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Apple Finances: Good is Never Good Enough

There’s something about inflated expectations, and it appears Apple just can’t win. If they beat those expectations, that should be a good thing, but if Wall Street decides it still wanted better numbers, as questionable as those estimates might be, well, that’s a bad thing.

So Apple had another blowout quarter. Apple earned higher revenues and higher profits than in any comparable quarter — ever. The company’s own guidance was exceeded. The iPhone and the Mac are growing sales ahead of saturated markets. But success is never enough when it comes to Apple.

Let’s start with Apple Watch sales, or the lack of actual numbers. You see, the “Other” category, in which the Apple Watch is placed, grew 49%. I’ll leave it to the financial wizards in our audience to estimate what that means in total sales. Meantime, Apple is keeping those numbers under the vest, claiming they didn’t want to make it available to competitors. But obviously they aren’t shy about releasing sales figures for iPhones, Macs and even the iPad, which yielded yet another sales drop. Sales of the latter totaled 10.9 million, an 18 percent year over year decline. But there’s hope that the new multitasking features that will debut this fall in iOS 9 will change things for the better.

During the quarterly conference call with the financial community, Apple CFO Luca Maestri said that the Apple Watch sold more units in its first nine weeks than the iPhone or the iPad in their first nine weeks. As a point of reference, Apple sold one million iPhones and three million iPads in the comparable timeframe. So we can assume, then, that Apple sold more than three million Apple Watches, but that’s about as close as it gets. In passing, the rest of the smartwatch industry evidently managed over four million sales during all of 2014. That’s compared to three million-plus-something-or-other in nine weeks.

Apple CEO Tim Cook also responded to the claims of poor sales, such as the recent survey from Slice Intelligence claiming that Apple Watch sales collapsed in June. Indeed, Cook said that June Apple Watch sales were actually higher than in April or May. Those taken in by the controversial survey should take notice. It’s not that Cook is going to lie about any of this, although I’m sure that number crunchers will look over those “Other” figures to try to get a closer handle on the actual numbers.

Cook also raised expectations for high Apple Watch sales during the holiday quarter, reminding his audience that WatchOS 2 would allow for native apps, a problem that’s hurting the current Apple Watch developer environment. This brings to mind the curious article in The New York Times piece that echoed claims that sales were poor, and cited alleged poor response from developers as an example. Coming ahead of the release of the new operating system, the conclusions are certainly suspect.

In all, Apple recorded revenue of $49.6 billion for the June quarter, with net profits of $10.7 billon, or $1.85 per diluted share. This compares to June quarter revenue of $37.4 billion and $7.4 billion in profit last year. The financials were, by the way, above Apple’s usually conservative guidance.

iPhone sales hit 47.5 million units, an increase of 35% over last year’s sales of 35.2 million. Although this was a healthy increase by any estimate, and reportedly ahead of the smartphone market by a large margin, it still wasn’t enough. Some overly anxious Wall Street analysts were predicting sales would top 50 million, but those figures were very likely based on air — hot air. For most analysts, the numbers were right on target.

At a time when PC sales are dropping, Mac sales continue to grow, with sales of 4.8 million Macs, a nine percent increase over last year. Apple attributes some of the growth to the new MacBook. Most of the portable lineup was also refreshed in the spring. The price of the iMac with 5K Retina display was reduced by $200, and a cheaper version was released for the same price as the previous high-end standard definition version.

Now this doesn’t mean there’s no room for other new Macs. There are rumors about a full iMac refresh for late this fall, and maybe the Mac Pro will get some attention. The current version first went on sale in December of 2013.

For the September quarter, the fourth fiscal quarter for Apple, revenue is projected between $49 billion and $51 billion, gross margins between 38.5 and 39.5 percent. Don’t forget that June quarter sales mostly exceeded estimates, and while the current quarter’s numbers seem impressive enough, Wall Street clearly expected more, and thus the stock price decreased in after-hours trading.

That goes to show how Wall Street continues to misjudge Apple, so I shouldn’t be surprised.

The long and short of it is that Apple continues to confound the critics with stellar numbers and yet plenty of skepticism that they aren’t doing enough. The Apple Watch won’t be regarded as a success until real numbers are released, but don’t bet on that happening unless they are really impressive, and not just in line with expectations.