Apple announced its financial results for the third quarter of 2014 on 22 July 2014. You can relive the live blog at the bottom of this article. We also have details of what analysts expected Apple to report for its financial results, and how that compares to what Apple reported during the call, including how many iPhones, iPads, Macs and other products Apple sold. Apple executives also took questions from analysts and Apple watchers, so read on for some insight into what's going on behind the scenes at Apple.

Read on for our the live blog of the Apple call and to explore what the analysts expected Apple to report for the quarter, which ran from April to June.

Apple financial results Q3 2014: How much money did Apple make?

Apple reported a June quarter record of $37.4 billion revenue. This was up $2.1 billion compared to the year-ago quarter. Net profit for the quarter was $7.7 billion, with a diluted earnings per share of $1.28 (up from $1.07 a diluted share in the year-ago quarter). Apple noted that the earnings per share was up 20 percent year-over-year: "our highest growth rate in seven quarters."

This compares favourably to the third quarter of 2013, when Apple achieved a revenue of $35.3 billion, net profit of $6.6 billion.

Gross margin for Apple's third quarter of 2014 was 39.4%, compared to a gross margin of 36.9 per cent in the year-ago quarter.

How did this match Apple's own expectations? During Apple's earnings call in April, Apple's then CFO Peter Oppenheimer (now succeeded by Luca Maestri) said that the company expected revenues between $36 billion and $38 billion for the third quarter, with a gross margin between 37 per cent and 38 per cent. So Apple's results were towards the top of it's estimates.

The June quarter tends to be Apple's slowest, with few new products and rumours of new iPhones slowing sales. Therefore it is not surprising that revenue was less than Apple's second quarter, which ran from January to March, when Apple announced revenue of $45.6 billion with a gross margin of 39.3 per cent.

Apple's figures may disappoint some analysts, however. Prior to the financial results Fortune published the results of an analyst poll, revealing that both amateur and professional Apple analysts expected the company to announce slightly higher revenue results than forecast. The average prediction out of a total of 34 analysts was $38.31 billion.

The highest estimation comes from professional Apple analyst Alexander Peterc of Exane BNP Paribas, who expected Apple to announce revenue of $40.05 billion for the quarter. The lowest comes from Cowen & Co.'s Timothy Arcuri, who expected $36.58 billion.

While the results didn't meet the highest analyst expectations, the per-share earnings did exceed the $1.23 forecast by analysts.

Apple financial results Q3 2014: How many iPhones did Apple sell?

iPhone 5c

Apple reported that it sold 35.2 million (35,203,000) iPhones in the quarter ending in June 2014, this was an increase of 3.962 million compared to the same quarter last year (31,241,000), 13% growth and a new third-quarter record. iPhone sales generated $19.751 billion in revenues, compared to $18.154 billion in the same quarter a year ago.

As anticipated, iPhone sales have slowed slightly since the March quarter, when Apple reported a record number of iPhone sales, with 43.719 million units sold (generating $26.064 billion in revenue). As we approach September and the rumour mill continues to speed up, potential iPhone buyers are becoming increasingly aware that an iPhone 6 is coming soon, so many will decide to wait until the new iPhone is available to buy before upgrading.  

However, despite new products rumours, iPhone sales were still at the high ends of expectations, although for this quarter analysts (on average) expected Apple to announce sales of 35.78 million iPhones.

At one point in the conference call with analysts Apple CEO Tim Cook was asked about the success of the iPhone 5c. He said: "I can tell you this: that if you look at the growth rates – we don't divide out each one, but if you look at the year over year growth rate – and so this would be comparing the 5c to last year, it would be comparing the 4s, which was in the mid-tier – the growth in that sector was the highest growth during the quarter we just finished, of the three tiers. And so we're extremely happy with how it performed last quarter."

This suggests that Apple's scheme of selling the iPhone 5c as an alternative to the flagship iPhone is proving to be a more successful than keeping the previous year's model on sale at a lower price as Apple did in 2012-2013 with the iPhone 4s when the iPhone 5 was the flagship model.

Apple financial results Q3 2014: How many iPads did Apple sell?

iPad sales

Apple reported that it sold 13.276 million iPads in the quarter just gone. While Apple said the figure met its own expectations, it was lower than the average analyst estimate of 14.43 million units. 

The lowest expectation for the third quarter sales of iPads came from an anonymous analyst who took part in Fortune's poll. This mystery analyst expects iPad sales of 11.50 million for quarter three. The highest prediction came from Asymco's Horace Dediu, who predicted that Apple would announce iPad sales of 16 million. Hilliard Lyons analyst Stephen Turner also predicts 16 million iPad sales.

In the March quarter, iPad sales were also significantly down year-over-year (about 17 per cent) at 16.350 million. At the time Apple CEO Tim Cook suggested that iPad sales were at the high-end of Apple expectations, and blamed the fact that Apple had significantly reduced iPad inventory for the quarter. That result was much lower than analyst's expectations, even the lowest prediction of 17.53 million units.

During the third quarter call with analysts, Cook provided the following explanation for the dissapointing figures this time around: "iPad sales met our expectations, but we realize they didn't meet many of yours. Our sales were gated in part by a reduction in channel inventory, and in part by market softness in certain parts of the world. For example, IDC's latest estimate indicates a 5 percent overall decline in the US tablet market as well as a decline in the western European tablet market in the June quarter."

However, Cook remained positive, referencing a Changewave survey from May where iPad Air registered a 98 percent customer satisfaction rate, while iPad mini with Retina display received an  100 percent customer satisfaction rate. He noted that: "The survey also found that among people planning to purchase a tablet within 90 days, 63 percent planned to buy an iPad, and our own data indicates that more than half of customers purchasing an iPad are buying their very first iPad."

He added that: "Custora found that iPad accounts for 80 percent of all US tablet-based e-commerce purchases."

During the call with analysts Cook also noted that: "If you sort of back up from this, the category that we created, which has been in a little over four years, we've now sold 225 million iPads. Which is, I think, probably a larger number than anyone would have predicted at the time, including ourselves, quite frankly. We still feel the category as a whole is in its early days, and that there's also significant innovation that can be brought to the iPad, and we plan on doing that."

He added: "When I look at the top-level numbers, I get really excited when I see that more than 50 percent of the iPads we're selling are going to someone who's a first-time tablet buyer. I get excited when I see that the retail share according to NPD for the month of June was 59 percent in units, and over 70 percent in terms of dollars."

It was also noted that, at least in the US, Apple's iPad has an education market share of 85 percent. The iPad is also in "virtually all Fortune 500 companies - 99 percent of them to be exact - and 93 percent of the Global 500," according to Cook.

Cook finished off defending the iPad by talking about the future of the tablet market, with Gartner predicting the market will be 350 million in size by 2018. "To put that in some context, I think the PC market right now is about 315. And so I think our theory that has been there, honestly, since the first time we shipped iPad--that the tablet market would eventually surpass the PC market - that theory is still intact. I just think we have to do some more things to get the business side of it moving in a faster trajectory, and I think we're now on to something that can really do that."

Apple financial results Q3 2014: How many Macs did Apple sell?

On to Macs now, and Apple continues to impress us here. Over the past three quarters, Apple has exceeded analyst expectations when it comes to Mac sales, and has been managing to grow market share in the PC market despite the overall decline of PC sales. In fact, Macs have now gained global market share for 32 of the last 33 quarters while overall PC market contracts. Indeed, during the call, Cook noted that the market that is shrinking by 2 percent, according to IDC's latest estimate.

Apple reported sales of 4.413 million Macs, compared to under 3.754 million in the year ago quarter, that's up 18% year over year and new June quarter record. Apple revealed that that increase was driven by portables, and very strong growth of MacBook Air which has recently seen a price reduction.

On average, analysts were expecting Mac sales to have grown year-over-year by 4.7 per cent, to 3.93 million units. The lowest prediction came from Credit Suisse analyst Kulbinder Garcha, who expected Apple to announce Mac sales of 3.53 million. The highest was 4.3 million, which came from Bill Choi of Janney Capital markets. Apple beat even the highest estimate.

Speaking to analysts Cook said: "We also had a record June quarter for Mac sales, with growth of 18 percent year over year in a market that is shrinking by 2 percent according to IDC's latest estimate. Demand has been very strong for our portables in particular, and we've had a great customer response to the new higher-performance, lower-priced MacBook Air."

Apple financial results Q3 2014: What about the iPod?

It's no secret that iPod sales have been falling. In the third quarter of 2013, Apple sold 4.57 million iPods, but this year's estimate for the third quarter of 2014 is just 2.34 million, which would be a whopping year-on-year decline of 48.8 per cent.

In the third quarter of 2014 Apple sold 2.926 million iPods, generating revenue of $442 million. It is interesting to note that the second quarter of 2014 Apple solf fewer iPods, 2.761 million, with revenue of $461 millon. This indicates that the recent reduction in pricing for the iPod touch has had some impact.

Apple financial results Q3 2014: iTunes and software sales

Cook noted that "another strong performance for the App Store", adding that it, and the other services are "contributing to the thriving Apple ecosytem". In the third quarter iTunes software and services contributed $4.485 billion in revenue compared to $3.990 billion in the third quarter of 2013. It was only slightly below the second quarter which saw $4.573 billion in revenue.

"For the first nine months of this fiscal year, the line item that we call iTunes software and services has been the fastest-growing part of our business. iTunes billings grew 25 percent year-over-year in the June quarter and reached an all-time quarterly high, thanks to the very strong results from the App Store. We're continuing to invest in our incredible ecosystem, which is a huge asset for Apple, and a very important differentiator of our customer experience," said Cook.  

Apple financial results Q3 2014: Apple's cash

Apple revealed that it ended the quarter with $164.5 billion in cash and marketable securities, that's up 13.9% sequentially. The company revealed that domestic cash is now at $26.8 billion, up $8.3 billion, while $133.7 billion, over 84%, is off shore.

In Apple's press release, Apple’s CFO Luca Maestri stated: "We generated $10.3 billion in cash flow from operations and returned over $8 billion in cash to shareholders through dividends and share repurchases during the June quarter. We have now taken action on over $74 billion of our $130 billion capital return program with six quarters remaining to its completion."

To appease share holders Apple has been buying back stock, and in order to do so it has issued a total of $12 billion of notes of debt, across 3,5,7, and 10 year maturities. This is because it is less costly to borrow money than to repaturiate the cash it currently has off shore.

Apple revealed that it had returned $8.3 billion of capital to investors. The company spent $5 billion to repurchase shares, almost $2.9 billion in dividends and has taken action on over $74 billion of $130 billion, including $51 billion in repurchases.

Shareholders will note that Apple has declared a cash dividend of $.47 per share of the company's common stock. The dividend is payable on 14 August, 2014, to shareholders of record as of the close of business on 11 August, 2014

Read: Complete guide to buying Apple shares

Apple financial results Q3 2014: International sales

International sales accounted for 59 percent of the quarter’s revenue, according to Cook.

The $37,432,000,000 revenue breakdown was as follows:

  • Americas: $14,577,000,000
  • Europe: $8,091,000,000
  • Greater China: $5,935,000,000
  • Japan: $2,564,000,000
  • Rest of Asia Pacific: $2,161,000,000
  • Retail: $4,104,000,000

Cook noted that Apple was "especially happy about our progress in the BRIC countries, where iPhone sales were up a very strong 55 percent year over year."

Cook noted that: "In the BRIC countries [Brazil, Russia, India and China], iPad did extremely well. The growth was very high. Like in China, it was in the 50s, the Middle East it was in the 60s; in the developed countries, like the US, the market is clearly weaker there."

China growth was "really off the charts across the board," according to Cook. "China, honestly, was surprising to us. We thought it would be strong, but it well went past what we thought. We came in at 26 percent revenue growth, including at retail," he said.

Apple financial results Q3 2014: Apple's acqisitions

Cook spoke about the Beats acquisition, and mentioned its recent deal with IBM during the call. Cook revealed that: "Not counting Beats, we've completed 29 acquisitions since the beginning of fiscal year 2013, including five since the end of the March quarter, and we've brought some incredible technology, and more importantly some incredible talent, into Apple in the process."

Regarding both Beats and the IBM partnership, Cook said: "Beats gave us a great subscription service and a rare set of talent, and access to a very fast growing business in their headphone and earphone space. So, culturally, we felt there was a match, and music has been deeply emebedded in Apple's DNA for many, many years. It was a great marriage, and I think the partnership with IBM is a great marriage as well."

Speaking about the IBM deal Cook said: "In this particular case, I think arguably the companies are so complimentary," which is surely at odds with what Steve Jobs might have said back in 1984. Cook added: "I've gotten to know Ginni [Rometty, CEO of IBM] fairly well over the last couple of years, and I think we see the importance of the customer a lot of the same way and both feel that mobile and enterprise is just an enormous opportunity."

Regarding plans for more acquisitions, Cook said: "We're always looking in the acquisitions space, but we don't let our money burn a hole in our pocket and we don't do things that aren't strategic."

Apple financial results Q4 2014 outlook 

Apple expects to see revenue between $37-$40 billion in the fourth quarter of it's fiscal 2014, ending in September. This compares to $37.5 billion in the same year ago quarter.

Apple also provided the following guidance for the next quarter:

  • Gross margin between 37 percent and 38 percent
  • Operating expenses between $4.75 billion and $4.85 billion
  • Other income/(expense) of $250 million
  • Tax rate of 26.1 percent

Apple financial results: new product hints?

Apple tends to drop hints about future products during its earnings call, here are the few clues that Cook let slip in the call:

"We are incredibly excited about the upcoming releases of iOS 8 and OS X Yosemite, as well as other new products and services that we can't wait to introduce," Cook said.

During the call Cook said: "We're hard at work and investing heavily on exciting opportunities across our business, and we have an incredible pipeline of new products and services that we can't wait to show you."

"We still feel the [iPad] category as a whole is in its early days, and that there's also significant innovation that can be brought to the iPad, and we plan on doing that."

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