Apple's Q2 Earnings Report

2 May 2018

Apple:

“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.”

If you followed a through-line of iPhone sales between today and two years ago, raw units sold have gone nowhere. If you compare back to 2015, the strength of the iPhone 6 cycle results in an even worse headline compare: iPhone devices sold are down about 15% since then. What keeps Apple’s financials in check is sustained rises in average revenue per phone. It’s really impressive that iPhone X continues to be the most popular model. This time next year, I predict that year-over-year unit sales rise but total revenue grows disproportionately less, with the mix shifting back towards Apple’s normal iPhone ASP levels as customers favour the cheaper 6.1-inch LCD phone. Don’t forget that Apple’s normal ASP levels are only ‘normal’ relative to Apple itself; the rest of the smartphone manufacturers would roll over if they could achieve anything close to that.

This quarter is definitely a case of over-bearish analysts dragging down expectations. I was surprised to see Apple’s guidance for next quarter is also comfortably above consensus estimates. What’s particularly interesting to me is reconciling the reports of weakened component demand with the stable sales, especially looking at Samsung’s OLED smartphone panel factory underutilisation. Did Apple expect the iPhone X to do even better than it did?