Apple’s Pricier iPhones Drive Q1 Results Despite Shipment Shortfall

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Apple (NASDAQ:AAPL) published its Q1 2018 results on Thursday, February 1, reporting a stronger than expected set of revenues and earnings, driven by higher average selling prices on its newest iPhones and a robust Services business. However, iPhone shipments saw a modest year-over-year contraction and the company’s outlook for Q2 2018 also came in somewhat lighter than expected. Below, we take a brief look at Apple’s results for the quarter.

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We have created an interactive dashboard that outlines the company’s performance over Q1 2018 and its guidance for Q2. You can modify the inputs to arrive at your own EPS estimate for Q2.

Although iPhone shipments declined by around 1.2% year-over-year to 77.3 million units, Apple pointed out that this was partly due to the fact that this quarter had one fewer week compared to last year’s quarter (14-weeks last year compared to 13-weeks this year). However, the higher starting prices on the new iPhone X and 8 models proved a major driver for the iPhone business, with buyers paying an average of about $796 per iPhone, marking an increase of almost $100 on a year-over-year basis. Moreover, the iPhone X appears to be doing fairly well, with Apple indicating that the device was its most popular iPhone model every week since it started shipping.

Apple’s services operations also had a solid quarter, with sales rising by about 18% year-over-year. The company said that the number of paid subscriptions across its services operations passed 240 million at the end of the December quarter, with App Store sales also hitting record highs. However, Apple’s gross margins remained essentially flat year-over-year at 38.4%, despite a growing services revenue mix, higher iPhone ASPs, and some currency tailwinds. This could indicate that Apple’s new products such as the iPhone X are more expensive to produce, given the higher components costs.

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