Apple Beats Expectations — World Waits For The New iPhone Launch

Despite many predictions that the numbers would reflect a “lame duck” quarter for Apple, as consumers kept their wallets shut tight in anticipation of the next big iPhone upgrade, the team at Cupertino managed a surprise beat on Apple’s earnings when the results were released yesterday.


“Today we’re proud to announce very strong results for our fiscal third quarter, with unit and revenue growth in all of our product categories,” CEO Tim Cook noted in his introductory remarks after the news broke.

Wall Street liked the results and seemed at least preliminarily encouraged by Apple’s projects for the rest of the year, which indicate they are expecting a big new tech release to come in time for Christmas and the global shopping season.

Consumers, it seems, had plenty of money to spend at Apple stores and at Apple.com. The firm managed to sell more iPhones than expected, and also more iPads and Mac computers for good measure. The App Store also had a record-breaking run, which Tim Cook reminded investors, has grown the Services division into the size of Fortune 100.

There were some areas of concern — notably China — but on the whole, tech investors liked what they saw and popped Apple’s shares up in after hours trading.

So where were the interesting spots to watch?

By the Numbers

Apple stock clocked in at $1.67 earnings per share, well above the $1.57 Wall Street was expecting and solid growth on the $1.42 EPS (earnings per share) Apple was reporting at the same time last year. Revenue also came out above expectations at $45.4 billion vs. $44.89 billion that the majority of analysts had expected.

Apple iPhone sales were also above expectations at 41 million as opposed to the 40.7 million for which analysts were calling. Cook noted in an interview with CNBC’s Josh Lipton following the announcement of Apple earnings that results were better than expected and also better than on paper.

“If you look at the products, we sold 41 million iPhones, but frankly it’s better than that because we also reduced channel inventories by 3.3 million,” Tim Cook told CNBC on Tuesday. “If you look across the world, we had several markets in Asia, in Latin America and the Middle East which grew more than 25 percent year on year. If you look at [iPhone] 7 [and] the [iPhone] 7 Plus, we grew strong double-digit year on year compared to the 6s Plus a year ago.”

Apple Services — home to the App Store, Apple Music and Apple Pay — was the other big winner. Quarterly revenue was in at $7.3 billion with 22 percent growth over Q3 2016.

In surprising results, the iPad broke its losing streak growth-wise, notching 15 percent sales growth year over year. The iPad also beat expectations by shipping just over 11 million units as opposed to the just over nine million analysts were expecting, with growth attributed to its corporate and education initiatives. Mac computers also joined on the surprise beat train, logging in at 4.33 million Macs shipped, as opposed to the 4.29 million units estimated.

As for what’s next, Apple forecasts a gross margin of between 37.5 percent and 38 percent next quarter. That’s lighter than the margins of 38.3 percent predicted by analysts polled by StreetAccount. Apple also said on Tuesday it expects fourth-quarter revenue between $49 billion and $52 billion, a little on the heavy side.

Analysts polled by Thomson Reuters expected Apple to forecast $49.21 billion in revenue in the company’s fiscal fourth quarter. They had speculated that if Apple’s revenue forecast were below $41 billion, it would indicate potential delays in the iPhone 8 release.

“Well, I mean it’s certainly better than expected, but ultimately I really don’t think it matters that much,” Ian Winer, co-head of equities at Wedbush, told CNBC’s “Closing Bell” on Tuesday. “I think what matters is, when is the iPhone 8 actually going to get released? And what are people going to do with it? And ultimately, the question is, are people going to pay $1,100 for a new phone or are they not? And … is this the new iPhone super cycle or is it not?”

Points of Interest

The big question mark is what the iPhone 8 will do — and if it will hit the market on time for the holiday shopping rush. Unconfirmed reports of manufacturing delays have made some question whether the iPhone will not ship on time, or lack the full run of features promised.

And while the numbers look good, Cook had surprisingly little to say about it during this call with investors.

“We have a very exciting fall ahead,” Cook noted, “with stunning advances in iOS 11, macOS High Sierra, and watchOS 4. [The] iOS 11 will make iPhones better than ever with Apple Pay peer-to peer payments, an even more intelligent and natural Siri, new expressive messages with full screen effects, richer and more powerful maps, enhanced live photos and memories and portrait mode effects and much, much more. [Apple] iOS 11 will also take the iPad experience to a whole new level, with features such as a customizable dock, Multi-Touch Drag and Drop, powerful new multitasking, more efficient QuickTime and great new markup and scanning capabilities.”

Cook went on to talk about Apple’s augmented reality work and even had some words on HomePod — and some light teasing of things to come.

“As an intelligent home assistant, HomePod is a great way to send messages, set a timer, get updates on news, sports and weather or control smart home kit devices by simply asking Siri to turn on the lights, close the shades or activate a thing. We can’t wait to deliver all of these powerful innovations in the months to come, and we might even have some others to share with you later in the year.”

But some details to share on the iPhone that is coming out in a few weeks? Not so much.

China also looked like an area of difficulty. Sales fell 10 percent year over year this quarter and 14 percent year over year last quarter. Local competitors such as Huawei and Xiaomi have taken a particularly notable, uh, bite out of Apple’s stock. Tim Cook, however, remains pretty chipper about those results.

“[The] iPad grew dramatically more than the market. The Mac grew much more than the market. [The] iPhone was relatively flat year on year, similar as the market was. And so we see all of those as very encouraging signs. On top of that, Services grew extremely strongly during the quarter.”

Apple’s China sales totaled $8 billion last quarter — slightly under expectations for $8.57 billion. Some analysts have pointed to China’s market issues as the primary reason that Apple made its decision to bow to Chinese government demands earlier this week to stop distributing apps that iPhone users can use to avoid government censors.

So what do we now know that we didn’t know before?

Apple is still surprisingly adept at pulling out wins where you least expect them.

What did we learn that everyone everywhere already knew?

Most of this is table setting for the iPhone 8 — a subject about which there are many rumors, but not a lot of official reports.

But, of course, the minute something official happens, we’ll be the first to tell you.

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