Key Takeaways From Apple’s Q2 Results And What To Expect In Q3

by Trefis Team
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Apple (NASDAQ:AAPL) published its Q2 FY’19 results on Tuesday, reporting earnings that largely met estimates while guiding for a stronger than expected third quarter. Below, we provide some of the key takeaways from the company’s results.

Our interactive dashboard analysis on How Did Apple Perform In Q2 FY’19 And What’s The Outlook For Q3?  provides an overview of Apple’s recent performance and Trefis’ key expectations for the coming quarter. You can modify our forecasts to arrive at your own estimates for Apple’s revenues and EPS for Q3.

A Quick Look at Apple’s Revenue Sources

Apple reported revenues of about $266 billion in FY’18. This included 5 revenue streams.

  • iPhone: $166.7 billion in revenue in FY’18 (63% of revenue)
  • iPad: $18.8 billion in revenue in FY’18 (7% of revenue)
  • Mac: $25.5 billion (9.5% of revenue)
  • Services $37.2 billion (14%). This includes sales of  Digital content and services, AppleCare, Apple Pay, licensing, and other services
  • Other products: $17.4 billion (6.5% of revenue). This includes sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, and related products.

How did Apple perform in Q2 FY’19?

  • Revenues declined 5% year-over-year to $58 billion, driven by lower iPhone sales
  • Net income fell by about 16% to $11.6 billion

How did the iPhone business fare?

  • iPhone revenues fell by about 17% year-over-year to $31 billion driven by slower uptake of the iPhone XS and XR.
  • Although Apple has stopped disclosing volume figures, it’s likely that the shipments decline was sharper than the revenue drop, as the ASPs for iPhones has been trending higher.
  • Year-over-year growth in iPhone sales in Greater China, Japan, and the Americas improved vs holiday quarter, driven by trade-in promotions and Apple’s move to offer discounts on select models.

How did the services business fare?

  • Services revenues grew by 16% year-over-year to $11.45 billion, driven by App Store, Apple Music, cloud services.
  • The number of paid subscriptions on the company’s platform has also expanded to over 390 million, marking an increase of 120 million versus just 12 months ago.
  • The business is likely to grow further, driven by Apple’s new subscription offerings such as Apple News+ and TV+

Why are Apple’s profits under pressure?

  • Net income fell 16% year-over-year  to $11.6 billion with EPS declining by about 10%
  • This is partly due to lower gross margins (down by ~70 bps y-o-y to 37.6%) likely due to a lower mix of iPhone sales and currency headwinds
  • Operating expenses have also come under pressure, partly due to the company’s planned new services launches. R&D spending was up 17% year-over-year with SG&A expenses up 7%.

What’s the outlook like for Q3?

  • Apple has guided Q3 FY’19 revenues of between $52.5 billion and $54.5 billion, ahead of street estimates.
  • This is likely to be due to the positive impact of iPhone price corrections and potentially stronger performance in Greater China.
  • Gross margins are projected to come in at between 37% and 38%.


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