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Top 5 take-aways from Tim Cook on Apple's Q3 earnings call

John Cox | July 24, 2014
Apple's Tim Cook says iPhone thriving, iPad innovation on tap, Apple is an enterprise company.

During Apple's fiscal third quarter earnings call this week, CEO Tim Cook gave some hints about where the company is going and why.

 First, the quarterly numbers:

  • Revenue: $37.4 billion, up 6 percent year over year, but down from Q2's $45.6 billion.
  • Net profit: $7.7 billion, up 11.6 percent year over year.
  • Earnings per share: $1.28, compared to $1.07 a year ago.
  • iPhone: 35.2 million sold (up 13% compared to a year ago; an expected decline from Q2), accounting for $19.7 billion of the quarter's revenue (up 9 percent compared to a year ago.
  • iPad: 13.2 million units, down 9% compared to a year ago, and 19 percent from the Q2, for revenues of $5.9 billion

 Here's are four key points that emerged from what Cook had to say in his prepared remarks to analysts and in fielding their questions [full transcript via SeekingAlpha, free registration required to view].

 -1 iPhone 5C leads iPhone growth rates

 Cook used terms for the first time to create a consistent nomenclature for the iPhone product tiers: entry priced, mid-tier, and lead iPhones. Today, those terms refer respectively to the iPhone 4s, the iPhone 5c, and iPhone 5s.

 Cook was asked to break out product growth in each tier. He declined to be specific, but he did compare the year-over-year growth rates of the 5c and of last year's mid-tier phone, the iPhone 4s. "The growth in that sector [the mid-tier] was the highest growth during the quarter we just finished," he said.

 "Of the three tiers?" he was asked.

"Of the three tiers," Cook confirmed. "And so we are extremely happy with how it performed last quarter."

 This is the latest evidence that the 5c has been a successful extension of the iPhone brand, contrary to widespread Internet meme [see "The iPhone 5c is a mistake, a failure, a disaster, a flop, a dud: The iOSphere speaks out, freaks out"]

 -2iPhone sales are benefitting from new carrier trade-in and installment programs

 Most iPhones are no longer sold on the "traditional" carrier subsidy model, as carriers experiment with a range of new trade-in and installment plans. Contrary to what many might expect, iPhone sales are benefitting from that shift, according to Cook.

 "[L]ast quarter, as we estimated (and this is subject to estimating) but we're estimating that less than one out of four iPhones were sold on a traditional subsidy plan," Cook said. "And so that number is markedly different than it would have been two years ago."

 One analyst asked him about the impact of new installment plans introduced in some carriers in 2013.

 "The installment plan that you're speaking about, which gives the customer the right to upgrade SAP [ASAP?] or faster than a usual two-year cycle, we think that plays to our customer base in a large way," Cook continued. "And so that makes us incredibly bullish that customers on those plans would be very likely to upgrade when we announce a new product."

 

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