Apple delivers strong profits, but shares slip on outlook

Andrew Cummings
November 4, 2018

We note the 2017 flagship iPhone X did not contribute to Apple's top line until the first quarter of fiscal 2018, thus distorting the comparisons of iPhone product sales. Its shift up in prices, with many iPhone models costing around $1,000+ seems to be paying off in some parts of the world.

Apple's chief financial officer Luca Maestri announced the change on a conference call with investors following Thursday's earnings report, arguing "a unit of sale is less relevant for us today than it was in the past".

Interestingly, Apple sold almost the same number of iPhone units in the final quarter of the year 2018 as it did during the same time last year, yet its revenue grew from $28,846 million in Q4 2017 to $37,185 million in Q4 2018 owing to the rise in price of its smartphones, particularly iPhone XS and iPhone XS Max.

"The Street will find this a tough pill to swallow this morning as the transparency of the Cupertino story takes a major dent given that tracking iPhone units has become habitual to any investor that has closely followed the Apple story for the last decade+ and is critical to the thesis". They plunged further by 7% during the day's trading.


The iPhone XR is one of the few outliers from the trend of more costly Apple gadgets.

Analysts had expected earnings per share of $2.78 on revenue of $61.5 billion.

The average selling price (ASP) of the iPhone is $793, up from $617.99 a year ago. The company also wants to stress on the fact that as long the revenue is up, it doesn't matter how many units they sold. However, this has generally been a problem even for other smartphone companies this year. This is because, since the iPhone 8, all devices that Apple has released have all been priced high.

Apple shares were down 6.4 pct at $208.05 before the bell. It's also the central hub for connecting the other devices and using services. Apple made $8 billion more dollars selling iPhones than it did a year earlier (when it sold nearly the exact same number of iPhones).


Neil Shah, research director at HongKong-based Counterpoint Research, said on Saturday its channel checks pointed to numbers for the quarter in the range of 700,000 to 800,000 units, down from about a million a year ago. That's a nice jump for a category that saw its lowest sales numbers since 2010 in the third quarter.

For the firm's full 2018 financial year, profits increased 23% to $59.5bn, as revenue rose 16% to $265.5bn.

Apple's App store has felt the impact of a "moratorium" on Chinese approvals for new games, but that is a domestic issue, he added.


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