Back to top

Analyst Blog

After the bell Tuesday, tech behemoths Apple (AAPL - Analyst Report) and Microsoft (MSFT - Analyst Report) reported quarterly earnings in what is now the thick of earnings season. Apple posted earnings per share of $1.28 on $37.4 billion in revenues, while Microsoft achieved a big sales beat while missing by 2 cents per share on the bottom line.

While Apple CEO Tim Cook praised his company’s “best execution of any quarter” since he’s been with the company, gross margin improved better than expected to 39.4%, and the company’s year-over-year growth rate of 28% is the best Apple has posted in two years. One area in which Apple saw success in its fiscal Q3 was China, which was up 48%.

Where Apple showed some lag in sales was domestically, where savvy Apple customers are likely awaiting a new iPhone release this fall. The company sold 35.2 million iPhones in the quarter just reported, which was slightly above expectations (some analysts bullish on AAPL were expecting a big beat here). iPad sales underperformed in the quarter, selling 13.3 million units.

Microsoft’s modest earnings miss in its fiscal Q4 may not concern investors, as the company has kicked off a major transitional phase following its acquisition of phone-maker Nokia and its subsequent shedding of workforce. Microsoft’s Commercial business was nearly twice the size of Devices, which explains the company’s increased focus on cloud-based solutions.

Microsoft CEO Satya Nadella has already made news recently by announcing the layoff of 18K Microsoft workers, many of whom came from the Nokia buyout. In today’s earnings report it was articulated that 13K of these workforce layoffs would occur in the current quarter. However, this development does not impact the current quarter.

Both Apple and Microsoft are currently Zacks Rank #3 stocks, reflecting mixed analyst estimate revisions during the past quarter. Apple’s guidance for its Q4 was slightly higher than the consensus, while Microsoft should be providing guidance on its ongoing earnings call. Year over year, AAPL shares are up more than 50%, and Microsoft +40%.

Please login to Zacks.com or register to post a comment.