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Wednesday, May 02, 2018
Apple's Record Profit Shrugs Off iPhone Sales Fears


After fears of a precipitous decline in sales of the high-end iPhone X, Apple reported its best ever fiscal second quarter sales and announced plans to invest another $100 billion in share buybacks.

For the fiscal 2018 second quarter ended March 31, 2018, Apple posted quarterly revenue of $61.1 billion, an increase of 16 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.73, up 30 percent. International sales accounted for 65 percent of the quarter's revenue.

"We're thrilled to report our best March quarter ever, with strong revenue growth in iPhone, Services and Wearables," said Tim Cook, Apple's CEO. "Customers chose iPhone X more than any other iPhone each week in the March quarter, just as they did following its launch in the December quarter. We also grew revenue in all of our geographic segments, with over 20% growth in Greater China and Japan."

"Our business performed extremely well during the March quarter, as we grew earnings per share by 30 percent and generated over $15 billion in operating cash flow," said Luca Maestri, Apple's CFO. "With the greater flexibility we now have from access to our global cash, we can more efficiently invest in our US operations and work toward a more optimal capital structure. Given our confidence in Apple's future, we are very happy to announce that our Board has approved a new $100 billion share repurchase authorization and a 16 percent increase in our quarterly dividend."

Apple will complete the execution of the previous $210 billion share repurchase authorization during the third fiscal quarter.

The company reported iPhone unit sales grew 2.9 percent in the fiscal second quarter. While the flagship iPhone X may not have matched the hype from its launch late last year, the device's $999 starting price helped boost phone revenue growth 14 percent.

Cheaper iPhone models for emerging markets, and wearable gadgets like the Apple Watch, also drove revenue growth.

Revenue from Apple's services unit, which includes Apple Music, the App Store and iCloud, surged 31 percent to a record $9.2 billion in the quarter. The App Store, Apple Music, iCloud storage and Apple Pay all generated record sales, Cook said. The company is expanding these offerings with original videos and a news subscription service.

An Apple Music subscription costs $10 per month, and the number of paying users recently hit 40 million. The middle tier for iCloud storage costs $2.99 a month. The company now has 270 million paid subscribers across applications and its own services, up by 100 million from the same period a year ago.

Cook suggested new services are in the works and that Apple's installed base of devices grew by double digits from a year earlier. "This is just a huge opportunity for us and we feel very good about the track that we're on," he said.

Several iPhone suppliers and manufacturers reported disappointing results in recent weeks, sparking concern that Apple's numbers would be weak. But these companies don't gain from Apple's expanding services offerings.

Apple sold 9.1 million iPads for about $4.1 billion during the fiscal second quarter, year-over-year increases of 2 percent and 6 percent, respectively. Mac unit sales declined to about 4 million, down 3 percent year-over-year, while Mac sales revenue was flat, Apple said.

Cook also discussed additional opportunities in health care. "It's an area of great interest where we think we can make a big difference," he said on the call. Apple has continued to add new health tracking features to the Apple Watch and ships its iPhones with an app to manage health data and records.

Apple also providing the following guidance for its fiscal 2018 third quarter:

  • revenue between $51.5 billion and $53.5 billion
  • gross margin between 38 percent and 38.5 percent
  • operating expenses between $7.7 billion and $7.8 billion
  • other income/(expense) of $400 million
  • tax rate of approximately 14.5 percent


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