Sales of the iPhone X helped drive Apple’s solid Q2 revenues, but keep an eye on Services and Other Products, too.
Apple didn’t quite get the bruising everyone anticipated from the highly priced iPhone X. In fact, things are still looking rosy for the Californian tech giant.
The company reported Q2 revenues of $61.1bn, up 16pc on the previous year.
‘Customers chose iPhone X more than any other iPhone each week in the March quarter’
– TIM COOK
“We’re thrilled to report our best March quarter ever, with strong revenue growth in iPhone, Services and Wearables,” said Tim Cook, Apple’s CEO.
“Customers chose iPhone X more than any other iPhone each week in the March quarter, just as they did following its launch in the December quarter. We also grew revenue in all of our geographic segments, with over 20pc growth in Greater China and Japan.”
The buoyant figures have encouraged the tech giant to embark on a massive $100bn share repurchase plan and reward shareholders.
Apple CFO Luca Maestri said: “Our business performed extremely well during the March quarter, as we grew earnings per share by 30pc and generated over $15bn in operating cash flow.
“With the greater flexibility we now have from access to our global cash, we can more efficiently invest in our US operations and work toward a more optimal capital structure. Given our confidence in Apple’s future, we are very happy to announce that our board has approved a new $100bn share repurchase authorisation and a 16pc increase in our quarterly dividend.”
So, what is there to learn?
1. The iPhone is still a massive cash cow
Apple revealed that $38bn from its $61bn in Q2 sales came from the iPhone, with 52.2m units sold worldwide. This is compared with $33bn from the sale of 50m iPhone units in the second quarter of 2017.
The key factor was the iPhone X, which, with its expensive price tag, helped Q2 iPhone units grow 3pc on last year. But it is a big change from three years ago when iPhone shipments were growing at 40pc rates.
If anything, Apple’s revenues have been on a non-stop upward curve for three years in a row.
As smartphones reach saturation point and phones become more expensive personal investments by consumers, the fact that Apple is recording steady – if conservative – growth is quite something.
Interestingly, according to recent research from Counterpoint, the iPhone X, which was unveiled in September last year, is hugely profitable and accounted for 35pc of total smartphone industry profits in Q4 2017. It estimated that the iPhone X generated five times more profit than the combined profit of more than 600 Android original equipment manufacturers during the quarter.
Not only that but, according to the IMF, Ireland, Korea and Taiwan are today the main beneficiaries of the smartphone boom. Indeed, it added that the iPhone economy accounted for 25pc of Irish economic expansion in 2017 because of the fact that this is where the intellectual property of Apple is based. Go figure!
2. iPads are up but Mac sales are down
Every time someone sounds the death knell for tablet computers and the iPad specifically, Apple adds more bells and whistles, such as a 12.9in iPad Pro or a new Apple Pen.
The iPad has not gone the way of the iPod to disappear; instead, it is growing sales considerably.
In Q2, Apple sold 9.1m iPad devices, down from the 13.1m in the bumper holiday season, but up 2pc year on year from 8.9m iPad devices sold exactly a year ago. This yielded Apple $4.1bn in revenues, up from $3.8bn a year ago.
But Apple’s traditional heartland of personal computers in the form of the Mac family of devices is under pressure. Unit sales were down 3pc year on year to slightly more than 4m Mac sales, yielding $5.4bn in revenues for Apple.
Compared with various computing manufacturers, this still makes the Mac a computing giant, and more than $5bn is a healthy revenue slice for any company. And Apple continues to innovate heavily in the Mac space.
The Mac will always be core to Apple, but the company appears unafraid to borrow innovations from the iPhone and apply them to the Mac, and vice versa.
The drop in unit sales is reflective of the fact that the smartphone is now the number-one computing device in the world. With the iPhone, which yields serious profits for Apple, the tech giant has this one covered.
3. What are the fastest-growing revenue streams for Apple?
Keep an eye on Apple’s Services business. Money being made from core data services such as Apple Music, the App Store and more are yielding monster results for Apple.
Services yielded Q2 revenues of $9.1bn, a 31pc increase on the previous year’s $7bn.
With Apple expected to invest heavily in editorial as well as its own TV and movie content, expect Services to ramp up in the coming quarters.
Apple’s Other Products business, which includes devices such as the Apple Watch, Apple TV and HomePod, is now the fastest-growing revenue pot for Apple, with revenues up 38pc year on year to $3.9bn, from $2.8bn last year.
4. Well investors, how do you like them apples?
The $100bn repurchase programme and a 16pc increase in dividends are on top of already generous rewards for Apple’s shareholders.
Between 2012 and 2018, Apple has returned $275bn to shareholders, including $200bn in share repurchases. Rosy indeed.