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Apple’s third-quarter revenue from iPhone sales increased 20% from a year earlier to $29.91 billion.

Apple’s third-quarter revenue from iPhone sales increased 20% from a year earlier to $29.91 billion.


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R4924_italyphotopress/Zuma Press

By

Apple
Inc.


AAPL 0.20%

delivered its best-ever revenue for what is typically its weakest quarter, 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.

“We’re expanding our reach into emerging markets and seeing strong double-digit growth in revenue, and we’re making great progress toward our goal of significantly expanding our services business,” Chief Executive

Tim Cook

said during a call with analysts.

Though iPhone sales usually weaken in the spring and summer as anticipation builds for new devices expected in September, Apple finance chief

Luca Maestri

said demand has remained consistent, particularly for the iPhone X, 8 and 8 Plus.

Shares of Apple, up 28% over the past year, rose 3.7% to $197.33 in after-hours trading. With a market value above $950 billion if after-hours gains extend to Wednesday’s trading day, Apple is on the cusp of becoming the first $1 trillion U.S. company.

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. 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.

Revenue growth accelerated for the seventh straight quarter, jumping 17% to $53.27 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.

“The larger business plan is on track,” said

Robert Nichols,

chief executive at Windward Capital Management Co., a Los Angeles-based firm with more than $750 million under management that counts Apple among its largest holdings. “They’ve created this device vehicle to push entertainment and data through, and it’s almost like having a cash register and waiting for sales.”

Apple’s report Tuesday capped a string of strong earnings from U.S. technology giants

Amazon.com
Inc.,

Google parent

Alphabet
Inc.

and

Microsoft
Corp.

, which continue to post robust results in the face of increasing scrutiny from regulators over their influence on business and society.

Facebook
Inc.

remained the outlier, with its shares suffering the biggest-ever one-day loss last week after it warned of slowing growth amid new regulatory pressures and public scrutiny of its privacy practices.

Still, escalating trade tensions between the U.S. and China pose a greater threat to Apple than its peers. The company depends on China for about one-fifth of sales, making it vulnerable to potential retaliation by the Chinese government, trade experts said, and its iPhones would be hit by tariffs if President Trump follows through on a recent threat to put tariffs on some $500 billion in Chinese exports to the U.S.

Apple hasn’t been affected by any U.S. tariffs on imports from China to date, but Mr. Cook said the company is evaluating the planned tariffs for potential business impact. He said Apple will provide public comment after it has had a chance to evaluate the potential tariffs. Still, Mr. Cook said he is optimistic “this will get sorted out because there’s an inescapable mutuality between the U.S. and China.”

Apple also faces criticism from Chinese state-controlled media, which has turned up attacks on Apple over the past week, with at least five state supported outlets including Xinhua criticizing the tech giant’s iMessage service for failing to do more to block spam messages. CCTV jumped in Tuesday, saying Apple’s app store allows illegal gambling apps.

Apple’s sales continue to grow in Greater China, rising 19% to $9.55 billion. But new numbers from market researcher Strategy Analytics found that Huawei Technologies Co. of China has overtaken Apple for the first time as the world’s second-largest smartphone maker, with 54 million devices shipped in the June quarter.

Apple’s chief rival,

Samsung Electronics
Co.

, remains the largest smartphone vendor, but has struggled lately. 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. Its market share in China has declined as homegrown rivals such as Huawei increase sales.

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. Analysts say the likely jump reflects a small boost from the following three new devices Apple is expected to release in September: an update to the $999 iPhone X; the company’s 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.

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Given consumer sensitivity to higher smartphone prices, future iPhone “pricing will be important going forward,” said

Mike Frazier,

president of Bedell Frazier Investment Counselling, a Walnut Creek, Calif.-based firm with about $500 million under management. Apple is among the firm’s largest holdings.

“Expectations are pretty high for the next phone launch and people won’t want to pay a grand unless it’s full of new innovative functions,” he added.

The services business has become one of Apple’s biggest growth engines. The company is making progress toward its goal of $50 billion 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 in the period, Mr. Maestri said.

The division that includes Apple’s smartwatches and AirPods wireless earbuds also 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.

Steve Jobs: The 2008 Interview

Nearly 10 years ago, reporter Nick Wingfield spoke to the Apple CEO shortly after the launch of the App Store. Their conversation covered the store’s early success, developer relationships, the future of gaming, Facebook and more. Listen and read the full transcript.

Corrections & Amplifications
Apple’s revenue from sales of iPhones rose 20% in the third quarter. An earlier version of this article incorrectly stated the percentage increase.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

Appeared in the August 1, 2018, print edition as ‘Apple’s iPhones Power Results.’

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