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Apple reports 12.7% profit growth, launches Apple Pay

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Apple sold 39.3 million iPhones in its fourth quarter. Above, employees at an Apple store in Santa Monica gear up for the start of iPhone 6 sales last month.
(Al Seib / Los Angeles Times)

Apple Inc. finished off its year in a big way, reporting a standout fourth quarter thanks to strong sales of iPhones and Macs.

The Cupertino, Calif., company reported Monday that net profit rose 12.7% to $8.5 billion for the three months that ended Sept. 27. Revenue was up 12.4% to $42.1 billion.

For its full year, Apple reported revenue of $182.8 billion, up 7% from fiscal 2013. Profit totaled $39.5 billion, compared with year-earlier profit of $37 billion. Chief Executive Tim Cook said in a statement that the company’s fiscal 2014 was “one for the record books.”

The company sold 39.3 million iPhones during its fourth quarter, a 16% year-over-year increase. Apple began shipping the iPhone 6 and 6 Plus on Sept. 19.

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More surprising were the Mac’s blowout sales, which rose 21% to 5.5 million computers sold; that’s particularly impressive given the softness in the personal computer category as a whole.  During a call with analysts, Cook called the results “absolutely stunning” and said Mac market share is the highest it has been since 1995. 

But other Apple categories struggled. For the third quarter in a row, sales of iPads fell. Apple reported that it sold 12.3 million iPads during the quarter, down 13% from a year earlier.

Cook cautioned analysts not to get hung up on 90-day sales figures for the iPad. He said that he didn’t believe the iPad market was saturated, and that it was possible the company was being affected by cannibalization from the iPhone and Mac, as well as slower upgrade cycles for tablets.

“To me, I view it as a speed bump, not a huge issue,” Cook said. “That said, we want to grow. We don’t like negative numbers.”

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Apple’s weakest-performing category was the iPod, which saw sales drop 24% to 2.6 million units sold.

In perhaps a sign of the times, Apple announced that starting next quarter, it plans to bundle its iPod sales figures into its “other products” category that includes accessories, meaning it will no longer break out specific sales figures for the iPod.

Interestingly, the company said its recently unveiled Apple Watch would also be bundled into the “other” category — an unusual decision that was quickly called out by analysts, who, like most investors, prefer more transparency, not less.

Cook defended the move, and said lumping in Apple Watch with other products “says nothing about our expectations about the product.”

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“It seems appropriate to start it that way,” he said. “Also, to be straight, I’m not very anxious in reporting a lot of numbers on Apple Watch and giving a lot of detail on it because our competitors are looking for it. And so aggregating it is helpful from that point of view.”

Apple released its earnings after the markets closed. During regular trading, shares rose $2.09, or 2%, to $99.76. In after-hours trading, the stock rose about 2%.

Apple released its fiscal fourth-quarter earnings the same day it launched Apple Pay. The new mobile payment system uses a technology called near-field communication to enable users to pay for purchases by holding their iPhones next to Apple Pay-equipped payment terminals at checkout.

Major retailers including McDonald’s, Macy’s, Walgreen, Office Depot, Nike, Subway, Whole Foods, Bloomingdale’s and Petco are accepting Apple Pay, which is being supported by Visa, MasterCard and American Express. Apple Pay is currently accepted at 220,000 stores.

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The rollout Monday appeared generally smooth, although some users reported being unable to use the service at some stores that weren’t yet set up with Apple Pay machines, or because store clerks were unfamiliar with the new feature.

By and large, however, users said getting Apple Pay up and running was a cinch and took to social media to gloat about buying Chicken McNuggets and Subway sandwiches with their phones.

“The whole setup and use experience so far is excellent,” J.P. Morgan analyst Rod Hall said in a note to investors. “Not much impact to Apple’s earnings on our calculations but certainly yet another reason for people to remain locked into the platform.”

What’s important now is for Apple to continue adding enough retailers to the platform, said Jerry Kim, assistant professor of management at Columbia Business School.

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“There’s a classic chicken-and-egg problem where if you don’t have enough merchants adopting this, then the value isn’t very high,” Kim said. “It’s unclear whether you can hit that tipping point and make it work.”

Heading into the holiday season, Apple is gearing up for another big three months. It is projecting that revenue for its quarter ending in December will be $63.5 billion to $66.5 billion.

andrea.chang@latimes.com

Twitter: @byandreachang

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