Home Morning Commentary Morning Commentary – AAPL Earnings

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Although we don’t how Apple’s stock will react to Thursday’s earnings report, it should be entertaining.  Apple missed earnings in large degree because it’s new i-Phone X is not selling as rapidly as had been expected.  And why is that?  The price is just too high.

ZeroHedge had a good write up on AAPL. The full article can be read here: https://www.zerohedge.com/news/2018-02-01/apple-confirms-iphone-x-woes-iphone-sales-drop-miss-guidance-surprisingly-weak

Apple reported Q1 EPS of $3.89 and revenue of $88.3b, up 13% Y/Y, both beating expectations of $3.84 and $87.3bn, and above the company’s own forecast range of $84-$87 billion, even if gross margin was in line, printing at 38.4% vs 38.4% expected, despite a record iPhone ASP of $796, far above the $767 expected.

That’s the good news: the bad news was that Apple reported Q1 iPhone sales of 77.3 million, which was not only a drop from the 78.3 million iPhones sold last year, but bigly missed expectations of 80.2 billion.

Still, thank to the sharply higher average selling price due to the iPhone X, Apple still managed to post record results, even with 1.3% fewers iPhone sold. Smartphone revenue rose 13% Y/Y to a record $61.58 billion due to the higher average price, even as total iPhone sales declined.

Less relevant, iPad revenue gained 6% to $5.9b, after the company released new models in the middle of the year. Meanwhile, Mac sales fell 5% to $6.9b, even though Apple released new Macbook Pros over the summer. Apple had released new Macbook Pros just before Christmas 2016.

But what everyone’s attention was focused on, was Apple’s forecast for the next, Q2 quarter, in which Apple sees revenue of only 60-$62Bn, well below Wall Street estimates of $65.9 billion, on gross margin of 38-38.5%, below the 39% consensus estimate.

The full forecast in a nutshell:

 

  • revenue between $60 billion and $62 billion
  • gross margin between 38 percent and 38.5 percent
  • operating expenses between $7.6 billion and $7.7 billion
  • other income/(expense) of $300 million
  • tax rate of approximately 15 percent

 

As Bloomberg confirms, it’s was a big miss for Apple on the outlook, with the high end of its range almost $4b short of analysts expectations. That confirms investors’ worst fears that the strength of demand for the iPhone X won’t be sustained into the second fiscal quarter. Samsung releases the new Galaxy S9 on Feb 25.

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