For Apple Inc. (NASDAQ:AAPL), the past several months have seen a steady drumbeat of worrisome reports about iPhone sales, especially for the flagship iPhone X. And the world smartphone market has stumbled, with sales dropping for the first time ever in Q4.
Despite the gloomy prospects, Apple pulled a rabbit out of its hat and delivered solid Q2 earnings, including iPhone sales that are up and big gains in revenue for its Services and Other Products divisions. In after hours trading AAPL stock spiked as high as 4.2%. This morning, AAPL is up 2.9% from yesterday’s close.
Apple’s Q2 Earnings Show Better Than Expected iPhone Sales
Apple investors were waiting for yesterday’s Q2 earning report with trepidation.
The lead-up to the event was full of bad news. World smartphone sales have contracted, Samsung and other Apple suppliers were reported to be slashing production based on poor iPhone sales, and in China Apple was recently knocked out of the top four vendor spot by Xiaomi.
In addition, unsold HomePods — Apple’s late and very expensive answer to Amazon.com, Inc.’s (NASDAQ:AMZN) Echo smart speaker — have been rumored to be piling up in Apple stores.
The expectation was that Q2 earnings would disappoint and AAPL stock would take a hit.
Despite all the doom in gloom, the company pulled off a solid quarter. Apple revenue was up 16% year-over-year. Services once again pulled off a stellar quarter with revenue up 31%. And AAPL’s Other Products division –which includes the HomePod– saw a revenue increase of 38%.
But the key number everyone was looking to was the one that has the greatest impact on AAPL stock: iPhone sales.
And Apple delivered, despite all the warning flags.
The company sold 52.2 million iPhones in Q2, 3% more than the 50.8 million it sold last year. But because the higher priced iPhone X was in the mix — driving up the average sale price (ASP) — that meant the 3% boost in iPhone sales translated into an impressive 14% gain in iPhone revenue.
As for disappointing iPhone X sales and trouble in China? Apple CEO Tim Cook had this to say:
“Customers chose iPhone X more than any other iPhone each week in the March quarter, just as they did following its launch in the December quarter. We also grew revenue in all of our geographic segments, with over 20% growth in Greater China and Japan.”
So there.
Apple Probably Hoped for Better iPhone Sales
So what was up with all those reports about Apple scaling back orders and iPhone suppliers scrambling with excess capacity?
It’s doubtful that all of those were fake. What seems more likely is that Apple had hoped for iPhone sales — especially iPhone X sales — to be higher than they were, and was forced to actually scale back orders. But not catastrophically.
While actual iPhone X numbers were never revealed, the ASP rise and Tim Cook’s mention of it being the top-selling iPhone model speak to Apple’s flagship being far from a flop. But Cook did use an analogy in the earnings call that supports the idea that Apple was expecting more:
“I think it’s one of those things where a team wins a Super Bowl. Maybe you want them to win with a few more points, but it’s a Super Bowl winner and that’s how we feel about it.”
In addition to stronger than expected iPhone sales and double digit Apple revenue growth for the Q, Apple also announced $100 billion in AAPL stock buybacks and a 16% dividend hike.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
