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5 Things Apple Inc.'s Management Wants You to Know

By Sam Mattera - Aug 3, 2015 at 3:00PM

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First, that Apple Watch's customer satisfaction rate is 97%.

Apple's ( AAPL 2.28% ) CEO, Tim Cook, had a lot to say on the company's third quarter earnings call.

Cook touched on several key factors, including China, the future of the iPad business, and demand for Apple Watch. Below are five of the most important quotes from Apple's earnings call.

Apple Watch customers are highly satisfied
Last year, Apple announced that it would not be disclosing sales figures for Apple Watch, citing competitive concerns. In line with that stance, Apple did not offer up exact sales or shipment figures for the third quarter. Instead, Cook called attention to Apple Watch's strong customer satisfaction.

Market research from Wristly measured a 97% customer satisfaction rate for Apple Watch and we hear from people every day about the impact it's having on their health, their daily routines, and how they communicate. Our own market research shows that 94% of Apple Watch owners wear and use it regularly, if not every day.

iPhone 6 penetration still has room to grow
Apple has enjoyed record demand for iPhone following the release of the iPhone 6 last September. Apple's fiscal year first and second quarters saw the strongest demand for iPhone in Apple's history, as customers were drawn to the larger screen. Understandably, however, there's some concern that demand might not continue, as the market nears saturation. Yet Cook believes the iPhone still has further room to run.

The things that makes me very bullish [on the iPhone business] is the 27% [rate of adoption for the iPhone 6/iPhone 6 Plus], the fact that we are seeing the highest Android switcher rate, the customer satisfaction that we have on the iPhone versus the competition. It's a huge margin. The loyalty rate that we have versus competition, an enormous gap there.

Apple Watch is driving Apple's other growth
Apple lumps Apple Watch sales in its other products category, alongside Apple TV, the iPod, and accessory sales. In total, other products generated $2.6 billion last quarter, up 49% on an annual basis. In the second quarter, before the release of Apple Watch, other products brought in $1.7 billion. The difference between the two -- $900 million -- might be thought of as Apple's total Apple Watch revenue, but Cook argued that the situation was more complex.

If you look at the other products category and look at the revenue in this category, it would not be an accurate thing to just look at the sequential change or the year over year change and assume that were the total Watch revenue because the aggregate balance of that category -- both sequentially and year over year -- is shrinking. Obviously iPod is a part of that, but there are other things in there, accessories and so forth, that are shrinking.

iOS 9 could boost iPad demand
Apple's iPad sales have contracted on an annual basis in each of the last six quarters. Still, Apple's management remains confident in the business. During the call, Cook argued that updates coming to iOS later this summer, alongside enterprise demand, should eventually turn Apple's tablet business around.

I am still bullish on iPad...with iOS 9, there's some incredible productivity enhancements coming in with split view and slide over and picture-in-picture...The enterprise business is clearly picking up and more and more companies are either contracting for or writing apps themselves. I think and I believe that the iPad consumer upgrade cycle will eventually occur...we look at the usage statistics on iPad, it remains unbelievably great.

Apple remains bullish on China
China is Apple's second largest market, and its fastest growing. Last quarter, just over 26% of Apple's revenue came from China, while its Chinese revenue in total rose 112% on an annual basis. At the same time, the Chinese stock market has been particularly volatile in recent months, shedding some 30% and prompting Chinese regulators to suspend trading in many stocks. Given the growing importance of China to Apple's business, the recent volatility in the Chinese stock market may eventually take a toll on Apple's business. During the call, Cook addressed the issue, but reiterated Apple's commitment to China.

Stock market participation among Chinese household is fairly narrow. And the stock ownership is very concentrated in a few people who put what appears to be a smaller portion of their wealth in the market than we might...this worry is probably overstated. And so we're not changing anything. We have the pedal to the metal on getting to 40 stores mid next year.

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