Apple Q1 Preview: How Will The New iPhones Fare?
Apple (NASDAQ:AAPL) is expected to publish its Q2 2018 results on May 1, reporting on a quarter that is likely to see revenues and earnings grow meaningfully, driven by the iPhone and Services businesses, as well as the recent corporate tax reforms in the U.S. Apple is projecting revenues of between $60 billion and $62 billion for the quarter, marking an improvement of at least 13% on a year-over-year basis. Below, we take a look at some of the key factors that are likely to drive the company’s results.
We have created an interactive dashboard that outlines the company’s guidance for Q2. You can modify the inputs to arrive at your own EPS estimates.
iPhone And Services Businesses Should Drive Revenues
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Q2 FY’17 marked the first full quarter of availability of Apple’s flagship iPhone X. While the iPhone X and 8 don’t appear to have set off an upgrade super-cycle for the company, they are likely to help drive ASPs higher, as they are priced at a premium ($700 for iPhone 8 and $1000 for iPhone X) compared to previous flagship devices. For perspective, over the holiday quarter, buyers paid an average of $796 per iPhone, marking an increase of ~$100 on a year-over-year basis, and it’s likely that the trend will continue over Q2 as well. Volumes could also see a bump, driven by some carrier promotions on the new handsets as well as a strong uptake of legacy devices such as the iPhone 7 and iPhone 6S, which are now available at lower price points.
Apple’s Services operations are likely to record growth at high-teens levels over Q1, driven by a growing number of paid subscriptions across its Services operations as well as higher app sales. The number of paid subscriptions on Apple’s platform crossed 240 million at the end of the December quarter.
Margins Likely To Remain Flat
Apple expects its gross margins to come in relatively flat at between 38% and 38.5%, despite its growing services operations and potentially higher ASPs for the iPhone business. This could be due to the fact that Apple has had to equip its recent devices with more niche and expensive technologies to differentiate itself (3D-Touch, Taptic engines). With the iPhone X, the company is using OLED displays (a first on an iPhone) and depth-sensing cameras, and it’s possible that this is putting some pressure on margins.
