Apple already took 75 percent of the smartwatch market

23 Jul 2015 | Author: | No comments yet »

Apple Has Worst Day In 18 Months.

While analysts yesterday were left to crunch their own numbers after Apple CEO Tim Cook refused to go into sales specifics of the Apple Watch, a new report released this morning shows how quickly Apple has become the dominant player in the smartwatch market.Apple’s profit increased 38 percent to $10.7 billion compared to last year, and its revenue surged 33 percent to $49.6 billion, the company announced on Tuesday. “In the third quarter our year-over-year growth rate accelerated from the first half of fiscal 2015, with revenue up 33 percent and earnings per share up 45 percent,” Apple’s CFO Luca Maestri explained. “We generated very strong operating cash flow of $15 billion, and we returned over $13 billion to shareholders through our capital return program.” “We had an amazing quarter, with iPhone revenue up 59 percent over last year, strong sales of Mac, all-time record revenue from services, driven by the App Store, and a great start for Apple Watch,” said Tim Cook, Apple’s CEO in a statement. Apple’s revenue in greater China – defined by the company as China plus Hong Kong and Taiwan – rose 112% in the fiscal third quarter ended June.

Cowen and Company was one of the few firms to turn cautious on Apple, downgrading the shares to “market perform” from “outperform,” citing concerns about China, where competition is growing. This means that growth is accelerating in China after a 71% increase in the previous quarter, which was considered something of a seasonally-inflated surge because it encompassed the Chinese Lunar New Year, a peak shopping period in the country. The Wall Street Journal wrote “Apple iPhone Sales, Up 35%, Disappoint Investors,” while The New York Times headline read “Apple Profit Up 38%, but iPhone Sales Disappoint Wall Street.” The sudden fall stems from high expectations for Apple. The company forecast revenue of $49 billion to $51 billion, missing analysts’ average estimate of $51.13 billion, according to a consensus estimate from Thomson Reuters.

On Wednesday, Cowen & Co. analyst Timothy Acuri downgraded Apple’s stock to a “market perform” in part because he said he saw lower-than-expected iPhone sales as a cause for concern due to mounting evidence of “a widespread demand reset from China.” Cook said the company’s bullish view about China’s future remains unchanged. The company was still reluctant to mention how many Apple Watches it sold, since its April release, giving some the impression that the launch was a disappointment. While it only accounts for a fraction of Apple’s current revenue, some investors viewed the new product category as a growth opportunity for the company. He said penetration of LTE mobile networks is only at 12%, suggesting that the iPhone will benefit with wider availability of high-speed wireless connectivity. And chief financial officer Luca Maestri said Apple sold more Apple Watches in the first nine weeks after its launch than Apple sold in the first nine weeks of the iPhone or iPad.

Chinese markets were experiencing major disruptions throughout most of June, causing sales of premium goods to stall as Chinese buyers started being more careful with their money. He cited data from McKinsey & Company that it expects the upper middle class to account for 54% of all households in China by 2022, compared to 12% in 2012. Meanwhile, this past quarter is traditionally slow for iPhones, as shoppers await upcoming releases rather than pull the trigger on the currently available model. Apple did say it outsold the iPad during the first 9 weeks each device was on the market, which suggests Apple sold between 2.4 and 2.6 million Apple Watch units in that period.

As I look over the entire spectrum of Apple’s earnings, which included adding $9.3 billion to its cash holdings that now total $202 billion, and its growth in PC market share with sales of 4.8 million Macs, it appears to me that Apple’s position in the market remains strong with a lot of growth still ahead. Bajarin is the President of Creative Strategies, Inc and has been with the company since 1981 where he has served as a consultant providing analysis to most of the leading hardware and software vendors in the industry.

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