Apple shares sag on soft forecast of holiday iPhone sales

Gladys Abbott
November 4, 2018

The omission of data will make it harder to get a sense of how well Apple is performing. iPhone unit sales are a critical metric that investors and company observers use to weigh its performance.

Apple shares slipped 4.2 percent to $212.85 in after-market trades that followed release of the earnings figures.

Apple's board of directors has declared a cash dividend of $0.73 per share of the Company's common stock. The company projected between $89 billion and $93 billion, while a Bloomberg survey of analysts found an average expectation of $92.7 billion.

Apple Chief Executive Officer Tim Cook said the forecast was partly driven by weakness in emerging markets, including India and Brazil, and currency volatility. But Apple can't avoid the problem forever. The company sees Q1 gross margin 38-38.5 percent. "The install base of android has grown vastly; the new customer base (for Apple) is not coming". So, back to the results, how did Apple do during the last few months?

During the announcement of September quarter revenue, Cook was asked about the flat growth of iPhone sales in India and to that, Apple said it was facing a hard challenge over the Rupee depreciation but was optimistic that these are little speed bumps along a "very long journey" in India.

The company sold 46.9 million iPhones in the quarter, generating revenue of $37.2 billion. Its shift up in prices, with many iPhone models costing around $1,000+ seems to be paying off in some parts of the world.

Analyst Walter Piecyk from BTIG said that the strength in average selling price in the quarter just ended suggested that Apple was targeting unit sales behind Wall Street estimates. In future quarters, the number of iPhones Apple sells could decline - but we probably won't know about it.

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But at some point Apple's going to have to figure out what will replace the iPhone, or it won't be able to squeeze any more juice out of the orange. With a starting price of US$749, it's expected to be a popular holiday gift, luring owners of older iPhones to upgrade.

Revenue growth was up in all major markets, with Japan seeing the largest increase of 34 percent YoY. Apple has also been trying to diversify its revenues away from device sales by offering additional services to its customers.

Apple's services business, a constant bright spot in recent quarters, hit a revenue milestone in Q4 2018: $10 billion (it's $9.98 billion to be exact, but Apple rounded up).

Instead, Apple continues to try to focus investors on the strong sales growth for supplementary services, including Apple Music, Apple Pay and iCloud. However, this has generally been a problem even for other smartphone companies this year. This translated to diluted earnings per share of $2.91, compared to $2.07 during the same quarter in 2017.

It's net profit climbed 32 per cent to $14.13 billion on revenue that was up 20 per cent to $62.9 billion with help from growing sales of digital content and services to users and other Apple gadgetry. Shares in Facebook Inc (FB.O), Inc (AMZN.O), Netflix Inc (NFLX.O) and Google-owner Alphabet Inc (GOOGL.O) all rose on a generally buoyant Wall Street.

Sales in Greater China came in at $11.4 billion in the quarter, up 16 percent from a year earlier.

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