Why Apple had strong earnings despite currency headwinds
Why Apple overcame currency headwinds to produce strong earnings (Part 1 of 14)
Apple announce spectacular results
Apple (AAPL) reported its fiscal 4Q14 earnings. The earnings were better-than-expected on all fronts. Its revenues were $42.1 billion. This was ahead of Apple’s own mid-point expectations of $38.5 billion. Gross margins are another important metric. The gross margins were 38%—against its own mid-point expectations of 37.5%. Apple credited better-than-expected earnings to the successful launch of iPhone 6 and iPhone 6 Plus .
As expected, Apple also gave a spectacular outlook for fiscal 1Q15. It expects revenues for fiscal 1Q15 to be $63.5–$66.5 billion. At the expected revenues’ mid-point of $65 billion, it will be a year-over-year (or YoY) growth rate of 13%.
Significant headwinds from currency appreciation
Apple gets more than 60% of its revenues from international markets. As a result, a strengthening U.S. dollar impacts its revenues and margins.
The results were spectacular. Apple described the currency impact as “significant headwinds.” The U.S. dollar strengthened in the last two months. According to economic data from the Fed, the Dollar Index increased from ~76 in July to ~80 in September.
Apple mentioned that currency had a limited impact in the fourth quarter due to the hedging program. However, Apple expects that the currency will have a bigger impact in fiscal 1Q15. According to Apple, over the course of time, hedges get replaced with new hedges at new currency spot levels. As a result, the protection from the hedging program is temporary.
Currency appreciation impacting the whole technology sector
The whole technology sector will be impacted by dollar appreciation in the quarter ending in December. Recently, eBay (EBAY) also announced its guidance for the same quarter. Its guidance was significantly lower than its previous guidance. It was mainly impacted by the currency. IBM (IBM) also reported its earnings. It partially blamed currency appreciation for its lower results. Its stock declined by ~4% the day it announced its earnings.
Qualcomm (QCOM) and BlackBerry (BBRY) will probably be impacted by currency appreciation when they announce their earnings in November and December, respectively. Qualcomm depends heavily on China . BlackBerry mainly depends on emerging markets for its growth. As a result, its average selling price keeps dropping .
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