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(NASDAQ:AAPL) is trading nicely higher this morning and pushing up the Nasdaq Composite
(INDEXNASDAQ:.IXIC) on yesterday's substantial fiscal second-quarter earnings beat.
Here's what you need to know:
1. iPhone Mojo Is Back
Apple's iPhone number was a huge relief for the bulls. After missing consensus estimates by 4 million units last quarter
, Apple beat by nearly 6 million units in the March quarter.
Units were up a very healthy 17% year-over-year, though revenues were up just 14% due to a heavy mix of iPhone 4S sales in China.
And importantly, Apple is doing much better than its rivals -- at least for now. Samsung's
(OTCMKTS:SSNLF) Q1 revenue guidance
(subscription required) was light, while HTC
(OTCMKTS:HTCXF) reported a big loss for Q1.
2. The iPad Is Singing the Blues
Apple tried hard to spin the iPad's 16% decline in unit sales by explaining that actual customer sell-through was down only 3%, and by quoting usage and customer satisfaction statistics.
But these numbers are a bit troubling considering that last quarter, Apple claimed it couldn't make iPads fast enough, which would imply some demand push-out into the March quarter.
Apple's problem here is simple: It doesn't have a low-cost tablet to compete with the vast array of inexpensive Google
(NASDAQ:GOOG) Android tablets, many of which are great values at under $200.
Apple is a high-end brand, so it's unlikely to fight for space in the bargain bin, but that means stalled growth for now.
3. Wall Street Games
There's some complaining about Apple placing too much emphasis on financial-engineering games by announcing a $30 billion buyback, an 8% increase in its quarterly dividend, and a 7:1 stock split.
I don't really care about the stock split, but Apple is generating far more cash than it can ever spend, and unlike many tech companies that buy back shares, it is actually decreasing its share count.
And hopefully, spending cash on buybacks and dividends reduces the probability that Apple makes a big, silly acquisition while the S&P 500
(INDEXSP:.INX) is near all-time highs.
That brings us to the kind of engineering investors want to see -- product engineering.
4. What's Next?
The heat is on for the second half of the year. The bounce back in iPhone sales showed that the franchise is still strong, but investors are universally expecting a large-screen iPhone 6 to beat down the Hummer-like Android giants
Ideally, Apple will also launch one new product line (most likely a wearable such as the mythological iWatch
), and a new Apple TV, which suddenly looks a bit less attractive following Amazon.com's
(NASDAQ:AMZN) deal for HBO content
on Amazon Prime.
But Apple is awfully secretive, so it's hard to get a handle on its product planning.
For now, things are looking good for Apple as we approach the mid-point of 2014, but investors may get antsy if the company doesn't offer at least one new product with serious "wow factor" by year-end.
(Read more: Apple Inc. Innovation Now Means Mimicking IBM)
Position in AAPL
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