Apple posts stellar earnings ahead of iPhone X launch
Apple Inc. reported better-than-expected earnings on Thursday and offered a rosy forecast for the holiday shopping season, ahead of the official launch of the latest iteration of its flagship device.
The company expects the iPhone X to fly off shelves during the holiday season, allaying investor concerns about production delays due to the complications of producing the 3D sensors that power facial recognition.
Fiscal first-quarter revenue were estimated to be between 84 and 87 billion US dollars at the high end of analysts average expectations of 84.18 billion US dollars.
The stellar earnings report came just as the iPhone X went on sale Friday morning in Australia. Hours later, the phone was released in China, which is one of Apple's most significant markets.
At 7 am in Beijing, around 100 devotees of the brand had lined up in front of a flagship store in Beijing's Sanlitun, a popular shopping district, waiting for the official sales to kick off an hour later.
However, the lines were noticeably shorter than launches a few years ago, as the nation's enthusiasm for iPhone has showed signs of waning, as more affordable homegrown brands catch up in technology.
The majority of the buyers in line were purchasing phones for personal use, and were not looking to resell at a profit, unlike the first owners of the phone in Australia, who were planning to put their newly acquired devices on sale for double their price at 3,000 Australian dollars or 2307.27 US dollars.
The market may have seen reselling the iPhone X as a potential profit opportunity, as concerns over whether shipment chain issues could inhibit supply levels.
But Apple executives on Thursday shrugged off the concerns as Chief Financial Officer Luca Maestri told Reuters the company was “quite happy” with how manufacturing of the iPhone X was progressing.
Analysts have been eager to see whether Apple can meet demand for the iPhone X during the crucial holiday quarter, with most saying it will likely take it until next year or early spring to do so.
“Where the demand curve and supply curve are going to intersect, we do not know. It does not have a predecessor product,” Maestri told Reuters.
“A trillion-dollar market cap may now be in Cook’s sights in light of these results and guidance around iPhone X,” said Daniel Ives, an analyst at GBH Insights, referring to Apple’s chief executive.
The Cupertino, California-based company’s market capitalization of about 868 billion US dollars already makes it the world’s most valuable publicly-traded company.
There are still questions around supplies of the new phone and longer-term demand.
Bob O'Donnell, head of Techanalysis Research, warned that if Apple is not able to fill demand for iPhone X over the holiday quarter, it would push buyers to wait until Apple’s March quarter, by which time they may have spent their money elsewhere.
“What we don’t know is, how long will this first group of [iPhone X buyers] last?” O'Donnell said.
Apple forecast a gross margin of 38 percent to 38.5 percent, higher than many analysts expected because new products often have higher costs.
Maestri attributed the margin strength to Apple’s growing services business, which brought in 8.5 billion US dollars in revenue compared to analyst estimates of 7.5 billion US dollars.
The 28.85 billion US dollars revenue from iPhone sales accounted for nearly 55 percent of total revenue, which rose 12.2 percent to 52.58 billion US dollars.
Analysts on average were expecting total revenue of $50.7 billion.
Apple also said it returned to revenue growth in China, bringing in 9.8 billion US dollars compared with 8 billion US dollars a year ago, driven by double-digit unit sale increases of the iPhone.