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Thursday October 30, 2014

Finances

Finances
 

A Sweet Quarter for Apple

Apple, Inc. (AAPL), a technology company famous for its computers, tablets and smartphones, reported its fourth quarter and annual earnings on Monday, October 20. The company reported record fourth quarter sales on the heels of releasing the iPhone 6 and iPad Air 2.

Apple reported fourth quarter sales of $42.1 billion and annual sales of $182.8 billion. Both figures represent increases from the same periods last year when fourth quarter sales totaled $37.5 billion and annual sales totaled $170.9 billion.

“Our fiscal 2014 was one for the record books, including the biggest iPhone launch ever with iPhone 6 and iPhone 6 Plus,” said Apple’s CEO Tim Cook. “With amazing innovations in our new iPhones, iPads and Macs, as well as iOS 8 and OS X Yosemite, we are heading into the holidays with Apple’s strongest product lineup ever. We are also incredibly excited about Apple Watch and other great products and services in the pipeline for 2015.”

The company reported net income of $8.5 billion for the quarter and $39.5 billion for the year. Net income for the same periods last year totaled $7.5 billion for the quarter and $37.0 billion for the year. Earnings per share also increased year-over-year from $5.68 to $6.45 per share.

Apple’s big quarter shows that the company can still create hype for product releases. It is continuing to come up with new products like its Apple Watch and Apple Pay. However, despite all this good news Apple is still struggling to gain a foothold in China. Currently Apple is the sixth largest company in China’s smartphone market. Tim Cook said Apple plans to open twenty-five more stores in greater China by 2016, bringing Apple’s total number of Chinese retail stores to forty. While increasing the number of stores may help, data security is still an issue in the country. On October 20, Apple received word that Chinese government-backed hackers hacked into China’s iCloud. As a result, Tim Cook went to China this week to discuss data privacy with China’s Vice-Premier. It is essential for Apple’s future in the country to come to an agreement with the government over data security.

Apple, Inc. (AAPL) shares ended the week at $105.22, up 7.02% for the week.

Microsoft Embraces the Cloud


Microsoft Corporation (MSFT), a global technology company, reported its latest quarterly earnings on Thursday, October 23.

Microsoft reported revenue of $23.2 billion for the quarter. This represents a healthy increase from the same period last year when the company reported revenue of $18.5 billion.

“We delivered a strong start to the year, with continued cloud momentum and meaningful progress across our device business,” said Amy Hood, Executive Vice President and CFO of Microsoft. “We will continue to invest in high-growth opportunities and drive efficiencies across the organization to deliver long-term shareholder value.”

The company reported quarterly net income of $4.5 billion. This represents a decrease from the $5.2 billion in net income reported during the comparable period last year. Earnings per share dropped from $0.62 per share last year to $0.54 this year.

Former Microsoft CEO Steve Ballmer stepped down from his post as CEO in February of this year. He was replaced by current CEO Satya Nadella. Mr. Nadella is Microsoft’s third CEO. Bill Gates turned over the company reins to Steve Ballmer in 2000. Mr. Ballmer was instrumental in instituting Microsoft’s cloud offerings during his tenure as CEO. Mr. Nadella has put a priority on pushing those services during his short tenure and persistence is paying off. Microsoft’s revenue from cloud-based services more than doubled in the latest quarter. As a result, share prices increased nearly 4% after the earnings were released.

Microsoft Corporation (MSFT) shares ended the week at $46.13, up 7.13% for the week.

Loss in the Amazon Income Statement


Amazon.com, Inc. (AMZN), a massive online retailer, reported its latest quarterly earnings on Thursday, October 23. The company’s large investments in new services including Amazon Dash, Amazon Kindle Unlimited and the Amazon Fire set-top box and smartphone caused the company to report a loss for the quarter.

The company reported net sales of $16.0 billion for the quarter. This represents an increase from the same period last year when the company reported net sales of $13.8 billion.

“As we get ready for this upcoming holiday season, we are focused on making the customer experience easier and more stress-free than ever,” said Jeff Bezos, Founder and CEO of Amazon.com. “In addition to our already low prices, we will offer more than 15,000 Lightning Deals with early access to select deals for Prime members, hundreds of millions of products across dozes of categories, curated gift lists like Holiday Toy List and Electronics Holiday Gift Guide, new features like #AmazonWishList, and a great new lineup of products like Kindle Voyage and Fire HD Kids Edition. And if you order your gifts on AmazonSmile, we’ll donate a percentage of your purchase price to your favorite charity.”

The company reported a quarterly net loss of $437 million. This represents a larger net loss than the $41 million net loss the company reported last year. Loss per share rose from $0.09 per share to $0.95 per share.

As part of the earnings announcement on Thursday, Amazon reported it will take a charge of $170 million for unsold Amazon Fire smartphones. The phones, which were introduced this summer, have not been selling well. The price of the phone was introduced at $200 with a 2-year annual contract from AT&T. However, the price was slashed to $0.99 plus a 2-year contract in September. This proves just how cutthroat the smartphone market is and how tough it is to break in, even for a large company with ample resources.

Amazon.com, Inc. (AMZN) share ended the week at $287.06, down 5.25% for the week.

The Dow started the week of 10/20 at 16,373 and closed at 16,805 on 10/24. The S&P 500 started the week at 1,886 and closed at 1,965. The NASDAQ started the week at 4,254 and closed at 4,484.
 

Ebola Concerns Affect Markets

Treasuries rose and yields fell this week as it was reported that a doctor in New York City tested positive for Ebola. Investors around the world are anticipating that the spread of the virus may affect world markets. Ebola patients are now being treated in hospitals in Dallas and New York.

“Ebola came back and took the market’s focus off the fundamentals, which is where it belongs,” said Adrian Miller, Director of Fixed Income Strategies at GMP Securities LLC. “Ebola today is just creating some distraction from the bigger Fed story next week.”

Today, the yield on the 10-year note fell two basis points to 2.25% in early morning trading. This drop is most likely in anticipation of the Federal Reserve meeting next week during which the Fed is expected to end its bond buying program or quantitative easing (QE).

However, the 10-year yield is up five basis points for the week and 1.4% during the month of October. In this relatively uncertain economic environment investors are flocking to the safety of U.S. Government bonds. Many believe that U.S. Treasury yields are on the rise for the remainder of the year.

“The bias is generally for higher yields because of the end of the Fed’s QE and because data and earnings that show the economy continues to move forward,” said Adrian Miller. “The 10-year yield will end the year in a range of 2.35% to 2.5%,” said Jim Vogel, Head of Agency-Debt Research at FTN Financial.

The 10-year Treasury note yield finished the week of 10/20 at 2.27% while the 30-year Treasury note yield finished the week at 3.05%.
 

Interest Rates Drop

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, October 23. The results show average fixed mortgage rates dropping to their lowest levels since 2013.

The 30-year fixed rate mortgage averaged 3.92% this week. This represents a decrease from last week when it averaged 3.97%. One year ago, the 30-year fixed rate mortgage averaged 4.13%.

The 15-year fixed rate mortgage averaged 3.08% this week. This represents a decrease from last week when it averaged 3.18%. Last year at this time the 15-year fixed rate mortgage averaged 3.24%.

“Fixed mortgage rates continued to fall this week after the yield on 10-year Treasuries dropped to their lowest point of the year,” said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. “Existing home sales beat expectations in September clocking in at an annual rate of 5.17 million units, up 2.4% from August. Housing starts were up 6.3% in September adding a seasonally adjusted annual rate of 1.017 million units. Building permits rose 1.5% to a seasonally adjusted annual rate of 1.018 million units in September.”

The money market fund finished the week of 10/20 at 0.4%. The 1-year CD finished at 0.7%.

Published October 24, 2014

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