Apple earnings beat expectations as it sells pricier iPhones

Apple moved closer to becoming the first US$1 trillion (S$1.4 trillion) company on the stock market after sales of higher-priced iPhones fueled better-than-expected quarterly revenues and profits.

NEW YORK (REUTERS) - Apple on Tuesday (July 31) posted quarterly results that topped Wall Street targets and forecast revenue in the current quarter above expectations, driven by sales of higher-priced iPhones and revenue from services like the App Store, Apple Music and iCloud.

Apple beat sales estimates in part by selling fewer but pricier iPhones than analysts expected. The company sold 41.3 million units, below expectations of 41.8 million units.

Apple posted third-quarter revenue of US$53.3 billion (S$72 billion) and profits of US$2.34 per share, compared with analyst estimates of US$52.3 billion and US$2.18 per share, respectively, according to Thomson Reuters I/B/E/S.

Services revenue was US$9.5 billion, beating analyst expectations of US$9.1 billion, according to Thomson Reuters I/B/E/S. The revenue included US$236 million from resolving lawsuits such as Apple's long-running dispute with Samsung Electronics.

The average iPhone selling price hit US$724, beating analyst expectations of US$694, according to data from FactSet. Apple chief financial officer Luca Maestri told Reuters that the high selling prices were driven by sales of the company's costlier recent models, including the US$999 iPhone X. Maestri said the iPhone X was the quarter's most popular model.


The world's most valuable technology company also forecast revenue of US$60 billion to US$62 billion for its fiscal fourth quarter, which will include early sales of soon-to-be-announced phone models, beating the US$59.6 billion analysts expected, according to data from Thomson Reuters I/B/E/S.

As smartphone buying has plateaued, Apple has extended its iPhone line with both pricier and cheaper versions, from the iPhone X to the lowest priced US$349 iPhone SE. It has also soothed investor concerns with a US$100 billion stock buyback programme and promises of growth from services such as streaming music and video, where Apple faces competition from rivals including Spotify Technology and Netflix.

But several of Apple's services do not face strong rivals. Maestri told Reuters that sales from Apple Care, the company's warranty offering, were up 27 per cent versus a year ago, though the company did not disclose a dollar figure for sales.

Apple was largely spared in last week's tech sector sell-off when shares of Facebook, Twitter and Netflix fell sharply on concerns about their future growth. With a market capitalisation of US$938.7 billion at market close on Monday, Apple is tickling at the title of world's first trillion-dollar company.

Apple's biggest selling products do not yet face duties stemming from the US-China trade disputes, but President Donald Trump has threatened hundreds of billions of further tariffs whose product categories have not yet been enumerated.

But one of the categories potentially affected by tariffs is the Apple Watch, which is one of Apple's growth drivers. Maestri told Reuters that the company's so-called "wearables" business - which includes the Apple Watch and its AirPods headphones, among other items - has generated US$10 billion in sales in the past 10 quarters and saw sales increase 60 per cent in the most recent quarter.

"We are not able to catch up to demand yet and continue to add capacity for the AirPods," Maestri said.

Apple's margins are facing pressure as it moves to put pricier components, such as OLED displays that show more vivid colours, into its products. The company said it expects gross margins of 38 per cent to 38.5 per cent in the fourth quarter, compared with analyst expectations of 38.3 per cent, according to Thomson Reuters I/B/E/S.

Analysts are also closely watching Apple's operating expenses, which have been increasing as its research and development costs outpace its revenue growth.

Apple said it expects operating expenses of US$7.95 to US$8.05 billion in the fourth quarter, compared with analyst estimates of US$7.8 billion, according to Thomson Reuters I/B/E/S.