Apple announced somewhat better than expected financial results Tuesday, but most people are already looking forward to the next two quarters when the company will release much-anticipated new phones.
Results were generally in line with expectations. After the closing bell today, Apple reported $45.4 billion in revenue on the strength of 40.7 million iPhones sold in the quarter as well as a growing assortment of non-iPhone business. Analysts surveyed by FactSet expected exactly 40.7 million iPhones sold, and revenues of $44.9 billion. iPhone sales represent roughly 60% of Apple’s revenues.
Apple had projected between $43.5 billion and $45.5 billion in revenues for the June-ending quarter, down from the $52.9 billion it brought in during Q2 2017.
Seasonally speaking, the June-ending quarter is a down quarter for Apple, as consumers hold off on upgrading their devices until they see new iPhones, which are always announced in the fall.
Investors apparently saw what they wanted in Apple’s numbers. Apple shares are up about 5% in after-hours trading, hitting record heights.
Looking Forward To New Phones
But the real action Tuesday was in Apple’s forecasts for next quarter, which provide some clue to the timing of the company’s much-awaited new phones, expected this fall.
The company is projecting revenue of between $49 billion and $52 billion for the September-ending quarter, and gross margins of between 37.5% and 38%. This suggests that Apple expects to sell lots of the new phones in September, the last month of the quarter. “We have a very exciting fall ahead!” Cook said.
Apple will very likely announce three new phones in its September event, including the iPhone 7s and 7s Plus, and a new high-end phone that may be called the iPhone 8.
That last phone is supposed to contain lots of new technologies, like a facial recognition sensor and an OLED screen that covers almost all of the front on the phone. But rumors say that phone, which is expected to sell for more than $1,000, may go on sale well after the iPhone 7s/7s Plus, and possibly not until the holiday quarter.
Surprise: iPad Sales Up 15%
One of the biggest surprises in today’s earnings was the news that iPad sales were up after suffering for many consecutive quarters. Unit sales of all iPads were up 15%. However, revenue is up only 2%, which suggests the company sold a lot of the new budget-priced $329 iPads, rather than the pricey and much-heralded iPad Pro. But it may be that those low-priced iPads may have been just what the education market wanted. Sales to schools increased 32% over last year’s June quarter, Apple said. Apple has been increasingly challenged by Google’s Chromebook in the education space.
Services Growth Hit New High
Apple also said that its services business hit an all-time quarterly high. Specifically, it grew about 10% year-over-year. Notably, Apple reported that it has now sold 1.2 billion iPhones since the launch of the product a decade ago. iPhones and other iOS device can be seen as vending machines of Apple services like iCloud and Apple Music. Still, Apple’s services business represents only about 10% of the company’s total revenues. That’s going to continue to increase.
Mac Sales Up As PC Sales Contract
Mac sales were up 7% in the quarter. This is especially notable because IDC reports say that the global PC market is contracting. Macs seem to be bucking the trend.
The Watch Moves Mainstream
Apple still doesn’t provide unit sales numbers for the Apple Watch, but it did report that sales of the device were up an astounding 50%. Finding the exact reasons for this isn’t easy, but the product seems to be moving up the curve toward mainstream adoption.
With the release of the second version of the Apple Watch last year, Apple repositioned it to look more like a health and fitness device. At the same time, it dropped prices on the first version of the Watch. In the larger view, the Watch has emerged as the last device standing in a smartwatch market that seems to have collapsed around it. One theory is that once the Watch emerged as the category’s best, consumers started buying it in higher numbers.
China Slows, While Cash—Most Overseas—Hits New Record
Apple has suffered a considerable slowdown in its China business. The iPhone 6 emerged as the top selling phone in China at one point, but iPhones have slipped in the ratings, surpassed by phones from local companies like Xiaomi and Huawei. Still, Cook seemed upbeat about the overall China business during the earnings call.
“We improved from the previous quarters a little more than I thought we would. iPad grew dramatically more than the market,” he said. “The Mac grew more than the market. iPhone was relatively flat, year-on-year. And so we see all of those as very encouraging signs.”
Finally, Apple now sits on a record $261.5 billion cash pile (the vast majority held overseas) and a market capitalization of $830 billion. For many those numbers are the bottom line, suggesting Apple under Tim Cook is moving its products in all the right directions.