Favorable iPhone Sales Mix, Services To Drive Apple’s Q3 Results

by Trefis Team
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Apple (NASDAQ:AAPL) will publish its Q3 FY’18 results on July 31, reporting on a quarter that likely saw continued strong performances by the iPhone and Services businesses. Apple has guided for revenues between $51.5 billion and $53.5 billion for the quarter, marking an increase of almost 16% at the mid-point from a year ago. Below, we take a look at some of the key trends we will be watching when the company reports its results.

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Mix Of Newer iPhones Should Grow, But iPhone X Sales Likely Slowing Down

Apple’s iPhone ASPs have been trending higher compared to last year, driven by the launch of the flagship iPhone X and higher-priced mid-tier devices. While we expect the year-over-year increase to continue, it’s possible that ASPs could decline from around $728 in the second quarter, on account of a potentially lower mix of iPhone X devices, which start at $1,000. There has been speculation that Apple will launch a lower-priced version of the iPhone X this fall, with a similar edge-to-edge display and face ID feature, causing some customers to hold off on their upgrades. However, Apple is reportedly seeing a higher mix of sales of its iPhone 8 models, and on a positive note, the company’s overall sales mix is apparently skewing away from its older devices (such as the iPhone 7, 6S and SE) towards models launched last fall.

Services Businesses 

Apple’s Services operations are likely to continue recording growth in the high teens over Q3, driven by a growing number of paid subscriptions across its Services operations as well as higher app sales. At the end of Q2, Apple had a total of over 270 million paid subscriptions across Apple-branded services and third-party services, marking an increase of over 100 million on a year-over-year. The Apple Music service has gained traction in the United States and is reportedly closing in on market leader Spotify in terms of paid subscriptions. As of early July, the service had between 21 million and 21.5 million U.S. subscribers, while Spotify had 22 million to 22.5 million subscribers.

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