as the user's phone and tablet, and I really think storage will be the glue there.
futurephil 7/23/2014 | 3:08:55 PM
Re: explain, please :)

Meanwhile, we're crushing today's comment quota. I mean, just crushing it.
mendyk 7/23/2014 | 2:55:44 PM
Re: explain, please First off, Phil, you should remember that most journalists can't afford to own stocks. That aside, collectively we've fallen into the trap of feeling compelled to over-analyze every number that gets spit out at us. And thanks to people like Malcolm Gladwell, we now all want to prove that we can examine data points out of context to find a greater truth. Add in the fact that even "expert" analysis tends to be lazy and self-serving, and it's pretty easy to see why quantitative "analysis" is so lacking. Good thing the analytics machines will straighten us out.
futurephil 7/23/2014 | 2:35:11 PM
Re: explain, please Fair point. I sometimes still dodge your questions purely out of habit.

Anyway, to clarify, if you're still selling 6,200+ devices an hour a mere four years after inventing a product category -- and your stock is up 300 percent in five years (3% today) -- sorry, that's bad news. Wall Street said so.

I wish reporters could own stocks.

Kruz 7/23/2014 | 2:17:17 PM
Re: iPAD, less frequently Apple is not "by far" the market leader when it comes to pads. It had a 40.2% market share last year but is at 32.5% this year. Samsung grew from 17.5 to 22.3%, an increase it grabbed directly from iPad's share. iPad consumers are looking for a decent offering at a cheaper price, and this is where Samsung is doing best.
brookseven 7/23/2014 | 2:00:46 PM
Re: explain, please  



Stop asking reporters for thoughtful commentary.  I have yet to get a straight answer from an LR editor (current or former!).



futurephil 7/23/2014 | 1:38:10 PM
Re: explain, please I wanted to see if you were using your own judgement or acting like CNBC.
Mitch Wagner 7/23/2014 | 1:23:47 PM
Re: iPAD, less frequently Kruz - "Other players (namely Samy) are aggressively enhancing their tablet giving it a competitive price tag."

Apple is by far the market share leader. It's selling far more tablets than its competitors. Following competitor strategy does not seem to be the way for Apple to go here. 
Mitch Wagner 7/23/2014 | 1:22:13 PM
Re: Google Employee use of Iphone chuckj - Google is aggressive about developing its apps onto iPhones. I wouldn't be surprised to see iPhones in a good number of Googlers' hands. 
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