Apple Projects Another IPhone-Fueled Record for Holidays

Tim Cook is getting the end-of-year shopping season down to a science.

Apple Inc. (AAPL)’s chief executive officer yesterday forecast a record holiday sales quarter, fueled by new bigger-screen iPhones, refreshed and slimmer iPads and the introduction of the Apple Pay mobile-payments service. It would be the fourth straight year that Cook, who became CEO in 2011, will have overseen a record end-of-year period.

Cook has increasingly honed all of the elements for a strong holiday quarter, stacking them in Apple’s favor. He has moved most of the company’s product debuts toward the end of the year, shifting away from some gadget introductions that used to happen in the spring. Starting with the iPhone 4s and the iPad mini in 2011 and 2012, Apple began introducing products before the shopping season. This year, he unveiled the iPhone 6 and 6 Plus, as well as Apple Pay, in September, followed by an event this month to show off new iPads and Macintosh computers.

“There’s absolutely no coincidence that it’s happening at this time of the year,” Rhoda Alexander, an analyst at IHS Inc., said in an interview. “They really shifted most of their product introductions to happen in the second half of the year.”

The Cupertino, California-based company said in a statement yesterday that revenue in the current period will be $63.5 billion to $66.5 billion, just topping the $63.5 billion estimated on average by analysts, according to data compiled by Bloomberg. That would exceed Apple’s holiday sales of $57.6 billion for the end of 2013.

Strong Guidance

“The guidance looks very strong,” Alex Gauna, an analyst with JMP Securities LLC, said in an interview. “How good beyond the already good — that’s going to be one of the key questions we’re going to be asking ourselves.”

Cook took the opportunity yesterday to talk up the prospects for the holiday period.

“Demand for the new iPhones has been staggering,” Cook said on a conference call. “We’re selling everything we’re making.”

Investor optimism about the new products has boosted Apple’s shares more than 24 percent this year. The stock rose in extended trading after closing at $99.76 in New York yesterday.

Profit, Revenue

Apple’s end-of-year forecast builds on a fiscal fourth-quarter performance that also topped analyst projections. For the quarter ended Sept. 27, Apple’s net income rose to $8.47 billion, or $1.42 a share, from $7.51 billion, or $1.18 a share, a year ago. Sales were $42.1 billion, up 12 percent from $37.5 billion a year earlier. Analysts had projected profit of $1.30 a share on sales of $39.91 billion.

The results gave a peek into how the introductions of the new bigger-screen iPhone 6 and 6 Plus have gone after becoming available on Sept. 19. Apple has said it sold more than 10 million of the devices in their debut weekend, yet the rollout was marred by snafus with updates to the iOS 8 mobile-operating system and some user complaints that the 6 Plus would bend when sat upon.

IPhone sales for the fourth quarter, including more than a week of the new iPhone 6 and 6 Plus on store shelves, were 39.3 million, up 16 percent from a year ago and more than the 38 million predicted by analysts on average in a Bloomberg survey.

Apple finished the quarter with a backlog of orders, Chief Financial Officer Luca Maestri said, adding that production of the 6 Plus is increasing every week. IPhone demand is so strong that supply has fallen below the company’s inventory target of four to six weeks, Maestri said.

The new iPhones also debuted in China on Oct. 17, where demand has “been really off the charts, it’s been really, really good,” Maestri said.

IPad Sales

IPad sales were less stellar. The company sold 12.3 million of the tablets in the fiscal fourth quarter, below an estimated 13 million units projected by analysts and down 13 percent from a year ago, according to data compiled by Bloomberg. It was the third consecutive quarter that iPad sales declined.

“I view it as a speed bump, not a huge issue,” Cook said on the conference call. “I’m very bullish where we can take iPad over time so we’re continuing to invest in the product pipeline.”

He added that Mac sales, which rose 21 percent in unit terms, reflect strong back-to-school demand.

Apple finished the quarter with a gross margin, or the percentage of revenue left after subtracting production costs, of 38 percent compared with 37 percent a year earlier. The company forecast a gross margin of 37.5 percent to 38.5 percent for this quarter.

Year End

While Apple traditionally had some new products during the second half of the year, Cook and Phil Schiller, head of marketing, have stepped up the effort, said Tim Bajarin, president of Creative Strategies Inc.

“Both he and Phil have honed that actual September-October period for not only upgrades, but huge marketing campaigns,” he said.

Having new iPhones and iPads on store shelves at the end of the year is crucial for Apple. During the holiday season, consumer spending on electronics in the U.S. is anticipated to increase 2.5 percent to $33.8 billion, the highest level since the Consumer Electronics Association began tracking it in 1994. The top items on technology wish lists, according to the group’s annual Holiday Purchase Pattern Study, are tablets.

When it comes to tablets, more than 60 percent of sales occur in the second half of the year, said Alexander of IHS. Having fresh products during this period also helps sales in China, where the Chinese New Year holiday is celebrated in the first quarter with gift giving.

“It really takes advantage of these key holiday seasons in two of their major markets,” Alexander said.

(Source: Bloomberg)