Later today, Apple will announce its quarterly earnings for Q3 2014. For the past couple of years, the April-to-June quarter has been the slowest quarter of the year for the company. Before that, Apple used to refresh its iPad lineup in the spring. Now, it seems like nothing is happening during the Q3 quarter. But gross margin is on the rise and should make this quarter more impressive than expected.
This year is no exception from the slow quarter news. Besides WWDC’s iOS 8 and OS X Yosemite announcements, Apple didn’t share much. The company has repeated multiple times that there should be interesting product updates in the fall. Does it mean that Apple’s quarterly results are going to suffer?
When it comes to both revenue and profit, Apple is growing. Analysts and Apple’s own estimates say that revenue should be on the rise from $35.3 billion in Q3 2013 to anywhere between $36 billion and $38.3 billion, or even more than that.
Yet, this is nothing compared to the bigger news: Apple is printing money again. Last year, Apple reported a 36.9 percent gross margin — it was a three-year low. This year, gross margin should be around 38 percent. It doesn’t seem much, but when you are talking about more than $35 billion in revenue, it greatly impacts the bottom line. According to Fortune, Earnings should be up around 18 percent, which is very impressive.
So how did Apple improve its gross margin? Apple usually doesn’t say much during its earnings calls, but we can make some educated guesses. First, Apple released the iPhone 5c, which was supposed to solve the company’s gross margin issue. While the company admitted that iPhone 5c sales were lower than expected, the company probably sold a few millions of those. And it was able to generate more cash from these devices compared to previous generation iPhones that use more expensive components compared to plastic.
There were probably other improvements in the production line of other Apple devices as well. Retina displays for MacBooks may have gotten cheaper, and the iPad Air may have been a bigger success than the iPad 4.
As always, it’s hard to know for sure before the earnings release. We’ll cover today’s earnings from multiple angles and share the most interesting tidbits from the earnings call later today, starting around 1:30pm PDT, 4:30pm EDT, 9:30pm BST.