Sales by Product Category
iPhone. The iPhone is Apple's flagship product and brings in nearly two-thirds of the revenue of the entire company. The success of the entire company today is resting primarily on the success of the iPhone. Three years ago it looked like the iPhone was going to dominate the mobile phone market like the iPod dominated the portable mp3 market years ago, but the situation is changing rapidly. Android has gotten a lot better and Samsung is gaining tremendous market share, especially in the less industrialized countries.
Understanding iPhone's numbers are now critical to understanding the future of Apple, Inc. Revenues for the iPhone were $32.498 Billion on 51.025 Million units sold in Q1 2014 compared to revenues of $30.660 Billion on 47.789 Million units in Q1 2013. This is an increase in revenues of 6% and an increase in the number of units sold of 7%. These numbers in any other sector or industry would normally be good numbers for a company the size of Apple. The iPhone, however, is priced at the high end of the market and this is not where growth is expected to occur in the future. The Gartner Group has rightly pointed out in their press release that while the mobile phone market will experience steady growth for some time to come, the opportunity for the high end smartphones is ending. Going forward the growth in the smartphone market is expected to occur in the midrange in the advanced countries and at the low-end (Android) in the world's emerging markets. Apple is going to be forced to develop and sell a cheaper iPhone and this can only cause margins to shrink from this point forward.
iPad. Revenues for the iPad have increased to $11.468 Billion on 26.035 Million units sold in Q1 2014 versus revenues of $10.674 Billion on 22.860 Million units sold in Q1 2013. That's a 7% increase in revenue and a 14% increase in units sold. While this may also initially sound good, The Gartner Group's press release estimated that sales of tablets were expected to increase 53% in 2013 far exceeding the percentage increase in the sales of Apple iPads. The conclusion is that while Apple is indeed selling more iPads, the market for tablets is growing much faster. Apple is now losing market share to other tablet makers. Specifically, tablets running the Android operating system were expected to increase their number of units sold by 74% in 2013.
Mac. The good news for the Mac is that it's gaining market share on the PC makers. There were 4.837 Million Macs sold in the Q1 2014 vs 4.061 Million sold in the Q1 2013. That's a 19% increase in unit sales with a corresponding 16% increase in revenues. The Mac sales are now approaching a 7% share of the market. The bad news is that it's gaining share in a shrinking product category. Mac and PC users are quickly defecting the desktop and laptop computer markets for tablets and smart phones.
iPod. Sales of the iPod have been falling for years. Apple's Q1 2014 Unaudited Summary Data shows that Apple sold just over 6 million iPods during this first quarter. This first quarter is normally the company's best quarter because it includes the Christmas Holiday season. Sales of the iPod in this quarter decreased 52% in the number of units sold and decreased 55% in the amount of revenues received year over year. Sales have been declining for years and this is the biggest year over year drop ever. The iPod is quickly being cannibalized by the iPhone and if it survives at all, it'll become simply a small niche item in terms of sales and units sold.
Rumors of New Products
Apple has hinted at new products in the pipeline for years but so far none of these products have materialized. One of the rumors is that Apple is developing a smart television. While these rumors have persisted for years, Asian manufactures like Samsung, Sony, LG and others have already developed advanced televisions and are currently manufacturing and selling them in stores everywhere. Anything that Apple would develop now would only sell into a market that is already crowded with world class products.
Another rumor that has been circulating for some time is that Apple is working on creating a smart wrist watch. Unfortunately Samsung has already created the smart wrist watch. It's named the Samsung Galaxy Gear smart watch and it's available today.
All That Cash
Apple started paying dividends 7 quarters ago. Four quarters ago they increased that dividend to $3.05 per quarter but they continue to increase their income at an increasing rate each quarter. There's now more than enough money to increase the dividend for years to come while simultaneously increasing their R&D spending on new product development. Value investors are beginning to notice this in a very big way.
Apple has never made a sizeable acquisition and has instead added small companies that augmented Apple's existing product lines. Unless this strategy changes Apple will simply continue to hoard more and more cash. Companies that have done this in the past have tended to get lazy and fall behind technologically. Companies that do this also begin to waste money on things like building large "spaceship like" campuses. Apple may be losing it's focus on innovation and it's ability to "think different". By losing this cash cushion and sending more money back to its shareholders Apple may actually become a more focused company.
Value investors have taken notice of these things for some time. As the price of the stock has recently fallen, the fundamentals have become more desirable to the value investor and more in line with the company's market capitalization.
Revenues and Profits
Revenues for Apple came in at $57.6 Billion in Q1 2014 compared to $54.5 Billion in the Q1 2013 for an increase of 5.69%. This is a tremendous slowing of the growth of revenues as compared to previous years. Annual revenues in 2013 were $170.910 Billion, in 2010 were $65.225 Billion, in 2008 were $32.479 Billion, and in 2003 were $6.207 Billion. These revenues produced an annual revenue growth rate for the 3 year period of 37.42%, the 5 year period of 39.39%, and the 10 year period of 39.31%.
Total net profits between Q1 2014 and Q1 2013 were flat at $13.1 Billion. Net profit per share, however, increased from $13.81 to $14.50 due to the fewer number of shares outstanding. While this is an increase in net profit per share, the net profit for the entire company did not increase at all. This was simply the result of Apple's recent stock purchases.
Earnings Per Share
The annual earnings per share in 2013 was $39.75, in 2010 it was $15.15, in 2008 it was $5.36 and in 2003 it was $.095. The annual earnings per share growth rate for the 3 year period was 37.48%, the 5 year period was 49.29%, and the 10 year period was 82.88%. This is quite a bit different from the current quarterly increase of just 5% in net profit or earnings and demonstrates the extent of the slowing that is occurring.
All of these fundamentals point to one thing - Apple's days of extreme growth are ending and it's settling into a more conservative growth posture. Momentum investors have been noticing this and getting out driving the stock price down. Value investors are now noticing this and getting into the stock. This is supporting the price of Apple stock at this level. Investors are beginning to understand that Apple is still a great company but it's no longer the growth company it once was.
Apple is currently growing revenues at a very comfortable rate of 5.69%. It's also increasing its net profit per share at the rate of 5.00%. While both of these numbers are respectable, it's a far cry from years past.
Apple paid its first dividend in 17 years when it paid a quarterly dividend of $2.65 on August 16, 2012. With its just announced Q1 2014 dividend, Apple is currently paying an annual dividend of $12.20 per share. In conjunction with the recent stock price fall to approximately $500 per share, the current yield has increased to 2.44%. This yield is very appealing to value investors. Although the dividend history is rather short, there has been a positive dividend increase and that is what's attracting the dividend growth and value investors. If Apple once again increases its dividend during Q2 2014, the dividend growth investors and the value investors will increasingly take notice. With this very nice yield and a PE ratio of only 12.60, value investors can be expected to continue to support Apple stock at this price level and push it higher. Apple has now become a buying opportunity for this very different and new type of Apple investor.