Apple Confirms iPhone X Woes: iPhone Sales Drop, Miss; Guidance Surprisingly Weak

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.

 

Comments

TheSilentMajority Thu, 02/01/2018 - 17:09 Permalink

That pig was priced to perfection before the ER.

The numbers are certainly not as “maaavalous” as what cookie had everyone believing they would be.

AAPL will be dead money for the next 9 months unless the SNB prints a few extra billion phony-francs to prop it up.

Yen Cross Thu, 02/01/2018 - 17:13 Permalink

  The Swiss National Bank is taking it in the "hoop".  Swiss bankers make Al Capone look like a saint.

  Look at the spreads in usd/chf.  20 pips[normally 2pips] and bouncing all over the place. There's no liquidity, because the SNB is covering its bets.

 

 

Full Court Lug… Thu, 02/01/2018 - 17:16 Permalink

The graph of sales by product line sure makes it seem like they are now on a flat-to-declining trajectory across the board... the iWatch sure didn't save them (they don't even break it out LOL) and I doubt their Alexa ripoff will either.

MusicIsYou Thu, 02/01/2018 - 17:23 Permalink

Don't worry, they're rushing to produce sexrobots to fill the collapse of smartphones. Of course the youth today aren't very interested in sex, so sexrobots will be a flop. And by the time robots are advanced and affordable enough for people to buy them, the generations that would have bought a robot will be too old to care. All that money for R&D flushed down the toilet. Actually they did say 1/3 of millennials said they'd have sex with a robot, but what they didn't tell us is that's the 1/3 of millennials who couldn't afford to buy one. So haha I guess sexrobots will still be a flop.

fphart Thu, 02/01/2018 - 17:25 Permalink

To make matters worse, it's 5:22 PM Eastern and the Earnings results stream hasn't started yet.  No excuses, Apple -- I'm using an iMac and running Safari, and I've repeatedly tried to refresh the page.  And BTW, if you go into iTunes, the only quarterly earnings they have available is the one from November.  I think I'll drop a line to the SEC and see what they think of this...

PrivetHedge Thu, 02/01/2018 - 17:57 Permalink

Doesn't matter how big a company is, if it doesn't sell anything people want it's headed for a fall.

Crap watches, crap headphones, barely usable, overpriced, feature free phones, desktop computers too expensive to buy, laptops with no useful ports, decent screens or magsafe...

... what's left to buy?

I never bother going into an Apple Store any more, unless it's to lecture the staff about the shortcomings of the Macbook 12, a portless disaster snatched from the jaws of victory and success. 

Apple, a company created by genius and run by morons.

adr Thu, 02/01/2018 - 18:16 Permalink

Ship 30 million $1000 phones to China, count them as sold.

Repeat everywhere else.

Like votes for Hillary, Apple counts the sale even if nobody actually buys the thing.

Apple's real books are nowhere close to reality. iPhone sales have been dropping for years. I see far more Android phones out there now. People have figured out you can buy a phone for $250 off contract that does as much as the $1000 iPhone X.

konadog Thu, 02/01/2018 - 18:41 Permalink

Really? Since when did earnings (or even any hope of earnings) suddenly start to matter?  SNB will print another zillion in the basement and buy more AAPL, TSLA, GOOG, ....

Vlad the Inhaler Thu, 02/01/2018 - 19:40 Permalink

WE've reached peak smartphone/app...  not saying they are going away by any means, just going to harder to squeeze growth moving forward.  As for robots/AI you're going to see a lot slower adoption since it is still creepy to most people, sort of like Google Glass went nowhere.  On top of that you will see a backlash to the addiction + surveillance business model of these companies.