What iPhone sales downturn? Apple’s sales are much better than feared

“Since we split the line with the launch of iPhone 6 and 6 Plus back in 2014, this is the first cycle that we’ve ever had where the top of the line iPhone model has also been the most popular,” Cook noted, firing back at Wall Street worries the iPhone X is too expensive to sell in high numbers. 

Apple sold 52.2 million iPhones in the three months ended March 31. Apple doesn’t break out sales of individual models, but Cook noted that the iPhone X was the best-selling device every week of the quarter. 

It was the first full quarter of iPhone X sales, and market watchers have worried about a slowdown for the company’s top-of-the-line device. As a result, analyst estimates for iPhone sales were all over the place. According to a poll by Bloomberg, analysts were predicting that Apple had sold 51.9 million iPhones in the second quarter, while Barrons said analysts overall expected Apple to sell 53 million iPhones. Many analysts had been lowering their estimates as recently as this week. 

The average selling price for iPhones rose to $728, but Wall Street expected an average selling price of $742, according to Reuters. A year ago, Apple sold 50.8 million iPhones with an average selling price of $655.

Financial Chief Luca Maestri told Reuters that “clearing channel inventory of 1.8 million iPhones — most of them iPhone X and iPhone 8 models — accounted for some of the difference” in average selling price. 

Worries about a big drop in sales in the next quarter didn’t materialize either. For the current quarter, which ends in June, Apple projected revenue of $51.5 billion to $53.5 billion, with the midpoint slightly higher than analysts were expecting. Wall Street expected Apple to report revenue of $52.04 billion in the fiscal third quarter, according to a poll by Yahoo Finance. 

“Cook delivers again despite rampant fears,” GBH Insights analyst Daniel Ives noted. He added that Apple’s forecast for the June quarter “was much better than feared” and will be a “major relief” for investors. 

Apple, the biggest public company in the world, has been facing worries about slowing iPhone sales growth. Millions of people buy its latest smartphones each quarter, but it’s not the blockbuster demand Apple watchers have seen in the past. 

Overblown fears

Apple is facing the same problem as other phone vendors: It’s getting harder to woo buyers with the latest and greatest smartphones. There were worries that even 2017’s iPhone X, Apple’s first major iPhone redesign in three years, hasn’t gotten consumers excited about phones again. The phone — which starts at $999, $300 more than the 4.7-inch iPhone 8 and $200 more than the 5.5-inch iPhone 8 Plus — is the most expensive iPhone Apple has ever made, and people have been holding onto their “good enough” devices longer than before. 

“Apple and the smartphone industry face limited growth prospects,” Barclays analyst Mark Moskowitz noted on Monday as he called the weakening iPhone business “a big problem.”

In February, Apple reported its iPhone unit sales fell about 1 percent, a hit for the holiday quarter. Maestri at the time said that in the March quarter, Apple expected iPhone revenue to rise from the previous year in the double digits on a percentage basis. Cook also noted then that Apple had 1.3 billion active installed devices, up 30 percent over two years. 

Apple on Tuesday said iPhone revenue climbed 14 percent, to $38 billion. 

The iPhone X, released in November, ditched the traditional home button in favor of a new way to unlock the device, called Face ID. It also packed a sharper, bigger screen in a smaller package and gave users the ability to run augmented reality apps. Those changes haven’t been enough to get consumers pumped, though, and worries remain that the mobile market will continue to fall after its first-ever year-over-year decline, in the fourth quarter of 2017. 

Over the past two weeks, component suppliers such as Samsung, Broadcom, TSMC and SK Hynix have all warned about lower demand — presumably attributed to Apple — and reports have said the California company has reduced production plans for its priciest iPhone. Many analysts in turn cut their expectations for iPhone sales in the March and June quarters. Before Tuesday, some even predicted iPhone sales could drop for the full year, a big turnaround from their optimism ahead of the iPhone X launch.

As of market close Monday, Apple shares had fallen 7 percent since April 18, the day before TSMC reported its quarterly results. Shares rebounded 2.3 percent on Tuesday to close at $169.10. They rose 3.8 percent, to $175.45, in after-hours trading. 

Cook on Tuesday, likely seeking to alleviate worries about the iPhone X, said the device was the best selling iPhone every week in the March quarter, just as in the December quarter following the device’s launch. And he said the iPhone X is “priced for the value” Apple’s delivering.

“iPhone X is the most innovative product in the market,” Cook said. “And I’ve said a few times, we had sort of jam-packed [the device] with innovations that truly established the mobile phone for the next years. And so that’s how we priced it.”

Rewarding financiers

A brand-new tax policy passed in December permits Apple to pay a $38 billion tax costs to bring its abroad money back to the United States. As of the very first quarter, which ended in December, Apple had a record $2851 billion in money, with the majority of that held overseas. Investors anticipated to take advantage of that relocation.

Apple began offering cash back to investors in August 2012 in the kind of dividends and stock buybacks. A year back, it enhanced the quantity of cash it’s going back to financiers through 2019 by $50 billion to $300 billion. Most of that– $210 billion– originated from share repurchases. Apple at the time likewise increased its dividend by 10.5 percent, to 63 cents a share.

On Tuesday, the business stated it will end up dispersing that $210 billion to investors in the financial 3rd quarter. It will now provide another $100 billion to investors– double the quantity of its regular annual buyback increase– and stated it will pay a dividend of 73 cents a share, up 16 percent from its previous level.

“While the new $100 billion stock buyback plan along with a 16 percent hike in the quarterly dividend will substantially weaken Apple’s liquidity position, this plan is consistent with management’s desire to become net cash neutral over time, with net cash currently standing at $145 billion,” stated Stephen Sohn, an innovation expert forMoody’s He anticipates Apple to produce more than $40 billion in money this year.

Everything else

Apple creates about two-thirds of its earnings from the iPhone, and it’s thought the bulk of its earnings likewise originates from the mobile phone. If that market suffers, so do Apple’s monetary outcomes. But when the iPhone succeeds, Apple’s earnings skyrockets.

The business does not have any companies that come close to the iPhone’s size. But Apple is broadening into brand-new locations like house audio with its HomePod and pressing its iPad in schools. And, as CNET reported recently, Apple has actually been dealing with a headset efficient in running enhanced and virtual truth, 2 innovations that some business view as the future of computing.

Cook on Tuesday called AirPods, Apple’s cordless earbuds, “a runaway hit” and stated his business’s “working hard to meet the incredible demand.” He likewise kept in mind that Apple is “looking forward to adding new features to HomePod and introducing it to more markets around the world soon.”

Apple likewise has actually been attempting to place its services service as a huge source of earnings development in the future. In the 2nd quarter, Apple’s services earnings leapt 31 percent, to $9.19 billion.

Maestri called the quarter “sensational” and kept in mind that earnings is double what Apple reported in the 2nd quarter 4 years back. “Our services business is growing at a very fast pace all around the world, with revenue up more than 25 percent year-over-year in each of our five geographic segments,” he stated.

Apple set an income for record in the App Store and Apple Music, and iCloud storage earnings leapt more than 50 percent to a brand-new record. Altogether, Apple’s paid memberships exceeded 270 million in the quarter, up 100 million from a year ago and up 30 million in the last 90 days alone, Cook stated.

“I expect Apple Services to continue as the strongest part of Apple’s business with consistent and accelerating growth well into the future,” stated Michael Obuchowski, primary financial investment officer for Boston- based Apple investor Merlin AssetManagement “Many analysts will continue to be obsessed with the number of iPhones sold in a quarter, but increasingly iPhones will become just part of a growing number of ‘devices’ designed specifically to access Apple Services.”

Sales of the business’s “other products,” that include the Apple Watch, AirPods, Beats earphones, iPods and other devices, skyrocketed 38 percent, to $3.95 billion. Maestri kept in mind that AirPod and Apple Watch sales set a brand-new high for the March quarter.

“When we combine all our wearables and home products, they accounted for over 90 percent of the total growth in the other products category,” he stated.

Cook likewise stated that Apple’s wearable service, that includes Apple Watch, Beats earphones and AirPods, saw its earnings increase nearly 50 percent from the previous year. “Looking at its revenue over the last 4 quarters, our wearables business is now the size of a Fortune 300 company,” he stated.

Mac system sales dropped 2.9 percent, to 4.08 million, though earnings had to do with flat. iPad system sales increased 2.1 percent, to 9.1 million systems, while earnings climbed up 5.8 percent, to $4.1 billion.

Apple’s general earnings climbed up 16 percent, to $611 billion. Analysts anticipated Apple to report earnings of $6098 billion, according to YahooFinance Apple in February forecasted sales of $60 billion to $62 billion.

Apple’s earnings increased to $138 billion, or $2.73 a share, from $11 billion, or $2.10 a share, a year previously. Wall Street expected incomes of $2.69 a share.

First released May 1, 2 p.m. PT.
Update, 3: 35 p.m. PT: Adds remarks from teleconference and experts.

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