On October 25th, Apple announced earnings for the 13-week period ended September 29, 2012. For the quarter, Apple reported revenue growth of 27.22% to $35.966 billion and earnings per share growth of 22.98% to $8.67 per share. The earnings per share outcome in the quarter was negatively impacted by accelerated recognition of foreign exchange-related losses.
In contrast to the September quarterly results, for the fiscal year ended the same date, Apple reported revenue growth of 44.58% to $156.508 billion and earnings per share growth of 59.54% to $44.16.
View Apple By Seasons, Not By Quarters
The charts below illustrate the quarterly changes in year-over-year and sequential rates of revenue and earnings growth for the most recent twelve fiscal quarters. Apple's high annual growth rates are now concentrated in a six-month season comprised of the company's December and March quarters. The June and September quarters have comparatively slower rates of revenue and earnings growth and represent their own six-month revenue and earnings season.
Apple's quarterly results are essentially static snapshots of a fast-moving enterprise. Results are best viewed based on annual growth rates and the year-over-year growth rates of the company's two and distinctly different revenue growth seasons.
Apple's quarterly revenue growth rates FQ1 2010 - FQ4 2012:
Apple's quarterly earnings per share growth rates FQ1 2010 - FQ4 2012:
Apple's Annual Revenue and Earnings Growth Rates
The charts below illustrate Apple's dramatic rates of revenue and earnings growth over the most recent seven fiscal years. The annual rates of revenue and earnings growth will continue to be far more uniform than the rates of quarterly growth depicted in the graphs at the top of the article. The highly seasonal nature of Apple's revenue activity will continue not only because of the refresh cycle for the Apple iPhone, which comprised over 50% of the company's FY2012 revenue, but the influence of changes in the company's regional revenue mix as well.
Apple's annual EPS FY2005 - FY2012:
The iPhone and the iPad
Combined, the Apple iPhone and iPad represented about 72% of Apple's reported revenue in the fiscal year ended September 29, 2012. The chart below illustrates the revenue generated by the iPhone and iPad and the percentage of total reported revenue generated by the two product lines over the most recent twelve fiscal quarters. The release of the iPhone 5 late in the September quarter and without sufficient supplies available to meet initial demand reduced quarterly revenue growth and pushed unit sales into the current quarter and the new fiscal year. In the conference call with analysts following the release of September quarter earnings, Apple's management stated customer expectations for the release of the iPad mini diminished iPad unit sales growth in the quarter. The iPad mini will boost the company's revenue growth performance in the October through March six-month season.
Apple's Regional Revenue Mix
The charts below illustrate Apple's global revenue mix and the rates of growth in each of the regional segments in the fiscal year ended in September. Greater China is Apple's largest revenue source outside the United States and in the current fiscal year that began on September, 30, 2012, Asia-Pacific, inclusive of greater China, will eclipse Europe to become Apple's second-largest revenue region. Apple now has two major iPhone carriers on China's mainland and the possible addition of China Mobile as an authorized iPhone carrier looms large for potential revenue growth over the next two fiscal years. The annual iPhone refresh cycle and the winter introduction of the iPhone on China's mainland each year amplify the pronounced growth performance differences in Apple's two annual revenue and earnings seasons.
In the recent September quarter, the limited distribution of the iPhone 5 following initial release boosted the rate of revenue growth in the Americas region to 43.14%. The rate of revenue growth in the Europe region during the quarter fell to 8.46% and in the Asia-Pacific region revenue growth in the quarter was 15.42%. Both the Europe and Asia-Pacific regions will deliver much higher rates of revenue growth over the next six months.
Apple's Growth Seasons
Looking forward into FY2013, Apple will experience very high rates of revenue growth in the December and March quarters. Absent an earlier than expected release of the next flagship iPhone handset in July or August of next year, Apple's six-month revenue and earnings growth patterns will repeat the past fiscal year's behavior.
The Apple iPad will be Apple's fastest-growing product line in the current fiscal year. In the fiscal year ended in September, iPad unit sales rose by 80% versus 73% unit sales growth for the iPhone. Last week's introduction of the iPad mini and the refresh of the existing iPad line in time for the holiday season will contribute to strong revenue growth through the March quarter.
Investors should be less concerned with the rates of each quarter's revenue and earnings growth and focus more on the average rates of growth in each of the two distinctly different annual growth seasons.
Outlook for FY2013
Although the iPhone 4S delivered extraordinarily high gross margin for Apple, it commanded the world stage for only four months. iPhone 4S shipments peaked in January, four months after introduction. In January, Apple filled iPhone 4S backorders from the December quarter and introduced the handset through authorized carriers on China's mainland. I expect the iPhone 5 and its new form factor to deliver strong sales for six months following introduction but at lower average gross margin than its predecessor during its first six months in the market.
The iPad line of products, inclusive of the new iPad mini, may deliver the highest rate of revenue growth of Apple's four major product lines this fiscal year. The timing of the mini's release in October and the concurrent refresh of the existing iPad line may exaggerate the difference in the revenue growth rates between the company's two revenue and earnings growth seasons.
Apple is on track to deliver average revenue growth in the current fiscal year close to last fiscal year's nearly 45% rate of growth. Apple's ability to increase margin on newly released and refreshed products will determine the fiscal year's overall rate of growth in earnings per share.
Robert Paul Leitao
Disclosure: The author is long Apple shares