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Apple’s Revenue, Earnings Top Estimates

Results get boost from sales in services business, which rose 31% from a year earlier

By

Tripp Mickle

Apple Inc. AAPL 0.20% delivered its best-ever revenue for the June quarter, typically its weakest period, as demand for high-price iPhones remained resilient and services such as app-store sales swelled to a record.

The results for Apple’s fiscal third quarter show how the world’s most valuable company is finding ways to grow amid a contracting global smartphone market that is roiling its rivals.

“Growth was strong all around the world,” Apple finance chief Luca Maestri said during an interview.

Created with Highcharts 6.0.4Streaming ServiceApple's services business has become one ofits biggest growth engines.Change from previous yearSource: the company*Includes internet services (iTunes, Apple Music, AppStore), AppleCare, Apple Pay, iCloud

Created with Highcharts 6.0.4

Though iPhone sales usually weaken in the spring and summer as anticipation builds for new devices expected in September, Mr. Maestri said demand has remained consistent, particularly for the iPhone X, 8 and 8 Plus. “Customers are really valuing the features in the products,” he said.

Shares of Apple, up 28% over the past year, rose 3.6% to $197.01 in after-hours trading.

Apple’s move to raise iPhone prices continued to pay off in the period, with sales of the company’s flagship product rising 20% to $29.91 billion even as shipments rose less than 1% to 41.3 million. Meanwhile, the company’s services business reported record revenue of $9.55 billion, a 31% increase from a year earlier, strengthening the case that Apple is in the midst of a transformation from a device-driven business into one increasingly reliant on sales of subscriptions and software.

The combination drove total revenue up 17% to $53.26 billion in the latest period, above Wall Street expectations and near the high end of its own guidance. Profit rose 32% to $11.52 billion, or $2.34 a share, also above analysts’ consensus estimates.

Apple signaled it expects to sustain strong iPhone sales in the current quarter with a forecast for total revenue of between $60 billion and $62 billion, which would represent a healthy 14% to 18% increase from a year earlier. The expected jump reflects a small boost from three new devices the company is expected to release in September, analysts say, including an update to the $999 iPhone X; its first oversize phone with an organic light-emitting diode, or OLED, display; and a 6.1-inch liquid-crystal-display phone with facial-recognition technology.

The new phones are projected to be priced between $699 for the LCD device and $1,099 for the plus-size handset, according to UBS, potentially ensuring another year of higher average iPhone prices to lift Apple’s total revenue.

Analysts had estimated the $999 iPhone X made up one-quarter of total iPhones sold, which helped boost average selling prices per iPhone by nearly 20% to about $724.

While sales of the company’s handsets have been more pedestrian so far this fiscal year than the more than 7% increase in annual iPhone shipments many analysts forecast a year ago, features such as the iPhone X’s facial recognition and edge-to-edge display have been enough to help Apple deliver modest growth and revive a China business mired in a multiyear slump.

The company said revenue in Greater China, where sales tanked in 2016, rose 19% to $9.55 billion.

Apple’s chief rival, Samsung Electronics Co. , hasn’t fared as well. The South Korean company, which also has raised smartphone prices to nearly $1,000, reported a big decline in mobile-phone profit on Tuesday as consumers hold on to devices longer and balk at higher prices. Samsung has seen its market share in China fall as homegrown rivals such as Huawei Technologies Co. increase sales.

The services business has become one of Apple’s biggest growth engines. The company is making progress toward its goal of $50 billion by 2020 in annual sales behind growth in subscriptions to iCloud storage, its streaming-music service and offerings such as Netflix and HBO. Paid subscriptions now exceed 300 million, a 60% increase, Mr. Maestri said.

The division that includes Apple’s smartwatches and AirPods wireless earbuds posted another period of strong gains, with sales rising 37% to $3.74 billion in the June quarter. The company doesn’t break out smartwatch sales, but it is expected to increase shipments 14% this year to 20.2 million watches, according to International Data Corp., a market-research firm.

“This is a product category that essentially didn’t exist three years ago,” Mr. Maestri said.

Sales of iPads and Macs were the only weak areas for Apple, as revenue for both products fell 5% in the period.

Apple continued to flex its financial muscle during the period, repurchasing $20 billion of shares. The company promised in May to spend a record $100 billion on buybacks. The buybacks could move Apple shares 24% higher over the next three years, according to Loup Ventures, a research-focused venture-capital firm.

In January, the company announced a plan to return the majority of more than $250 billion in overseas cash holdings to the U.S. That followed the U.S. tax overhaul Mr. Trump signed into law late last year, which requires companies to pay a one-time tax of 15.5% on overseas profits held in cash.

Apple, which will pay $38 billion in taxes, has said it aims to become net-cash neutral in the future, and it reduced the gap between cash on hand and debt to $129 billion, Mr. Maestri said.

“There’s still a long way to go in our share-repurchase program,” Mr. Maestri said.

 

 

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