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Apple's pricey iPhone X, subscriptions deliver earnings beat

Reuters
Apple Inc sales led by the pricey iPhone X pushed quarterly results far beyond Wall Street targets on Tuesday.
Reuters
AFP

A general view of the new Apple Store Liberty, the first Italian flagship store of Apple in Milan, on July 26, 2018. 

Apple Inc sales led by the pricey iPhone X pushed quarterly results far beyond Wall Street targets on Tuesday, with subscriptions from App Store, Apple Music and iCloud services bolstering business.

Apple also forecast revenue above expectations for the fall, when it typically launches new iPhone models, reassuring a nervous tech sector that saw sell-offs last week in Facebook Inc, Twitter Inc and Netflix Inc on concerns about their future growth. Apple also regained growth in China, where sales rose 19 percent.

Apple has responded to a plateauing global smartphone market by launching ever-more expensive phones and diversifying into services. Chief Executive Tim Cook credited "wearables," a category which includes wireless earphones and the Apple Watch, with making growing contributions as well.

And Apple has used its pile of cash to buttress share prices, buying back US$20 billion in stock in the quarter, part of a US$100 billion stock buyback program.

"The lesson Apple’s management has learned from the iPhone X, is when you sell a smartphone for more than US$1,000 you can sell fewer units and still reap the financial benefits," said analyst Thomas Forte from D.A. Davidson & Co.

Shares rose 3.4 percent to US$196.80 in after-hours trade. With a market capitalization of more than US$900 billion, Apple is tickling at the title of world's first trillion-dollar company.

Apple sold 41.3 million iPhones in the fiscal third quarter, below expectations of 41.8 million units, but the average iPhone selling price hit US$724, beating analyst expectations of US$694, according to data from FactSet. Apple Chief Financial Officer Luca Maestri told Reuters that customers were buying costlier models and the US$999 iPhone X was the quarter's best seller.

Apple posted third-quarter revenue of US$53.3 billion and profits of US$2.34 per share, compared with analyst estimates of US$52.3 billion and US$2.18 per share, respectively, according to Thomson Reuters I/B/E/S. 

The world's most valuable technology company also forecast revenue of US$60 billion to US$62 billion for its fiscal fourth quarter, which will include early sales of soon-to-be-announced phone models, beating the US$59.6 billion analysts expected, according to data from Thomson Reuters I/B/E/S.

Despite the beat, James Cordwell, an analyst from Atlantic Equities, said the high selling prices might cause investors some concern because "there’s a limit to how much Apple can grow the iPhone franchise by pushing pricing."

Apple services include streaming music and video, where Apple faces competition from rivals including Spotify Technology SA and Netflix.

But several of Apple's services do not face strong rivals. Maestri told Reuters that sales from Apple Care, the company's warranty offering, were up 27 percent versus a year ago, though the company did not disclose a dollar figure for sales.

Services revenue was US$9.5 billion, beating analyst expectations of US$9.1 billion, according to Thomson Reuters I/B/E/S. The revenue included US$236 million from resolving lawsuits such as Apple's long-running dispute with Samsung Electronics Co Ltd.

Apple said it expects operating expenses of US$7.95 billion to US$8.05 billion in the fourth quarter, compared with analyst estimates of US$7.8 billion, according to Thomson Reuters I/B/E/S.

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