Apple beats Wall Street targets and announces $90bn buyback

Apple  on Wednesday posted sales and profits far ahead of Wall Street expectations and announced a $90bn share buyback as customers continued to upgrade to 5G iPhones and snapped up new Mac models with Apple's house-designed processor chips.

Sales to China nearly doubled and results topped analyst targets in every category, led by $6.5bn more in iPhone sales than predicted and Mac sales about a third higher than estimates. Apple CEO Tim Cook said the company sees an economic recovery coming.

“Certainly, all indications that I see would be very positive on the US economy,” Cook said.

The results came the middle of a global semiconductor shortage that has hobbled US automotive manufacturers but that appears to have left Apple, a major chip buyer known for its supply chain expertise, unscathed.

“There wasn't a material issue with our results due to supply,” Cook said.

Apple thrived through the coronavirus pandemic as homebound consumers stocked up on electronic devices and signed up for paid apps and services for fitness and music, and sales shot up even higher as Apple released 5G iPhone models last autumn.

For the fiscal second quarter ended March 27, Apple said sales and profits were $89.6bn and $1.40 per share, compared with estimates of $77.4bn and 99c per share, according to Refinitiv data.

Apple shares rose 3% in extended trading after the results.

iPhones were the biggest driver of growth, suggesting consumers are upgrading to 5G, said Haris Anwar, senior analyst at Investing.com.

“Stimulus cheques and the successful vaccine rollouts are certainly helping to boost consumer demand for tech gadgets across the board. This environment will last for at least another year providing a solid platform for Apple to expedite its growth.”

While Apple's business is booming, its App Store, one of its fastest-growing businesses, has come under increased antitrust scrutiny because of Apple's in-app payment rules and app review policies.

In the coming weeks, Apple will defend a high-profile antitrust lawsuit brought by Fortnite maker Epic Games, while EU antitrust regulators are set to grill the company after a complaint by music streaming service Spotify.

Macs and iPads — two product categories that Wall Street rarely counted on to supply growth — both benefited from consumers working from home and remote learning. On top of those trends, Cook said Apple customers were responding strongly to the company's M1 chip, its first in-house processor for Mac computers.

“Both of those things happening at once really supercharged the Mac sales. The last three quarters on Mac have been the strongest three quarters ever in the history of the Mac,” Cook said.

Apple raised its dividend 7% to 22c per share, a penny ahead of estimates, as well as announcing the $90bn share repurchase. Google-owner Alphabet announced a $50bn buyback on Tuesday.

Apple said iPhone sales were $47.9bn compared with analyst estimates of $41.4bn, according to data from FactSet. Sales of Macs and iPads were $9.1bn and $7.8bn, respectively, compared with FactSet estimates of $6.8bn and $5.6bn.

Apple investors are looking for growth from Apple's accessories business, which includes products such as AirPods headphones and its new AirTag trackers, and its services business, which includes its App Store and new offerings such as paid podcasts. Sales in the segments were $7.8bn and $16.9bn, respectively, vs estimates of $7.4bn and $15.5bn.

Cook said the company has 660-million paying subscribers on its platform, an increase from the 620-million in the fiscal first quarter. Apple recently added new paid offerings such as its Fitness+ workout service.

Apple's sales in the greater China region during the fiscal second quarter, which included the busy Lunar New Year shopping season, were up 87.5% to $17.7bn, compared with a 57% rise in the previous quarter.

Shares of Apple are up about 93% over the past year, compared with a 61% rise for the Nasdaq 100 index of which Apple is a component. The array of products and services eased investors' valuation concerns that Apple relied too heavily on iPhone sales, turning Apple into a $2-trillion market capitalisation company two years after it hit the $1-trillion mark.

The rise has cooled in 2021 despite Apple reporting its first ever quarter with more than $100bn in sales in January, with Apple shares rising only 3.9% since the start of the year vs a nearly 10% rise for the Nasdaq 100, as investors have questioned whether Apple shares are too expensive relative to other tech stocks.

Reuters