The 5 most important takeaways from Apple’s Q2 earnings report

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Apple Q2 2014 Earnings

Apple stunned Wall Street on Wednesday when it posted fiscal second-quarter earnings that absolutely crushed analysts’ estimates. The company reported a net profit of $10.2 billion — a second-quarter record — thanks to surprisingly strong iPhone sales, and revenue in the quarter totaled $45.6 billion. Apple also had a pair of huge announcements related to its stock, and plenty more that it covered.

Here are the five most important takeaways from Wednesday’s report:

iPhone is still a beast

Industry watchers were a bit worried going into Apple’s earnings report that iPhone sales might have slowed since anticipation for the bigger iPhone 6 and iPhone phablet is so huge.

Not even close.

Analysts were expecting Apple to sell 37.7 million iPhones in the March quarter. Apple sold 43.7 million iPhones.

This is obviously an indication that consumer demand for Apple smartphones is still massive — even bigger than Wall Street thinks it is. It also could be a good indication that iPhone sales are going to skyrocket even higher than some people think once it launches completely redesigned models with larger displays.

Also of note, Apple’s lower-end iPhone models are serving their purpose despite their relatively high price points.

Apple’s smartphone share in emerging markets like China is on the rise, and CEO Tim Cook said more than 60% of people who purchased an iPhone 5c or iPhone 4s in Q2 were first-time iPhone buyers. The bulk of these users likely came from Android devices or feature phones.

Apple doesn’t report its iPhone sales mix so we don’t know exactly how many iPhone 4s and iPhone 5c models it sold, of course. Cook did say, however, that sales of Apple’s entry-level iPhone 4 represented a low single-digit percentage of iPhones sold in the second quarter.

Questions surround iPad and iPod lineups

Apple CEO Tim Cook and new CFO Luca Maestri did a good job of explaining away iPad sales that were much weaker than expected with inventory issues. The fact remains, however, that Apple launched two brand new iPad models in November last year and iPad sales in their first full quarter of availability were weak.

Tablet sales during the fiscal second quarter totaled 16.35 million units while the Street was expecting 19.7 million.

Have we reached peak iPad? Definitely not, but Q2 could be a good indication that Apple needs a bit more than incremental updates to maintain solid growth in the tablet market.

As for the iPod, it certainly appears to be on its last legs. Apple only sold 2.75 million units last quarter because the device just doesn’t fill a gap anymore for most consumers. Here’s a nice chart from ZDNet that shows just how done the world is with iPods:

ipod-sales-chart

Seems like a nice time to introduce a new product line, no? Wearables, perhaps?

Apple isn’t too big to be bullied

High-profile investors like Carl Icahn really turned up the heat in the second half of last year, demanding that Apple start returning money to shareholders more actively.

It worked.

Apple made two huge announcements pertaining to its stock on Wednesday. First, it is increasing its share buyback program by an additional $30 billion. By December of next year, Apple will have repurchased $130 billion worth of Apple stock.

Second, the company announced a rare seven-to-one split for shares of its common stock that will take place this June. This will be the fourth time Apple has split its stock, with the most recent split having taken place in February 2005.

Apple TV is big – and it’s getting bigger

While industry watchers wait for Apple to break into new categories, the real advancements might come in a category Apple has already worked to gain share in for quite some time.

Apple TV is most certainly not a hobby anymore. Tim Cook announced on Wednesday evening’s earnings call that Apple has now sold almost 20 million Apple TV boxes cumulatively, and he gave us strong indications that we can expect big things in this category moving forward.

What exactly can we expect? In the near term, look for Siri to finally make an appearance on Apple TVfiiiiiiinally — and we should see the device open up to third-party apps and games in the near future as well.

Still focused on the future

Apple might have let itself get pushed around a bit by investors, but it’s still using that massive cash pile to focus on the future.

During the company’s earnings call, Tim Cook said that Apple has acquired 24 different companies in the past year and a half. Apple also said that it is spending on innovation in other areas.

The company is responding to consumer demand with larger iPhones later this year, and Cook hinted several times on Wednesday’s call that once Apple finally does enter the wearables market, it will do so with an exciting line of products that are the best. Rival companies, Cook said, just rush out half-baked devices in an effort to be first.

And finally, don’t be surprised if we see Apple enter the mobile payment space soon. With 800 million iTunes accounts and nearly as many credit cards on file, Apple’s mobile payment product could obviously be huge.

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