Apple's Q4 Results Exceed Expectations As Services Strength Offset Weak iPhone Sales

Apple Inc. AAPL announced better-than-expected fiscal fourth-quarter results, as record Services revenues helped offset softer iPhone sales. With the company kickstarting a new product cycle with its 5G-enabled iPhone 12 models, it stated that early reception to its new products has been positive.

Apple's Q4 Key Numbers: The Cupertino, California-based tech giant reported fiscal-year 2020 fourth-quarter earnings per share of 73 cents. This compares to the year-ago EPS of 76 cents and the consensus estimate of 70 cents.

Revenues climbed about 1.03% year-over-year to $64.70 billion, exceeding the consensus estimate of $63.7 billion and also representing a record number for the September quarter. International sales contributed 59% to total revenues.

"Apple capped off a fiscal year defined by innovation in the face of adversity with a September quarter record, led by all-time records for Mac and Services," said CEO Tim Cook.

Product sales, accounting for about 77.5% of the total revenues, declined 2.7% to $50,15 billion, while Services revenue increased 16.3% to $14.55 billion.

Why It's Important: Expectations for the product segment were muted for the quarter, given that it had no new product launch during the quarter.

In mid-September, Apple unveiled its Apple One services bundle in a bid to improve the revenue trajectory of the Services segment.

Apple's flagship product – the iPhone – fetched revenues of $26.44 billion, down 20.7%. Sell-side consensus for iPhone revenues stood at $28.5 million, assuming unit shipments of 40.4 million and ASP of $705.

Morgan Stanley analyst Katy Huberty had earlier warned that consensus expectations for iPhone revenues were high.

Related Link: Apple Analysts See 'Once In A Decade' Opportunity Ahead Of iPhone 'Supercycle'

Mac and iPad revenues came in at $9.03 billion and $6.8 billion, respectively.

Net sales of wearables, home and accessories increased 12.7% to $7.9 billion.

Geographically, all the regions reported year-over-year growth, except Greater China, where net sales fell about 29% to $8 billion.

Among other metrics, Apple's gross margin expanded from 37.97% to 38.16%.

The company returned nearly $22 billion to shareholders during the quarter.

Forward Outlook For Apple: Analysts, on average, forecast roughly 14% revenue growth for fiscal-year 2021 first-quarter to $101.01 billion. Apple is widely expected by analysts to benefit in the near- and medium-term from strong momentum for its iPhone 12 models.

"Despite the ongoing impacts of COVID-19, Apple is in the midst of our most prolific product introduction period ever, and the early response to all our new products, led by our first 5G-enabled iPhone lineup, has been tremendously positive," Cook said in the release

The newest iteration is pronounced a winner already. Sources have suggested record preorders for iPhone 12 and iPhone 12 Pro in China and India, two key smartphone markets.

Preorders for two other variants – iPhone 12 mini and iPhone Pro Max - will begin Nov. 6, with shipments to start from Nov. 13.

Analysts model iPhone unit sales of about 70-80 million units in the December quarter, benefiting from sizable promotions by carriers.

Apple is in for a "once in a decade" opportunity, as 350 million of its 950 million iPhones worldwide are in the window of an upgrade opportunity, Wedbush analyst Daniel Ives said earlier this year. He sees China strength, with 5G Phone models and the Services business responsible for much of the growth, going forward.

For the fiscal year 2021, analysts estimate EPS of $3.90 on revenues of $311.36 billion.

Apple's Stock: Apple's shares have gained about 60% in the year-to-date period, while they were up a more modest 27% in the September quarter.

After nearly a 4.5% pullback Wednesday, Apple's stock ended Thursday's session up 3.71% at $115.32.

Reacting to the results in after-hours trading, the stock was down 3.92% to $110.80.

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