Apple Posts Solid Q3 Results As It Prepares For Next Big iPhone Refresh

by Trefis Team
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Apple (NASDAQ:AAPL) posted a stronger than expected set of Q3 FY’18 results, driven by robust growth in its Services business and higher average selling prices for iPhones. Although Q3 is seasonally the weakest quarter for Apple, as it prepares to upgrade its product lineup ahead of the holidays, revenues grew by 17% year-over-year to $53.3 billion, while EPS rose by 40% to $2.34, driven partly by the company’s aggressive share repurchase program. Below, we provide some of the key takeaways from the results and what it could mean for Apple going forward.

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iPhone Revenues Grow Despite Sluggish Shipments

Apple’s iPhone business performed well, with revenues rising by 20% year-over-year to $29.9 billion. Although iPhone shipments grew by just 1% compared to last year, average selling prices rose from about $605 in Q3 FY’17 to $724 driven by a higher mix of iPhone X and 8 models, which are priced at a premium to last year’s devices, and an apparent shift away from lower-priced legacy devices such as the 6S and SE.

Apple Services Growth Remains Robust

Apple’s Services business reported record revenues of $9.55 billion, marking a 31% increase from a year earlier, driven by higher sales from the app store, an improved distribution footprint for Apple Care service and a rising number of subscriptions made on its platform. Apple currently has over 300 million subscriptions on its platform, marking an increase of over 60% over the last year. As subscription account for a greater mix of Apple’s Services business, it could bode well for revenue stability and margins.

Mac And iPad Sales Decline

Both Apple’s Mac and iPad product lines posted revenue declines of about 5% each. The Mac product line saw shipments decline by 13% year-over-year, partly driven by the company’s aging product line, which is in the process of being refreshed (Apple refreshed some of its MacBook Pro models earlier this month, and other models may also see updates this year). While iPad volumes saw a marginal increase, ASPs declined from $434 to $410, as the new budget iPad models have increased capabilities that are likely cannibalizing sales of the more expensive iPad Pro.

Q4 Guidance 

Apple has guided for revenues of between $60 billion to $62 billion for the fourth quarter, implying an increase of between 14% and 18% compared to last year. While Apple is expected to introduce three new iPhones over this quarter, including an update to the $1000 iPhone X, a Plus size version of the iPhone X and a new 6.1-inch LCD based iPhone with facial-recognition technology, the full impact of these devices is only likely to be seen during the holiday quarter. Apple expects gross margins of 38% to 38.5%, roughly in line with its recent results.

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