Apple (AAPL) knocked the cover off the ball with its second financial quarter earnings report, scoring a 7.3% year-on-year profit increase as it sold 43.7 million iPhones. Smartphone sales were of course down compared to the previous quarter (51 million), which included the holiday selling season, but they were up 17% versus the year-ago quarter.
Continued growth in demand for the iPhone is a sign that Apple is making progress outside the developed markets that initially powered the smartphone revolution. Two-thirds of Q2 revenue came from outside the United States. The company said it had record sales in China during Q2, driven by China Mobile and the iPhone 4S. China Mobile, the world’s largest carrier, finally added the iPhone to its lineup a few months ago.
Here in the United States, Apple’s 5S continues to be the top selling smartphone for all four major U.S. carriers. Meanwhile the lower-priced iPhone 5C is outsold by Android phones at all four major carriers.
For carriers, Apple’s resurgence is a mixed blessing. Strong sales of existing iPhones portends a warm welcome for Apple’s next iPhone, expected this fall. But Apple may use its strength to pressure carriers to accept a higher-priced iPhone. Service providers could face choice of heavily subsidizing the next iPhone, or passing the higher price on to consumers.
“The primary force driving up the price of future iPhones is larger displays,” noted analyst Gerry Purdy of Compass Intelligence. “If the iPhone 6 has a 5” display instead of a 4-inch display, the displays will cost more so that will drive a higher price point overall.” Purdy thinks that by the end of the year, Apple will have a large-screen iPhone for sale in the United States and Europe, and will target developing markets with a smaller-screen phone.
By the numbers
Apple’s Q2 revenue was $45.6 billion, up 4.7% from the year-ago quarter. Gross margin was 39.3%, up from 37.5% in the year-ago quarter. Profit was $10.2 billion, up 7.3%. Earnings per share came in at $11.62.
For Q3, Apple is projecting revenue of $36 billion to $38 billion, and a gross margin of 37% to 38%. Historically, Apple has offered conservative projections, and then exceeded them.
Apple also said yesterday that it will make its stock more affordable for individual investors. The company is splitting its stock 7-for-1. The stock is currently trading at around $560/share, so at current prices the split would mean that Apple’s stock price would be $80/share. Current shareholders will receive seven shares for each share they own.
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