Demand for Apple's (NASDAQ:AAPL) iPhone remains strong.
The Cupertino tech giant turned in yet another impressive quarter on Monday, following up its record first-quarter results with another report that exceeded analyst expectations almost across the board. For the second quarter, Wall Street had expected Apple to earn about $2.16 on revenue of around $56 billion.Instead, Apple earned $2.33 per share on $58 billion.
In total, Apple generated $13.6 billion in net profit, as its gross margin rose to 40.8%. Let's take a closer look at Apple's results.
iPhone is still blowing away expectations
Ahead of its quarterly report, some analysts expressed concerns about Apple's iPhone business, suggesting that unit sales could prove disappointing. After all, last quarter was the strongest in the iPhone's history,and some demand may have been pulled forward.
Instead, Apple crushed expectations, and the iPhone had its second biggest quarter ever. In total, Apple sold 61.2 million smartphones -- more than the 58 million analysts had been anticipating. That's down slightly from last quarter, but up a staggering 40% from the second quarter last year. iPhone revenue likewise surged, rising 55% on an annual basis.
The iPhone has been Apple's most important business for many years, and that didn't change this quarter. In total, the iPhone generated almost 70% of Apple's revenue.
But demand for Apple's other products was mixed
If there was any weakness in Apple's report, it was the iPad. For more than a year, sales of Apple's tablets have come in short of expectations, and in the second quarter the iPad business continued to decline.
Apple sold just 12.6 million tablets -- a 29% decline on an annual basis. Analysts had anticipated a decline, but the estimate of around 13.6 million proved overly optimistic. Those who did purchase an iPad, however, may have opted for a more expensive model, as iPad revenue fell only 23%. In terms of revenue, the iPad is now Apple's third largest business, after the iPhone and Mac.
Mac sales also came in a bit light, but not terribly so. Apple sold 4.56 million Macs, just a hair under the consensus estimate of around 4.7 million.
Service-related revenue continues to surge. During the quarter, Apple's services (which include iTunes, AppleCare, and Apple Pay) brought in almost $5 billion in revenue, almost as much as the iPad ($5.43 billion) and Mac ($5.6 billion). Apple cited strong demand for apps sold through iTunes as contributing to the gain -- if that trend continues, it's easy to imagine that services will soon emerge as Apple's second largest business.
Apple's Chinese revenue continues to surge
On a geographic basis, Apple's products continue to enjoy record demand in China. In the second quarter, China brought in $16.8 billion -- almost 30% of Apple's revenue, not that far behind the $21.3 billion in the Americas. Apple's Chinese revenue rose an impressive 71% on an annual basis. Excluding Japan, the rest of the Asia-Pacific region was also strong, with Apple's revenue rising 48%.
Japan was Apple's only region that showed any weakness. Apple's Japanese revenue fell 15% from the same quarter last year.
Apple expects to generate revenue of $46 billion to $48 billion next quarter, roughly in line with the $47 billion analysts had been anticipating. But it's worth noting that Apple's revenue guidance was conservative last quarter, as it handily beat the $52 billion-to-$55 billion revenue figure it had projected.
Perhaps more important, Apple announced that it will return a lot more capital to shareholders in the months ahead: It boosted its capital return program by 50% and now plans to return $200 billion to shareholders by the end of March, 2017. That includes an 11% increase in Apple's dividend, and a massive expansion in Apple's share-repurchase authorization, from $90 billion to $140 billion.
Shortly following its second-quarter report, Apple shares rose to a new all-time high in after-hours trading. If it can continue selling tens of millions of iPhones and return billions of dollars to shareholders, it may have more room to run.