Apple results show strong demand for iPhone X
Apple Inc. quelled investor concern with results showing solid demand for its flagship iPhone X and a pledge to put its cash hoard to work in buybacks, dividends and acquisitions. The shares rose about 3 percent in extended trading. The average selling price for the iPhone, Apple’s most important gadget, was £796 in the crucial holiday quarter.
That was up from less than £700 a year earlier and it suggests that people are gravitating toward the iPhone X, which starts at a lofty £999. The metric reassured investors who were initially spooked when Apple forecast lower-than-expected revenue in the current quarter and missed analysts’ estimates for the number of iPhones sold during the holidays. “IPhone units were below expectations, though much higher ASP helped offset the unit softness,” Amit Daryanani, an analyst at RBC Capital Markets, wrote in a note to investors.
For the final quarter of 2017, Apple sold 77.3 million iPhones, down 1 percent from a year earlier and below analysts’ projections of 80.2 million units. Apple said revenue in the three months ending in March will be £60 billion to £62 billion, also missing analysts’ expectations. Apple Chief Financial Officer Luca Maestri gave rare additional guidance, telling analysts on a conference call that iPhone sales would grow by at least 10 percent year-over-year in the current quarter.
Average selling prices will fall, but services and wearable device revenue growth will be strong in the period, he added. The results capped a stressful few weeks for investors who have been reading reports saying Apple was cutting orders to suppliers and consumers were holding off buying iPhones. The company needs as many handsets in use as possible because that helps sell related services, accessories and other devices.
Apple noted it has 1.3 billion devices in use now, up 30 percent in two years. Strong sales of the iPhone X help even more because those handsets are capable of running Apple’s latest features and controlling most Apple accessories. This also buys the company more time to create its next big hit, be it in wearable technology, augmented reality or self-driving vehicles.
“IPhone X was the most popular phone and since we launched it in early November, for every week it’s been the top selling iPhone,” Apple Chief Executive Officer Tim Cook said in an interview. “Couldn’t be prouder of it.” Apple’s cash jumped to £285 billion, adding to the pile of offshore money that will be taxed under new U.S. legislation. The company is bringing hundreds of billions of dollars back to the U.S. and plans to pay £38 billion in tax.
The CFO told Bloomberg that Apple ultimately plans to hold an equal amount of cash and debt without specifying when this would happen. With about £104 billion in long-term debt, that suggests more than £100 billion will be put to work. The plans could include acquisitions and additional stock buybacks, the CFO said.
The company made 19 purchases in 2017, and Maestri said Apple looks at deals of all sizes. Apple will discuss the plans in full when it reports March quarter results. “Major buybacks and dividends are on the way for shareholders as the repatriation party is now in full gear with Cook leading the charge, a major positive,” said Dan Ives, head of technology research at GBH Insights.
Apple sold 5.1 million Macs in the quarter on revenue of £6.9 billion, indicating 5 percent year over year declines. The iPad business continued to grow with the company posting 13.2 million unit sales and revenue of £5.9 billion. IPad units grew by 1 percent, while revenue climbed 6 percent, suggesting more customers bought the more-expensive iPad Pro models.
For services, which includes Apple Music, movie rentals, app downloads, cloud storage upgrades, and digital books, Apple reported revenue of £8.5 billion, topping last year’s £7.2 billion by 18 percent. The results show Apple is successfully continuing its march to services revenue of roughly £50 billion by 2020. Last year, the segment generated £30 billion in sales.
In early January, Apple said customers of its App Store, just one component of the services business, spent more than £890 million in the seven days starting on Christmas Eve. Apple’s Other Products business generated fiscal first-quarter revenue of £5.5 billion on strong sales of the latest Apple TV set-top-box, continued popularity of the AirPods headphones, and a growing interest in the Apple Watch due to recent models with cellular connectivity. This segment saw revenue jump 36 percent, the largest year-over-year increase among Apple product divisions.
In an interview with Bloomberg News, Cook said this was the fourth consecutive quarter of over 50 percent growth for the Apple Watch. The Other Products business could see further gains in the March quarter due to the recent release of the HomePod wireless speaker. On its first day, the HomePod outsold competing Sonos One and Google Home Max speakers.
However, consumers purchased more Amazon Echo Show speakers that day, according to Slice Intelligence.
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