Apple: what do you do after becoming the world’s most profitable company?

 

 

When Apple became the most profitable company in history last week, analysts could hardly contain their excitement.

“Stunning”, “outstanding”, “a monster” were some of the analysts’ reactions to numbers showing the Silicon Valley firm had made $18bn (£12bn) in just three months – by selling 34,000 iPhones an hour around the clock from October to December. It now has $178bn cash in the bank.

But after all the commotion, the questions began. For a company that has come back from the brink of bankruptcy less than 20 years ago, how long can the good news continue? Here are the six big questions facing the world’s biggest corporate success.

Financially, is this the peak?

Apple was 90 days away from bankruptcy when Steve Jobs rejoined it in 1997– as he later revealed – but Apple now tends to downplay its financial success ahead of quarterly profit announcements in order to surprise investors and analysts.

This quarter’s profits were on another scale, though. Sales in the three months to the end of December were up 30% to $74.6bn. Those profits of $18bn were up 37%.

It was the fastest quarterly growth since March 2012, but then Apple was half the size it is now. As Apple’s chief financial officer, Luca Maestri, said: “For a company of our size that is not a small feat.”

Katy Huberty, an analyst at Morgan Stanley, said it was a “quarter for the record books” and increased her share price target from $126 to $133, indicating she believes there is more growth to come. The shares, which jumped 5% in after-hours trading following Apple’s results, closed at $117 on Friday.

The big challenge now, says Geoff Blaber, vice-president of research for CCS Insight, is to find the next growth opportunity. “Western Europe and north America are becoming saturated: to have room for growth Apple has to rely on taking growth from [Google’s] Android operating system based devices,” he says. “The big, big, focus is on China and to a lesser extent India.”

Analysts polled by Thomson Reuters expect Apple’s revenue in the year to September to grow 22%, but growth to slow to 4% in the following year.

Are there many more people left who want an iPhone?

Apple sold a record 74.5m mobiles in the quarter, 46% more than in the same period a year earlier. “Demand for iPhone has been staggering, shattering our high expectations,” chief executive Tim Cook said. “This volume is hard to comprehend.”

The phones accounted for two-thirds of Apple’s revenue, and were worth more than Microsoft and Google’s latest quarterly sales combined.

“Seems like the whole world wants an iPhone,” Steven Milunovich, an analyst at UBS, wrote in a note to investors, pointing out that consumers had demanded even more phones but Apple couldn’t produce them fast enough until recently.