2015 - the year of Apple Pay, Apple Watch and the Apple Enterprise?

Profile picture for user slauchlan By Stuart Lauchlan January 27, 2015
Summary:
There are good quarters and there are really good quarters. And then there's Apple's latest quarter!

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Tim Cook

So the world’s largest company in terms of market cap has now handed in the biggest quarterly profit ever made by a public company.

Apple yesterday reported a new profit of $18 billion for its fiscal first quarter, 37% up year-on-year and comfortably beating the previous record of $15.9 billion from ExxonMobile in 2012. Revenues were up 30% year-on-year to $75 bililon.

Some more startling stats from the quarter:

  • Apple sold over 34,000 iPhones every hour, 24 hours a day, every day of the quarter.
  • 74.5 million iPhones were sold during the quarter, an increase of 23.4 million or 46% growth.
  • iPhone revenue climbed 57% year-to-year to $51.2 billion, accounting for 68.7% of Apple’s total $74.6 billion revenue in the quarter
  • While PC sales have declined, Mac sales rose 14% to 5.5 million units, up 700,000 year-on-year
  • App Store revenues were up 41%.
  • Total sales of media and software from iTunes were $2.6 billion, compared to $2.4 billion in the year ago quarter.
  • According to IBM’s digital analytics benchmark service, iOS devices accounted for more than twice the online traffic and almost four times the e-commerce sales on Android devices during November and December.
  • The only decline reported was for the iPad, which saw 21.4 million units sold compared to 26 million in the December quarter last year.
  • And during the quarter Apple shipped its 1 billionth iOS device.

Actually that last milestone is a bit of a cheat as it didn’t actually ship to a customer, as Apple CEO Tim Cook admits:

It was a Space Gray 64 gigabyte iPhone 6 Plus, which we’ve saved here at Apple.

I guess we can let him off with that one!

2015 goals

Elsewhere Cook talked up the initial progress of ApplePay, declaring that 2015 will be the year of ApplePay:

Today about 750 banks and credit unions have signed on to bring Apple Pay to their customers, and in just three months after launch, Apple Pay makes up more than $2 out of $3 spent on purchases using contactless payment across the three major US card networks.

In merchants who already accept Apple Pay, the rates are even higher. Panera Bread tells us Apple Pay represents nearly 80% of their mobile payment transactions, and since the launch of Apple Pay, Whole Foods Market had seen mobile payments increased by more than 400%. You can use Apple Pay up and down mainstream, to pick up a prescription at Walgreens at Duane Read, get office or school supplies at Office Depot and Staples and shop for groceries at national and regional stores from coast-to-coast, including BI-LO, Hardy, Save Mart, Wegmans Food Markets, Whole Foods and Winn-Dixie among others.

Given that we launched in October, I'm actually unbelievably shocked, positively shocked at how many merchants were able to implement Apple Pay in the heart of their holiday season, because generally most people sort of lock down and don’t do very much. But we were able to get this in a lot of different merchants and I give them a lot of credit for that. But I think we’re just on the front end. And I think that this is the year of Apple Pay.

The other big thing in 2015 will of course be the Apple Watch, now confirmed to ship in April. Cook says:

Developers are hard at work on apps, notifications and information summaries that we call Glances, all designed specifically for the Watch's user interface. The creativity and software innovation going on around Apple Watch is incredibly exciting and we can’t wait for our customers to experience them when Apple Watch becomes available.

From an enterprise perspective, Apple’s tie-up with IBM to deliver mobile apps for enterprise productivity seems to be on track. The first 10 MobileFirst for iOS apps for banking, retail, insurance, financial services, telecommunications, governments and airlines, shipped in December with a further 12 due in the next 3 months. The target now is to have 100 apps available by the end of 2015.

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Tick tock

It’s all boosting Apple’s enterprise credibility, argues Cook:

In just over a month, more than a dozen enterprise customers have signed on as foundation clients to transform their companies with iPhone, iPad and IBM MobileFirst solutions, including Miami Dade County, the seventh largest county in the United States by population and American Eagle Outfitters, which operates more than 1,000 retail stores and ships to over 80 countries worldwide. And the list of new customers is expanding rapidly. IBM is engaged with more than 130 additional companies looking to empower their employees with MobileFirst for iOS solutions and the list keeps growing.

Cook emphasises that Apple does have its own enterprise footprint:

if you look at the Fortune 500 as an example, we’re in essentially all of the Fortune 500 companies, so the issue is not that. And it’s not a market share number, because our market share is extremely high.

The issue is that enterprises, generally speaking are only deploying iPads to a small percentage of their workforce. So the real opportunity is to bring mobility into the enterprises and change how people work.

In order to do that, you obviously need apps that are written to specific jobs, not just apps that are general productivity apps like work processors and spreadsheets and presentation tools et cetera. That’s one of the things that working with IBM provides us, is both that and the knowledge of the verticals, which they bring a significant amount of knowledge on all of the verticals.

iPad down

All of which just leaves the iPad decline as the blot on the landscape. Here Cook remains upbeat

I am still very optimistic and bullish on iPad over the long run

I see that the first time buyer rates are very high. By very high, I mean that if you look in some of the developed market like the US, Japan, the UK, you would find that 50% of the people are buying an iPad for the first time. If you look in China, it's over 70%. When you have that kind of first time buyer rates, you don’t have a saturated market.

When I look at the customer satisfaction on iPad, it's literally off the charts, in some cases 100%, which is unheard in surveys to get these kind of customer sat ratings. When I look at the usage, the usage is six times our nearest competitor. The usage is defined as measured in web browsing is like 71% of total tablets. Also the commerce taking place across the iPad is enormous. Essentially over 80% of the commerce on tablets are taking place on iPad.

But there won’t be short term jump in iPad sales, he adds:

I believe that over long arc of time that the iPad is the great business, I also have visibility obviously of what’s in the pipeline and feel very, very good about that. I'm not projecting something very different next quarter or the next. I'm thinking over the long run.

The upgrade cycle is longer. It's longer than an iPhone, probably between an iPhone and a PC. We haven’t been in the business long enough to say that with certainty, but that’s what we think. There is probably some level of cannibalization that's going on with the Mac on one side and the Phone on the other. And so you probably have a little bit about that that is shaking out. How much, very hard to tell on the early going, particularly since we just shipped the new phones a few months ago.

My take

Just phenomenal numbers.

As a dyed-in-the-wool Mac-aholic, - iMac, iPad2, iPad mini, iPhone 6plus, Macbook air - I’ll of course be first in line for the Apple Watch, as will millions of others of course which will no doubt compensate for the slow down in iPad sales.

The argument about the longer upgrade cycle on iPads is true. While I eye the likes of the iPad Air with a degree of envy, the reality is that I’ve still got my trusty iPad2 and it meets all my mainstream needs for now, while my iPad Mini 2 (a gift) is a useful addition to train journeys. I’ve no appetite to upgrade for now.

Cook says it’s the year of Apple Pay. Perhaps. Certainly I look forward to seeing adoption rates outside of the US market, while appreciating the caution with which the roll=out is taking place. And the enterprise proposition is looking increasingly interesting.

But I suspect it will actually be the year of the watch. And I for one, can’t wait. (Cue snarky comment from Dennis Howlett…)