Apple’s Q1 2018 earnings call: iPhone X and Apple Watch Series 3 are top sellers

Apple released record first-quarter 2018 financial results today, and in keeping with tradition hosted a live question-and-answer session for financial analysts to speak with Apple CEO Tim Cook and CFO Luca Maestri. We covered the session live, with updates below in chronological order as the call proceeded.

Apple’s Tim Cook opened the session by discussing the company’s record $ 88.3 billion revenue, which he noted is up 13 percent over the previous record year — and the fifth consecutive quarter of revenue growth. Importantly, Cook noted that the quarter reported today was 13 weeks long versus 14 weeks last year, distorting direct dollar-for-dollar and unit-for-unit comparisons; the sales look stronger when viewed weekly rather than quarterly.

Addressing recent claims of weak demand and manufacturing cuts for the iPhone X, Cook said that the iPhone family generated its highest quarterly revenue ever, and noted that iPhone X was the best-selling smartphone in the world according to Canalys — it has also been Apple’s best seller since it launched. Cook also said that sales of the Apple Watch Series 3 were twice the Apple Watch Series 2’s sales a year ago, explaining the 36 percent growth in “other products” disclosed today, which was previously forecast in independent reports.

Luca Maestri noted that the App Store generated nearly twice the revenue of Google Play. Wearables, including Beats, AirPods, and the Apple Watch were up nearly 70 percent year over year within the “other product” category. Despite the 5 percent year over year unit and revenue drops disclosed in the earnings release, Mac sales in Latin America, India, Turkey, and Central/Eastern Europe were all up.

The iPad has continued to show growth, with 46 percent market share in the holiday quarter versus 36 percent a year ago, and winning over many first-time tablet buyers. Businesses are reporting a 99 percent satisfaction rating for the iPad. As just one example of its expansion, LensCrafters will be using 7,000 iPads to do digital eye exams.

Maestri also noted that Apple will pay a $ 38 billion foreign earnings repatriation tax to Apple, and that Apple’s tax payments (including that amount) will equal $ 110 billion over the past 10 years. Tax reform will let Apple seek a more optimal financial arrangement for the company, and Apple expects to be net cash neutral over time. He then opened the call to questions.

What are Apple’s plans for its $ 285 billion of cash? Maestri explains that even when its cash holdings are offset by its debt, Apple still has over $ 160 billion, and intends to spend the cash carefully over time. Historically, it has returned nearly 100% of its free cash flow to investors.

What about the iPhone X — any thoughts on the premium pricing? Cook notes that it was the most popular model, noteworthy particularly given that it was supply-constrained and expensive. It has been the most popular iPhone even through today.

In urban China and the U.S., the top five smartphones last quarter were all iPhones. In Japan and the U.K., six of the top seven were iPhones. Given the size of the smartphone market, people want some level of choice, but Apple feels fantastic as pertains the iPhone X.

March quarter guidance suggests a slowing of growth — how should analysts read into it? Maestri says that they’re expecting strong revenue growth, $ 7 to $ 9 billion over last year’s quarter. The two key messages: Apple believes iPhone revenue will grow double-digits, and iPhone sell-through growth on a year-over-year basis will be accelerating this coming quarter versus the prior one. Historically, channel fill and channel inventory are different this year because of the iPhone X and its later launch; there may be a greater ASP falloff in this quarter due to midrange models having a higher number of sales.

What’s the thinking on the future of iPhone X-style premium devices in Apple’s portfolio — any color on new iPhones? Cook: Apple doesn’t provide details on upcoming products, but said with the iPhone X that it was setting up for the next decade, and packed it full of innovation; Apple’s going to continue pulling that string.

How about AR? Cook says he’s a huge, huge believer in AR, and couldn’t be happier with the rate and pace of the developer community, or how things are going right now.

How will Apple’s discounting of replacement iPhone batteries impact the rate at which customers are buying new devices? Investors can choose what they want to focus on, says Cook, and he wouldn’t want to tell them how much to adjust their estimates. However, iPhones historically have strong retained value for resale, which creates a new device sale and continues to satisfy an old customer. Apple did not consider in any way what replacement batteries would do to upgrade rates, and has no idea what impact it will have. Replacement rates could be different in geographies based on whether they had iPhone subsidies when the devices were initially purchased. Regardless, as the install base of devices increases, Apple’s sales of services will continue to grow.

Has the number of users gone up or down with the number of active devices? Cook says Apple doesn’t provide the former number, just the latter, as it’s the most accurate number they can provide. When asked about the number of switchers, a detail Apple sometimes provides, Cook said he doesn’t think Apple has meaningful data that for the quarter.

What is the category for HomePod — smart speaker competing with Amazon and Google, or something else — and who is the target market? Cook dodges somewhat, calling it an incredible product with an unbelievable audio experience and a super digital assistant in Siri, which also can handle requests for home automation, and work as a speakerphone. So the use cases are broad-based; it will be used by some for music, others as a digital assistant, and majority will use all of it.

Views on M&A: Apple in 2017 acquired 19 companies, and always looks for something that can accelerate product roadmap, fill a gap, or create a new experience for customers. Apple looks at all sizes of companies, and with $ 163 billion in the bank will consider its options.

During the Q&A, Apple did not discuss recently announced government investigations, the Intel/ARM processor security issue, or its recent public moves towards an Apple video streaming service.

Apple – VentureBeat

These are the audio sources Apple’s HomePod will support at launch

HomePod Audio Sources

After a multi-week delay, Apple’s HomePod is now available for pre-order, with deliveries expected to begin on February 9. While many of the early HomePod reviews we’ve seen have been overwhelmingly positive, there are still a number of unanswered questions about what Apple’s smart speaker will bring to the table. This stems, in part, from the fact that reviewers were typically only granted 1 hour with the device in a controlled setting. Further, Apple itself has kept some details about the device shrouded in mystery and open to speculation.

To this point, Apple this week finally updated its HomePod tech specs page with official details regarding which audio sources will be supported by the speaker right out of the gate. Not surprisingly, the list is essentially an Apple-exclusive list of services and features.

Per the update, below are the audio sources that will play nicely with the HomePod, with the inclusion of iCloud Music Library being the most notable listing.

  • Apple Music
  • iTunes Music Purchases
  • iCloud Music Library with an Apple Music or iTunes Match subscription
  • Beats 1 Live Radio
  • Podcasts
  • AirPlay other content to HomePod from iPhone, iPad, iPod touch, Apple TV, and Mac

Of course, if you’re hoping to use third-party streaming services like Spotify with the HomePod, you’ll have to rely on AirPlay. It also remains unclear if users will be able to use the HomePod as a traditional Bluetooth speaker, though rumblings from the rumor mill suggest that this will not be possible.

Now whether or not users will be willing to fork over $ 349 for a smart speaker that works best with music obtained exclusively via the Apple ecosystem remains to be seen.

Explaining the thought process behind the device, Apple executive Phil Schiller recently said the following during an interview with Sound&Vision.

We think we can create a new kind of music experience in the home that sounds incredible, and is fun to interact with. That’s what’s driving us with HomePod. And it can also be the hub for your smart home. Voice technologies like Siri are also gaining in popularity with Siri responding to over 2 billion requests each week. This helps us understand how people actually interact with their devices, what they ask, and helps us create a product for the home that makes sense.

As it stands now, HomePods have not sold out, so you can still get the device by February 9 if you’re so inclined.

Apple – BGR

Notes of interest from Apple’s Q1 2018 conference call

Article Image

Revenue reached new heights in Apple’s holiday 2017 quarter, but unit sales of the iPhone fell year over year, reflecting the premium-priced lineup of the iPhone X, iPhone 8 Plus and iPhone 8. Following the publications of its first fiscal quarter 2018 results, the company held a conference call with media and analysts, and notes of interest follow.
AppleInsider – Frontpage News

The biggest takeaways from Apple’s record-breaking Q1 earnings

Apple made more money last quarter than it ever has in the company’s history, but despite bringing home $88.3 billion in revenue, not all investors were impressed. Wall Street walked away from Apple’s Q1 2018 earnings with mixed reviews. Money and cash is at an all-time high, yet there are some worrying signs that iPhone […]

(via Cult of Mac – Tech and culture through an Apple lens)

Cult of Mac

Apple’s 77.3 million iPhone, $88.3 billion quarter by the numbers

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The addition of the iPhone X that commanded a steeper premium than ever before has made Apple’s financial quarter an interesting one. The changes over time are best illustrated graphically, showing the magnitude of the quarter, as compared to quarters of years past.
AppleInsider – Frontpage News

Interesting points from Apple’s Q1 earnings call

Apple this afternoon announced the financial results for its fiscal first quarter of 2018, and the numbers for the 3-month are good but not great. The company beat EPS and revenue expectations, but fell short in iPhone sales.

Following the release of its earnings report, CEO Tim Cook and CFO Luca Maestri hopped on a conference call to talk about Apple’s performance. And as usual, we’ve rounded up some of the more interesting points from the call…. Read the rest of this post here

Interesting points from Apple’s Q1 earnings call” is an article by
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019: Apple’s holiday quarter, Mario Kart for iOS, HomeKit lighting | 9to5Mac Daily

Today we’ve got a breakdown of Apple’s holiday quarter results, Nintendo promising Mario Kart for iOS, Owl Car Cam from iPod engineers, and our latest HomeKit review with Sylvania Smart+ light strips.

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Why Apple’s biggest quarter ever is a letdown

The iPhone X debut wasn’t enough to push iPhone sales to a new record.

Apple just posted its biggest quarter of all time: As expected, revenue passed $ 88 billion during its fiscal first quarter, up 13 percent year over year, and the company generated $ 20 billion in profit.

But still, it was not as much as many analysts were expecting, and iPhone, iPad and Mac shipments were lower than many had forecast. For those looking for oversized outperformance, Apple’s record quarter was a letdown.

Apple shipped 77.3 million iPhones during the December quarter, down from 78.3 million in the same period a year ago. But this was supposed to be an iPhone “super cycle” led by the iPhone X, which debuted during the period.

“iPhone X surpassed our expectations and has been our top-selling iPhone every week since it shipped in November,” Apple CEO Tim Cook said in a canned statement.

But many analysts expected better-than-expected iPhone X supply to lead to bigger, record sales, north of 80 million units. That did not happen.

And it’s not because a supply/demand problem was pushing sales to the current March quarter. Instead, Apple’s revenue forecast for its fiscal second quarter is just $ 60 billion to $ 62 billion, well below Wall Street’s consensus, which was $ 66 billion this morning, and even below some conservative estimates.

What did happen: The higher-priced iPhone X pushed Apple’s average iPhone selling price to $ 796, up almost $ 100 from the same time a year ago. That’s good.

Apple’s “Other Products” segment, which includes the Apple Watch, AirPods and Apple TV, grew 36 percent to $ 5.5 billion. Wearables revenue was up 70 percent year over year, the company said on its earnings call. That’s also good — the Apple Watch is driving some growth.

And Apple’s business in China grew for its second quarter in a row, following many periods of shrinkage. (It’s still down from its peak in 2015.)

While Apple’s quarter set records broadly, this wasn’t a blowout relative to heightened expectations.

Still, investors seem optimistic, especially as Apple announced plans to become net-cash neutral. After initially dipping, shares are up more than 3 percent in after-hours trading.

Recode – All

Apple’s $1T dreams are on hold as it delivers a disappointing quarter despite iPhone X launch

 Apple’s dream of becoming a $ 1 trillion company will have to wait — at least for a little while. Despite the release of the iPhone X, which was accompanied by a wave of positive reviews and seen as Apple’s interpretation of what a next-generation smartphone looks like, Apple wasn’t able to create the so-called “supercycle” that would prompt a massive wave of… Read More
Mobile – TechCrunch

Apple’s new short film will make you cry in Three Minutes

What would you do if your family reunion only lasted three minutes? That’s the concept for Apple’s heartwarming new short film, Three Minutes, that celebrates Chinese New Year. The entire film tells the story of a mom who works as a train conductor on one of China’s longest routes. Her entire route takes six days […]

(via Cult of Mac – Tech and culture through an Apple lens)

Cult of Mac