Apple’s Q4: Other Products Drive Growth Ahead Of iPhone X Launch

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Apple (NASDAQ:AAPL) published its fiscal Q4 results on Thursday, November 2, significantly beating market expectations as its Services, iPad and Mac segments drove growth despite a transitional quarter for the iPhone product line. Apple has guided that revenues for the holiday quarter could come in at between $84 billion to $87 billion, with gross margins expected to be between 38% and 38.5%. For perspective, during the 2016 holidays (Q1 fiscal 2017), Apple reported gross margins of 38.5%, on revenues of $78.35 billion. Below we take a look at some of the factors that influenced Apple’s quarter, and what lies ahead for the company.

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iPhone Division Sees Muted Growth As Customers Wait For iPhone X

Apple’s iPhone shipments grew by about 3% year-over-year to 46.7 million units, driven partly by the launch of the iPhone 8. While Apple says that the device was the strongest selling iPhone model since it began shipping in mid-September, sales are likely to be weaker than the initial launch figures for recent iPhones, as this is the fourth straight year that Apple is carrying forward the industrial design it first debuted on the iPhone 6. ASPs also remained relatively flat on a year-over-year basis, at around $617, as the impact of the higher priced iPhone 8 models (which start at $700) was offset by price reductions on Apple’s large portfolio of legacy devices including the iPhone 7, 6S and SE. We expect iPhone sales over the holidays to see a bump, as Apple gets set to launch its the super-premium iPhone X – which features the company’s first industrial design in about 3 years. While it could take Apple several months to meet the supply-demand balance of the new device, amid strong demand and early manufacturing issues, the device could nevertheless drive revenues for the iPhone business, given its $1000 starting price.

iPad, Mac And Services Provide A Boost 

Apple’s other product lines were responsible for more than 80% of the company’s revenue growth over the last quarter. The services business performed particularly well, with sales rising by about 34% year-over-year to $8.5 billion, driven primarily by growth in the App store, a higher number of paid subscriptions and expanded availability of the Apple Pay service. Apple says that it now has 210 million subscriptions to Apple and third-party services, marking an increase of about 25 million in the last 90 days.  Apple typically collects a 15% fee on subscriptions for third-party services if users sign up via its App Store. Sales of Mac computers jumped 25% in the quarter to $7.17 billion, with shipments rising by about 10% year-over-year driven by a strong back-to-school season and demand for the new MacBook Pro models. This is impressive, considering that the global market contracted by about 0.5% per IDC. Mac ASPs also saw healthy growth, rising by 13% year-over-year to $1,331. The iPad product line also grew, with shipments up by 11%, due to strong demand for the device in markets such as China and India and a growing uptake of the pricier iPad Pro models.  While Apple doesn’t break out Apple Watch sales, it noted that shipments were up by over 50% compared to last year.

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