Apple’s ‘absolutely blow-out quarter’ by the numbers by Philip Elmer-DeWitt @FortuneMagazine October 20, 2014, 4:35 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons Apple’s fourth quarter revenue and earnings clobbered expectations on strong sales of the iPhone and Mac, up 16% and 20% year over year respectively. Sales of iPad and iPod were down, as expected “Our fiscal 2014 was one for the record books,” said Apple CEO Tim Cook in the press release. The numbers: Revenue: $42.123 billion, up 12.4% EPS: $1.42 per share, up 20.3% iPhone: 39.272 million, up 16.2% iPad: 12.316 million, down 12.5% Mac: 5.52 million, up 20.7% iPod: 2.62 million, down 25.1% iTunes et al.: $4.208 billion, up 8.2% Accessories: $1.486 billion, up 12.7% Revenue guidance: $63.5 to $66.5 billion Gross margin guidance: 37.5% to 38.5% OpEx: $5.4 billion to $5.5 billion Tax rate: 26.5% Apple’s shares, having closed up more than 2% on Monday, rose another 1.5% in after-hours trading. To listen in on the conference call with analysts, click here: Apple Financial Results Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL coverage at fortune.com/ped or subscribe via his RSS feed. - – - Notes from the conference call: Cook is reviewing the numbers. Especially proud of the Mac results. Highest PC market share since 1995. 85 billion app downloads. Some big numbers from annual sales that I missed. Revenues approached $50 billion in developing markets. First IBM apps due out next month. 20 acquisitions in fiscal 2014. 7 in September quarter alone. Spent 17 billion in share repurchases in September quarter. Luca: Reads the numbers from the press release. Better than expected sales of iPhones and Macs drove revenue. Cash flow: $13.3 billon. Increased iPhone inventory only 1 million, less than 3.3 million last year. 20,000 iPhones to one elevator company alone. Baidu has 20,000 employees using iPhone. 5.5 million Macs. Especially strong laptop sales. Sales up 46% in developing markets. iPad sales down, reduced inventory in advance of new models. Sales in Japan up 46%. Eyeware company deployed 10,000. Working with 50 clients with IBM to be model partners. Ecosystem: iTunes store up 20% yoy. Approaching 10 million registered developers. Retro; stores rev 5.1 billion, up 15%. 10 new stores. 437 stores. 25 new stores in 2015. 3/4 outside U.S. $11.9 million rev. per store. 100.2 million visitors. 18,000 visitors per store per week. Details share repurchases. Nancy: Reporting changes: Beginning in 2015 reporting retail store results by region, taking it out of regional numbers. Adds Services that used to be iTunes etc. Now includes Apple Pay. iPod no longer reported separelty. Now part of Other Products, along with Apple Watch. Channels have changed a lot too. So 5-7 week range is the new target range. Q&A: Q: Business model for Apple Pay? Tim: Stresses ease of use and security. Another dig at competitors who collect data on customers. “We think its a killer feature.” Will sell more devices. Won’t disclose terms with banks, card companies, etc. “The most mobile central payment system there is.” Q: How does Apple deal with currency fluctuations. Dollar’s rise is “significant headwinds” that he’s already factored in via hedge fund program. Q: What will affect GM in Dec. quarter? Normal cycle coming? A: On positive, favorable impact from iPhone mix. Commodities favorable. FX bad. A lot of transition costs with new products. Q: Guidance assume iPhone supply reaches balance by end of Q? Tim: Fastest ramp ever in Apple history. Unclear when supply will catch up to demand. We don’t know if balance reached by Jan 1. We’re not close today. We’re not even on the same planet. We don’t believe we’ll reach the channel inventory in the emerging markets. Q: How bad is currency market? Luca: Significant headwinds. Price harmonization? Price products to reflect U.S. prices. We don’t like to make sudden changes. Q: How is SKU mix tracking on iPhone 6? Tim: At this point we’re selling everything we can make. So its hard to tell. So far seems like guessed right. It’s a good problem to have. Q:What caused higher ASP? Should we expect better this Q? ASP up $42 sequentially last quarter, mostly cause of iPhone 6/6+. Going forward, 6/6+ should push higher. Q: Mix of repeat buyers for 6 vs. new customers. Accelerating? Tim: If you look at top countries, over China 40% were buying first iPhone. In U.S. it was 60%. I still see large op in people buying first iPhone ever. Increases with iPhone 6. Upgrade numbers are huge. I’ve never felt so great after a launch before. Q: Mix of 6/6+? 2.5 to 1 in U.S. more in Asia? Tim: Data not accurate because current sell through looks like current supply. I think we will see a difference by geography. We knew this going in. Q: Strength of Mac and weakness of iPad. Tim: In terms of Mac, it was an absolute blow out quarter. Re iPad: Steps back to talk about sales since launch. To me I view it as a speed bump not a huge issue. That said, we don’t like negative numbers. We don’t see saturation. First time buyer rates of 50% and 70%. What you do see is people hold on to iPads longer than phones. Mentions enterprise. Obvious cannibalization issues from Mac and iPhone. But over the long arc of time I believe iPad has a great future. BRIC countries up 20% for fiscal 2014. Long answer to question. Judge it as you will. Q: New segments? Why Apple Watch not its own category. Tim: We looked at current revenue and decided to lump in one category. In future, we might decide differently. I’m not anxious in reporting a lot of numbers on iWatch because out competitors are looking at it. Q: Products you’re working on that people aren’t even speculating about? Tim: We’ve already announced 2 new categories in the past 90 days. To the degree I can keep it in the cone of silence, I will. Q: Same question. Tim: Look at what we’ve done. Look at the skills within the company. Only company on the planet that can integrate hardware, software and services at a world class level. We always have more ideas than resources. Look at Continuity and think where that goes. The creative engine has never been stronger. Apple Pay is classic Apple. Take something that it is klugy and putting customer at the center of the experience. Q: Transition costs ease in Q4? Luca: You know our product cadence. Q: China? Numbers last Q not that good. What about subsidies? Tim: Greater China down 3% because we launched iPhone 5S in Q4 and iPhone 6 in Q1. Macs were up 54% yoy in China in Q4. This past weekend launched iPhone with all 3 carriers? [Offers no numbers, damnit] I see an enormous market where more people are graduating into the middle class than any country in history. So we’re investing like crazy in the country. 15 to 40 stores within next few years. Chinese developers have created 150,000 apps on the app store. That’s a wrap.