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Reviewing the Highlights from Apple's Q3 2015 Conference Call


Apple's CFO Luca Maestri upgraded Apple's forecast last quarter generously and Apple came within a hair of hitting that elevated forecast. The disappointment of the street and tech media was greatly overstated. Proof of that could be seen in Apple's stock rebounding this morning. It's already regained about a quarter of the loss it had suffered after hours last night. In these currently unstable economic times, with China's market being volatile and the U.S. dollar still incredibly high, Apple knocked it out of the park compared to any other smartphone OEM. Samsung reported more losses due to the failure of their Galaxy smartphone sales – especially their new S6 and Microsoft experienced yet another smartphone disaster driving the company to report its biggest ever quarterly loss yesterday. Apple's iPhone sales in China defied gravity this quarter and their Mac sales outpaced the entire PC industry by a wide margin as they await the arrival of Windows 10. Today's report simply highlights some of the stats that were presented during Apple's Q3 Conference Call so that we and our fans can refer to  them at any time in our "Apple Event Archives."


Apple's Financial Conference Call Highlights from Apple's CEO Tim Cook


The following are comments made by Apple's CEO Tim Cook during their fiscal Q3 Financial Conference call.


Cook noted that Apple experienced record June Quarter results with revenue up 33%, their fastest growth rate in over three years and earnings per share were up 45%. Revenue exceeded the high-end of Apple's guidance by $1.6 billion dollars. Other stats were presented in Apple's press release.


On the iPhone: Apple had another stellar quarter for iPhone sales establishing a new June Quarter record. Apple's iPhone unit sales grew 35% which is almost 3X the rate of growth of the smartphone market overall and gained share in all of their geographic segments. Apple's iPhone revenue grew even more strongly, up 59%. The strong iPhone results were broad based in both developed and emerging markets and they experienced the highest switcher rate in Android than they ever measured.


Cook later during the Q&A segment noted that 73% of current iPhone users have yet to upgrade to the iPhone 6 and so there's tremendous growth potential for the iPhone 6 ahead. Cook also noted during this segment that he sees innovation on the iPhone in the early innings of the game and not in the late innings.


On Macs: Apple continued to defy the industry trend with a growth rate of 9% in a market that IDC measured recently as contracting by 12%.


On Services: Apple generated over $5 billion in services revenue setting a new all-time record. The App Store revenues grew 24%


On Greater China: Apple experienced revenue growth 112% and iPhone unit growth of 87%. In context with IDC's latest statistics, Apple's growth was particularly impressive because the overall smartphone market only grew 5% in Greater China. Apple's Mac sales in China grew an amazing 33% Year-over-Year while Apple's App Store revenue doubled over last year.


On Apple Watch: Because Apple refused to publish their sales of Apple Watch, what Cook decided to selectively project should be muted until they're honestly willing to share their results as all of their competitors have to date. Cook's use of relatively unknown Wristly Research for satisfaction rating statistics for the Apple Watch was unimpressive. Considering this was a conference call about financials and performance, Cook wasted time in this segment using it as a big PR moment that fell on deaf ears in the financial community.


Cook danced around it again during the Q&A segment with non-specifics like "Apple Watch sales exceeded our expectations." What's the use of even saying that when there's no number attached? It was pure mumbo-jumbo.


Cook did say that Apple thinks that the Apple Watch will be one of the top gifts for the holiday season, something that we pointed out in a July report as follows: "Watches have always been great gifts and by fluke or design Apple may actually pull off a historic quarter for the Apple Watch and stun the critics."


On Apple Pay: Cook reviewed the launch of Apple Pay in the UK. He went on to note that in the U.S. the new Square reader will be coming this autumn and that American Express will be adding Apple Pay support its corporate cards next month.


Noteworthy is the fact that Apple is adding more than 80,000 small businesses to Apple Pay every month. Another new avenue for Apple Pay was revealed. According to Cook, Universities and Colleges across the U.S. will be accepting Apple Pay. By the end of 2015 Apple Pay will be accepted in 1.5 million establishments.


Minor Highlights from Apple's CFO Luca Maestri


The following highlights from Apple's CFO segment of the Conference Call are on his take on market generalities and not on financial specifics.


On Emerging Markets: Apple's emerging market business grew 79% to almost $18 billion and represented 35% of Apple's total company revenues.


On the iPhone Outside the U.S.: Sales almost doubled in Germany, South Korea, Malaysia and Vietnam. In Greater China and in India sales grew 85% and increased sales by 45% in countries such as Italy, Spain, The Netherlands and Turkey. The latter was a bit surprising considering that Apple opened flagship Stores in that country.


On iPad: Apple sold 10.9 million units vs. 13.3 million a year ago. Maestri noted that while Apple doesn't participate in the low end of the tablet market, they are extremely successful where they do compete. Apple owns 76% market share of tablets priced above U.S. $200.


Cook later added during the Q&A session that iPad usage statistics remain "unbelievably great." Compared to their nearest competitor, the iPad is six times greater. He believes that the consumer upgrade cycle will eventually come and that it's the primary reason why growth is being held back. Cook remains positive on the iPad seeing "a lot of runway" ahead (nice visual.)


On Apple Watch: Maestri repeated that Apple does not plan to disclose Apple Watch metrics because they don't intend to provide insight that could help our competitors. That position just makes Apple Watch look weak.


On Apple Stores: Apple's Global Store count is currently at 456 with 190 outside the U.S. Apple has 22 stores in Greater China and plan to have 40 stores by the middle of 2016.


Below is Apple's Q3 2015 Unaudited Summary Data.


2.1 Apple Q3 2015 - Financial Graphic from Apple

One More Thing on China: The Rise of the Middle Class


With the turmoil in China playing out, Cook noted during the Q&A session that while there could be some speed bumps in the near term in China the fact is that consumers in China in general don't currently participate in the stock market like those in the U.S. And with the numbers that Apple has experienced this quarter, the growth is fantastic. According to Cook, "The worry is overstated."


The key point that Cook made on China was this: "The rise of the middle class there is continuing and is transforming China. I saw a recent study by McKenzie that's projecting the upper middle class to grow from 14% to 54% of households over the ten year period from 2012 to 2022. So we're within that period at this moment and you can see from all of us that travel there so much, with every trip you can see this occurring."


Cook added that "We would be foolish to change our plans. I think China is a fantastic geography with an incredible, unprecedented level of opportunity there … and we're going to be there."


If there's one possible negative to be found, it's in how some on Wall Street is beginning to see Apple as a one trick pony. With iPad sales in limbo, the Apple Watch's success in question, there's not much to save Apple if their iPhone sales should ever falter. Though in the end, it's a myopic view and one not taken too seriously by 18 out of 19 brokerage firms.


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