It looks like neither Google nor Apple will hit $1 trillion in market cap after today's earnings, with the former sliding - as noted previously - after it missed on earnings and TAC, while Apple reported Q1 results which missed on number of iPhones sold - which not only missed but actually declined 1.3% relative to last year - and on the company's revenue guidance which was far weaker than expected.
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.
Still, Tim Cook was happy:
“We’re thrilled to report the biggest quarter in Apple’s history, with broad-based growth that included the highest revenue ever from a new iPhone lineup. iPhone X surpassed our expectations and has been our top-selling iPhone every week since it shipped in November,” said Tim Cook, Apple’s CEO. “We’ve also achieved a significant milestone with our active installed base of devices reaching 1.3 billion in January. That’s an increase of 30 percent in just two years, which is a testament to the popularity of our products and the loyalty and satisfaction of our customers.”
His CFO, Luca Maestri said the X model has been the best-selling of Apple’s iPhones since its release. “We’re really, really happy with the way it’s going,” he said. He didn't comment on recent news that Apple had slashed iPhone X production by 50%.
Judging by the kneejerk reaction in the stock, which dropped, rebounded, and was then flattish after hours trading, shareholders were less enthused about the slowdown in demand for the company flagship product.
Maestri also said Apple will discuss specific plans for its pile of overseas cash when it reports results for the current quarter, which runs through March. But he said Apple’s goal is to target a “net cash neutral” position over time, compared with the large gap between its current holdings of $285 billion in cash and $122 billion in debt.
“We can now really look at a more optimal capital structure for our company,” Mr. Maestri said.
The result in chart format:
Apple Net Income grew 12.2% Y/Y, EPS rose by 24% even as iPhone sales declined -1.3%
Product sales: The big surprise here was that iphone sales came in at only 77.3 million, far below the 80 million expected, and the first holiday quarter decline in history, dropping -1.3%. Less relevant, though still material, Apple sold 13.2 million iPads, an increase of 1% Y/Y, generating $5.9 billion in revenue in the quarter, a 21% increase Y/Y. Apple also said it sold 5.1 million Macs in Q118, compared to 5.4 million units in the year ago quarter, a 5% year-over-year unit sales decline, as well as a 5% drop in revenue.
Regional breakdown: in a welcome development, for the first time in years, sales grew around the globe with not a single region posting a Y/Y decline. Greater China posted growth for the 2nd quarter in a row, with 10.6% year over year revenue growth. Japan saw the strongest year over year revenue growth, up 26%. U.S revenues increased by 10% Y/Y while the rest of the Asia Pacific increased by 17% year over year.
Finally, while the company's record cash hoard grew once more, rising to $285.1 billion total...
... the cash number net of debt was roughly flat at $163 billion. As a reminder, most of this cash remains locked outside of the US, but will now be repatriated as part of Trump tax reform, allowing the company to buyback a lot more stock.
Following the lukewarm quarter, iPhone stock is pretty much unchanged on the report.