Quarterly earnings hit record even as customers bought fewer
devices
By Tripp Mickle
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 2, 2018).
Apple Inc.'s move to raise prices on the iPhone paid off with
record quarterly revenue and profit even though the world's most
valuable company sold fewer of its most important product.
Sales of the iPhone X -- released in November at a starting
price of $1,000 -- lifted the average selling price for iPhones by
nearly 15%, Apple said on Thursday. That helped propel total
revenue up 13% to an all-time high of $88.29 billion in the
quarter, which was a week shorter than the same period a year
earlier, even though the number of iPhones sold actually fell 1% to
77.3 million units. Apple's profit rose 12% to $20.07 billion, also
a record.
Apple tempered the positive news with a weaker-than-expected
revenue forecast for the current quarter of between $60 billion and
$62 billion. That would represent a healthy rise from a year
earlier, but was well below analysts' recent consensus estimate of
$66.54 billion, a number that had fallen over the past several
weeks on concerns about demand for the iPhone X and uncertainty
around the new iPhone 8 and 8 Plus models launched in
September.
Still, the results offered hope that Apple can sustain its solid
performance even amid stagnating global demand for smartphones.
Analysts and investors have worried the company is too dependent on
the iPhone, which accounts for about two-thirds of its sales, in
part because many customers are holding on to their phones longer.
Annual sales of iPhones in Apple's latest fiscal year, through
September, were still well below their peak two years ago, and no
other product has caught on with nearly the same intensity.
But Apple is showing steady progress in growing other lines of
business -- especially its services arm, which includes the App
Store and its music and payment services. Results in the latest
period also were buoyed by strong growth in the division that
includes its smartwatch and AirPods wireless earbuds.
Shares gained more than 3% in after-hours trading Thursday,
after falling over the past two weeks.
Apple's share price soared more than 45% last year as many
investors bet that the feature-rich X model, launched to
commemorate the iPhone's 10th anniversary, would reignite the kind
of boom in sales that recent models have failed to deliver. At an
unveiling event in September, Apple marketed the iPhone X as the
smartphone of the future and touted its improved display and
facial-recognition system.
In an interview, Chief Financial Officer Luca Maestri said the X
model has been the best-selling of Apple's iPhones since its
release. "We're really, really happy with the way it's going," he
said.
Apple doesn't break out for shipments by model, but analysts
have said that sales of the X are softer than the company
anticipated. Canalys, a market-research firm, estimated before
Thursday's results that Apple shipped 29 million units of the
iPhone X in the three months through December, about 6 million
fewer than it says the company targeted for production during the
period. It said shipments were generally lower than the company's
projections because some consumers are choosing less-expensive
iPhones.
Stephen Fleming, a 55-year-old education administrator in
Tucson, Ariz., said he preferred to save about $200 by buying an
iPhone 8 Plus, which was released in September. "I could have
easily bought the X but there was nothing about the X that said: I
have to have this thing," said Mr. Fleming.
With overall lackluster overall demand for smartphones and
growing competitive pressure, some analysts and investors have
worried about Apple's reliance on the iPhone.
"They have to figure out how to get recurring revenue streams so
they're not holding their breath on each new product launch," said
Tom Plumb, president of SVA Plumb Financial, a Madison, Wis.-based
wealth-management firm with $2.7 billion in assets that counts
Apple among its top holdings.
Apple has more than tripled spending on research and development
under Mr. Cook to $11.58 billion last year but its products like
smartwatches and wireless earbuds haven't delivered enough revenue
to reduce its iPhone dependency. And efforts to push into
autonomous vehicles, augmented reality and health aren't expected
to generate revenue anytime soon.
The sheer number of devices it has sold, though, already is
helping its efforts to diversify. Apple now has 1.3 billion iPhones
and other devices in active use, Mr. Maestri said, a 30% increase
over the past two years. That helped the services business report
an 18% increase in revenue to $8.47 billion in the period --
accounting for a 10th of total revenue in the period. The number of
paid subscriptions across Apple and third-party services passed 240
million in the quarter, an increase of 30 million over the past 90
days.
Like other big tech companies, Apple is contending with a
backlash from lawmakers, investors and others over its clout and
the impact of its products.
The company received a letter in early January from leading
activist investor Jana Partners LLC and the California State
Teachers' Retirement System, or Calstrs, which control about $2
billion of Apple shares, urging the company to address a potential
health crisis due to youth-smartphone addiction. Apple said it
plans to continue enhancing the parental controls on the iPhone it
has had for years.
Apple also is facing investigations from regulators and
lawmakers in the U.S. and Europe over a software update that
throttled back performance on older iPhones to preserve battery
life. The company in December said it had made the change to avoid
sudden shutdowns of such phones, but the news angered many
customers. The company later apologized for the issue and slashed
the price of an iPhone battery replacement, hoping to win back
customer goodwill.
After years of criticism about how it outsources manufacturing
to China and parks its global profits offshore, Apple in
mid-January said it would pay $38 billion in taxes on the cash it
held overseas in response to the major U.S. tax overhaul that
President Donald Trump signed into law late last year.
Mr. Maestri said Apple will discuss specific plans for its pile
of overseas cash when it reports results for the current quarter,
which runs through March. But he said Apple's goal is to target a
"net cash neutral" position over time, compared with the large gap
between its current holdings of $285 billion in cash and $122
billion in debt.
"We can now really look at a more optimal capital structure for
our company," Mr. Maestri said.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
February 02, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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