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Santa Was Generous To Apple This Past Year

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Santa Was Generous To Apple This Past Year

S&P 500's (INDEXSP: .INX) largest company by market cap has topped profit and sales estimates during the holiday quarter. Apple Inc.'s (NASDAQ: AAPL) stock has increased more than 2 percent in after-hours trading after the results were announced on Tuesday, January 28th. This added to a nearby 3 percent gain during the regular season, with earnings and iPhone sales smashing expectations during this blockbuster quarter.

Results

Revenue went up 9 percent to $91.8 billion, beating both Wall Street expectations and Apple's own guidance. What a relief after the same period last year when the company had to revise its revenue guidance down due to weaknesses in the Chinese market. According to Tim Cook, the Greater China segment, including Taiwan and Hong Kong, has returned to growth in this quarter.

iPhone brought in revenues of $55.96 billion versus $51.62. Services resulted in revenue of $12.7 billion versus the $13.07 billion expected but other products revenue managed to exceed expectations of 9.52 billion by amounting to $10 billion. With a gross margin of 38.4 percent topping the expected 38.1 percent, earnings per share amounted to $4.99 also exceeding the to $4.55 expected by Refinitiv.

Potential Headwind 1 – Coronavirus

The Coronavirus could pose a large threat to both Apple's supply chain and the Chinese consumer market as it has already shut down travel in some parts of China. Due to this uncertainty, the company issued a wider than typical range for its next quarter's guidance; from $63 billion to $67 billion, but it still was raised from $62.45 billion.

Potential Headwind 2 – 5G

The second threat comes with the 5G developments that its competitors have already aggressively pursued. For investor, it also remains unclear how will this exactly drive smartphone sales as well as a concern over the consequent increase in iPhone's price. Cook dodged all of 5G related questions, using Apple's well-known mantra that it never publicly reveals details on its future products.

Competitors Already Introduced 5G Capable Smartphones

Meanwhile, its competitors are greatly capitalizing on it. Starting with Huawei who is snatching its market share in China. The private company was also just given a clear path ahead as the UK defied Trump's plea and allowed the company to build a part of its 5G network. Great news for Huawei who repeatedly said it is not influenced by the Chinese government in any way, but for UK that is set to leave the EU on Friday, a very brave move considering its special relationship with the US.

Samsung Electronics' (OTC: SSNLF) share price fell 3 percent on Tuesday amid concerns over the Coronavirus impact considering that they have many factories in China, assembly ones included and they risk being shut down if things go further south. The company's full Q4 earnings are being awaited Thursday as hopes are high for the memory chip market rebound. But the company is also being labeled with a corruption-related scandal that involves its vice-chairman and with a former South Korean president.

Along with the fact that Lee Jae-jong also reshuffled the company's management as he eased the workload of senior executives by delegating it to younger ones, there are many internal uncertainties revolving around the company in addition to the cloud that is above any company operating heavily in China, with even Ikea closing down half of its stores.

Perspective

Apple surprised the world with its quarter results, showing it is possibly in better shape than it has ever been. Its services business that includes iCloud, Apple Care Warranty and Apple TV Plus was up 17 percent this year showing that the shift to a services company is no joke but a real business.

The iPhone maker looks fundamentally strong but some analysts are worried whether the company had ran too far, too fast. The above results clearly indicate reasons to be over the Moon; but from a technical perspective, but the chart of its share price is starting to take a parabolic form meaning a steep ascent as it's going very quickly up, and this also allows room to fear of a steep descent.

For the past 12 months, shares have skyrocketed 103 percent with only January so far going up 7 percent, going for the 5th straight monthly gain. If so, it would be Apple's best stretch since 2014. The IT sector overall has skyrocketed during the past 12 months and not only Apple is at risk of a downturn after leading the whole market higher. Santa was definitely beyond generous to Apple whose iPhone 9 mass production is scheduled to begin in February.

But time will show if it can keep up this positive trend, especially during the Coronavirus that is surely making things more difficult.

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