Apple on track for ‘biggest quarter ever’ after iPhone X launch

by | November 3, 2017 3:33 pm



The launch of the iPhone X has put Apple on track for its “biggest quarter ever”, its executives say, after it reclaimed its crown from Samsung as the most profitable company in the world with its latest earnings.

 

Tim Cook said on Thursday that he was feeling “very bullish” about the prospects for the company’s new $999 flagship device, which went on sale to the first buyers on Friday morning in Australia as the Apple chief executive began his quarterly earnings call with analysts. “I have to say I couldn’t be more excited about Apple’s future,” he said. Apple Stores around the world on Friday witnessed a return to the long lines of waiting customers that have been less evident in recent years’ iPhone launches. That is in spite of the fact that the price of an iPhone X is more than $200 more than the standard iPhone 8 model. Mr Cook tried to rationalise the high cost, saying it equated to “less than a coffee a day at one of these nice coffee places” and that “we price to the value that we are providing”. On Thursday’s call, Mr Cook worked to knock down the “doubting Thomases” who have tried to suggest Apple’s future looked anything other than bright, as it reported better than expected results for the three months to September.

 

 

Not only is Apple “very happy” with the improving rate of iPhone X production, strong initial sales of the iPhone 8 — which had previously been seen by some analysts as weaker than last year’s model — has helped the group return to growth in greater China where, after more than a year of declines, revenues were up 12 per cent. “There’s always doubting Thomases out there — I’ve been hearing those for the 20 years I’ve been here,” Mr Cook said when challenged that some were sceptical about Apple’s record of innovation. “I suspect I’ll hear about them until I retire . . . I don’t really listen to that too much.” One indication of Apple’s competitive strength is that its net income of $10.7bn for the September quarter exceeded Samsung’s $10.1bn for the same period, reclaiming the lead that the iPhone maker lost to its resurgent Korean rival in their respective June quarters. Thanks to the boost to revenues from the higher-priced iPhone X, Apple is hoping to consolidate that lead in the next quarter, too. “At the [earnings] level, we believe it’s going to be the biggest quarter ever,” said Luca Maestri, Apple’s finance chief.

 

Based on Apple’s guidance for revenues of $84bn-$87bn in the three months ending in December, analyst Neil Cybart of Above Avalon estimates that Apple will beat its own record for the most profitable quarter ever reported by any company. Mr Cybart forecasts net income of $19bn-$20bn for the December quarter, compared with its previous high of $18.4bn for the same period in 2015. “At this point, it doesn’t even look close to previous quarters,” he said. Although Apple said its gross margins might be lower than the same time last year, due to the higher costs of ramping up manufacturing of the iPhone X, improving revenue growth will help the company exceed its previous peak profit. Wall Street has been eager to see stronger revenue growth from Apple. Even though iPhone sales increased by just 2 per cent in the September quarter, it reported growth across every product category — from iPads and Macs to Apple Watch and services such as Apple Music — for the first time in years. Services, up 34 per cent, were a particular bright spot, as changes to the App Store yielded more downloads by customers and Apple Music subscriptions continued to grow. “That’s a very important and telling statistic,” said Ben Bajarin, analyst at Creative Strategies, because services revenues do not vary seasonally like the iPhone. “It’s easy money — a high-margin business that keeps steamrollering.”
Overall, Apple posted a 12 per cent rise in total revenues to $52.6bn in its fiscal fourth quarter, its fourth sequential acceleration in revenue growth. However, much of that momentum is coming from higher prices, rather than meaningfully better iPhone unit sales, says Mr Cybart. A year-on-year increase in iPhone units is “not a given” in December, he adds. Other analysts are more optimistic. Gene Munster, an Apple analyst turned investor at Loup Ventures, on Thursday night increased his estimates for iPhone unit sales for the December quarter from 76.7m, implying a year-on-year decline, to 83m, suggesting growth of 6 per cent.

 

“Tim Cook is giddy,” Mr Munster said of the Apple chief’s tone on Thursday’s call. “And he should be.”

Tags: