The most profitable quarter in history: analyzing Apple's record breaking Q1 2016

Investors are not happy with Apple: the sentiment is that the company cannot keep up its breakneck tempo when it comes to making outrageous profits and Apple Watch has not been the runaway hit many hoped it would be (at least not at this point in time). In addition, the rumored upcoming small, 4-inch iPhone 5se (that is 'special edition' for you) does not seem to spur crazy enthusiasm.

However, this sentiment is based on all things future and speculative.

What we have right now is the official data for Apple's Holiday quarter (technically, fiscal Q1 2016 in Apple's books) and one thing is certain: this is the most profitable quarter of any company ever. (Fannie Mae made an insane $58.7 billion in net income in Q1 2013, but more than $50 billion of that profit came from deterred tax assets, so it's hard to count this in.)

The second best in history? It's Apple again with its almost equally impressive fiscal Q1 2015, that was exactly a year ago.

So there are definitely some key takeaways that are worth a detailed look and that's what we aim to show you here: what are the staples of the Apple economy, how have its key products performed and what new promises are on the horizon. Take a look.

Apple sold the most iPhones ever in fiscal Q1 2016

Still it was almost flat and behind analysts expectations

Apple managed to improve slightly upon its previous record for iPhone sales set in fiscal Q1 2015, going up to 74,779 million units sold, up from 74,468 million. This is a very modest, 0.4% improvement in terms of unit sales (practically, we can count this as a flat quarter) and Apple has warned that - for the first time in history - iPhone sales might decline on an annual basis in fiscal Q2 2016.

This is a crucial moment: Apple's sales in the Americas have declined on an annual basis, which shows that the biggest market the company has is getting very saturated. At the same time, Apple sees growth potential in the developing world and has said that it will focus on expanding its business in Asia and India in particular. An interesting move, but one that seems inevitable.

Look at the bigger picture: iPhone sales grow 32% for the whole year

While nearly flat on the quarter, yearly growth is still impressive

While analysts were quick to paint doom and gloom on iPhone sales based on the nearly flat last quarter, it's worth looking at iPhone sales from a wider perspective to understand the deeper dynamics. 

It's interesting that despite this nearly flat quarter, in calendar year 2015, iPhone sales stood at 231.5 million units, up from 175 million in the previous year. That’s a growth in unit sales of the very healthy 32% and shows that the iPhone has not yet stalled its growth on a yearly basis.

iPad crashed to its worst yet

Apple sold 16.1 million units in fiscal Q1 2016

Apple's iPad, on the other hand, is now on a very clear and very steady decline curve. Despite the fact that Apple launched a brand new, 12.9-inch Apple iPad Pro - something that businesses and artists should embrace - sales of the iTablets have shown no sign of revival.

With 16.1 million units sold, the decline is sharp - in the same quarter of last year, iPad sales amounted to 21.4 million, while at their peak in the Holiday quarter of 2014, iPad sales were at 26 million.

On an annual basis, the drop in iPad sales is also very clearly pronounced: sales in calendar 2015 amounted to 49.56 million units (for the quarters that roughly coincide with calendar 2015), down from 63.36 million in the previous year. That’s a decline of nearly 21%.

Now, despite its clear decline, iPad on its own is still a business larger than most companies and it brings more than $7 billion in revenue. And yes, it's still a business larger than the Mac, so we do expect Apple to continue trying to bring excitement to the iPad lineup in 2016.

Yet net profit soared to an impressive $18.4 billion

The most profitable quarter of any company ever (excluding Fannie Mae's deferred-tax profit in Q1 2013)

It's all about the money, the song goes, and when it comes to money, it's all about Apple. No other company comes close: Apple registered $18.4 billion in net profit on revenue of $75.87 billion. Comments are really not really needed here: just look at the chart and see the impressive growth in Apple's fortune.

“Other” has become a major contributor to Apple revenue

It includes Apple Watch, Beats gear, Apple TV and more

The "other" category just begs to be broken down in pieces: right now, Apple bundles the Apple Watch, Beats gear, Apple TV and mroe in it. Well, this breakdown did NOT happen this quarter, as the number is still provided as one single piece (nope, no separate Apple Watch sales numbers either).

Tim Cook, however, did say that the Apple Watch had its best quarter with December being especially strong. This is not exactly a surprise, but it is reassuring that the Watch is growing, a piece of information that was needed given the fact that there are zero numbers to tell us how it's doing otherwise. 

"Revenue from other products grew strongly, up 62 percent over last year, thanks to the growing contribution from Apple Watch, as well as the successful launch of the new Apple TV, both of which established new all-time quarterly records. We expanded Apple Watch distribution significantly over the course of the quarter, and we experienced especially strong results during the holiday buying season," Tim Cook said in Apple's earnings call.

It's also notable that services has also become a major contribute to Apple revenue growing to a record $6.05 billion, including App Store revenues, Apple Pay proceeds and more.

Apple is mostly an iPhone company

iPhone revenue made up 68% of its total revenue in fiscal Q1 2016

As a conclusion, we ought to say that Apple is transforming. The iPhone has now practically stopped its growth for the first time in history and iPad sales are crashing.

What comes next? As is with Apple, we never know, but the growth of services and other products (especially the Apple Watch) has allowed the company to deliver another record quarter despite challenging global economic conditions and product saturation in its key markets.

For all it is, though, Apple remains an iPhone company. The phone is responsible for 68% of its revenue and Apple certainly realizes this. Expect big things for it in the future.


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