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4 Quotes Apple, Inc. Investors Shouldn't Overlook

By Daniel Sparks - Jan 28, 2016 at 2:45PM

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Apple CEO Tim Cook spent much of the call defending the company's growth prospects, but were his arguments compelling?

The record holiday quarter Apple (AAPL -0.07%) reported on Tuesday wasn't enough for investors to turn optimistic, and its stock is down about 7% since. Slow growth in iPhone sales and guidance for a year-over-year decline in revenue for its second-quarter has investors concerned the company may be peaking.

With Apple's underwhelming results and guidance in mind, it's probably worth investors' time to take a closer look at the company's most recent update on its own performance. While investors can certainly learn quite a bit from the financial statements and press release for the quarter, one area that is often overlooked is the earnings call. And Apple's earnings call for its first fiscal quarter was particularly interesting.

Apple Store. Image source: Apple.

Here are four key quotes from Apple's earnings call worth mulling over.

Android users are switching at higher rates
"[W]e were blown away by the level of Android switchers that we had last quarter," Apple CEO Tim Cook said when he was describing why he still believes iPhone sales can continue to grow over the long haul. "It was the highest ever by far."

This is obviously a good sign for the company, as the iPhone represents well over half of the tech giant's revenue; if the product loses its ability to attract customers from other platforms, investors would have a great reason to be concerned.

LTE penetration is low in China
One particular data point Apple management is excited about is the low LTE penetration in China.

"In terms of China, the LTE penetration as of the end of last October, which is the last data I've got, was in the mid-20s," Cook explained. "And so there's an enormous upgrade cycle there for people that are still running on 3G handsets."

A huge base of iPhone users haven't upgraded
Cook believes one potential catalyst for further iPhone growth is the larger number of users who have not upgraded to the latest iPhone.

The number of people who had an iPhone prior to the iPhone 6 and 6 Plus announcements -- and so this was in September of 2014 that have not yet upgraded to a 6, 6 Plus or 6s or 6s Plus is now 60%. So, another way to think about that is 40% have, 60% have not.

This can be viewed from either a positive or a negative standpoint. While it does show that the addressable market for potential iPhone upgrades is large, it also suggests that the iPhone 6s and 6s Plus simply may not be driving the upgrades the company hoped for.

Image source: Apple.

Expect an update on Apple's capital return program soon
As the company has done annually for the last several years, CFO Luca Maestri said Apple plans to "provide an update on our capital return program when we report our second quarter results in April."

So far, Apple has returned $153 billion of its $200 billion program to shareholders through dividends and repurchases. Repurchases represent the lion's share of this program, accounting for $110 billion of the capital returned.

Last year's update to the program was significant. The company increased its share repurchase authorization from $90 billion to $140 billion.

Despite Cook's reference to a few catalysts for further iPhone growth during the call, there are definitely still reasons to be concerned that Apple could have trouble growing in the future. Fortunately, Apple's conservative valuation alleviates much of this pressure. But it will still be worth keeping an eye on these catalysts Cook referred to during the call to see if they pan out as optimistically as management expects.

Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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