Apple 1Q17 earnings meet expectations to break superficial records

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Despite supply constraints limiting the pace of iPhone 7 sales, there were apparently more than enough people willing to wait out the shipping headaches — especially for the iPhone 7 Plus — to support Apple’s win for its first quarter in fiscal 2017.

Overall revenue came in at $78.35 billion, right on analysts’ target, above Apple’s range and up about 3 percent from last year’s record-breaking amount. iPhone unit sales blasted through last holiday’s record by nearly 5 percent to 78.29 million — on $54.4 billion revenue, average selling price inches over $694.50 from $691, year-to-year.

It was an off-quarter for iPads as only 13.1 million were sold, down 19 percent from when the iPad Pro was still fresh. There was a marginal rise in Mac sales to 5.37 million units, but a 7 percent bump in revenue to record levels thanks to the new and pricey Macbook Pro with Touch Bar. Services revenue from the likes of Apple Music, the App Store, AppleCare and Apple Pay climbs another 18 percent year-on-year to $7.2 billion — $3 billion of that amount came from App Store sales in December, an all-time monthly high. Other hardware such as Apple TV, Apple Watch (which still has less supply than demand), iPod and Beats/Apple-branded items made the company $4.02 billion, down 8 percent on an annual basis.

Here’s the thing: gross margin (taking away just the cost of sales) slipped to 38.5 percent. While within company projections, that’s still down 1.5 points from last year — leading in part to the odd fact that the company made 3 percent less in operating income ($23.36 billion) and 2.5 percent less in net income ($17.9 billion) from the end of 2015. Infinite Loop has, in effect, spent more to get less. Research and Development did get a 19 percent boost in its budget, but so did other costs in general retail staffing — just by 2.5 percent.

Still, the company is able to provide 5 cents more in dividends than it did last year, giving out 57 cents per share.

Ahead for the current quarter, Apple expects the following:

  • revenue between $51.5 billion and $53.5 billion
  • gross margin between 38 percent and 39 percent
  • operating expenses between $6.5 billion and $6.6 billion
  • other income/(expense) of $400 million
  • tax rate of 26 percent

As we head into the era of President Donald Trump, Apple is expected to repatriate funds some of the $200 billion-plus it has outside of the US upon the bar of lower taxes and less regulation — for example, China remains a number two market for the company with outstanding sales performance on Singles Day and strong migration rates from other systems. In the conference call, CEO Tim Cook won’t commit to original content, other than saying the company has a “toe in the water.”

iPad revenue disappointed Wall Street’s numbers, even with an on-target units figure. Average selling price went down to $423. Cook essentially admitted to the short spike of demand for the iPad Pro last year and included a supplier failing into the mix.

He did indicated that the iPad would get an “exciting” refresh outside of the next three months and that while customer saturation is near-full, there is a transition period that Apple can take hold of.

“If I sort of zoom out of the 90-day clock and look at it, we’ve got some exciting things coming on iPad,” Cook said. “I still feel very optimistic on where we can take the product.”

In terms of the increased price gap between the iPhone 7 and iPhone 7 Plus, CFO Luca Maestri said that a 6 percent appreciation in the US Dollar against currencies in Apple’s international markets means that the company is only trying to equalize. We suspect that’s not the only factor weighing into future price increases for iPhone products, but that’s for another post.

On patent litigation with Qualcomm, the company “didn’t see another way forward” when it came to confronting the chip supplier on standard essential patents and $1 billion of withheld royalties to Apple. Tim Cook believes that his company’s cases will pass legal muster.

“I don’t like litigation and so if there’s another way, that’d be great,” Cook said. “But at this point, I don’t see it.”

Finally, Tim Cook thinks that despite the iPhone coming into its 10th year of iteration, we’re all still “in the early innings of the game” when it comes to innovation.

“Every year it becomes more important to people’s lives and there’s more things people are doing with it,” Cook said. “And so, when I look at all of these things: usage going up, app developers still innovating, we’ve got some exciting things in the pipeline; I feel really good about it.”

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About The Author
Jules Wang

Jules Wang is News Editor for Pocketnow and one of the hosts of the Pocketnow Weekly Podcast. He came onto the team in 2014 as an intern editing and producing videos and the podcast while he was studying journalism at Emerson College. He graduated the year after and entered into his current position at Pocketnow, full-time.