Apple Storms With Solid iPhone Sales, Announces $100 Bn Buyback
Apple surprises with solid iPhone sales in the face of waning global demand.
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Apple Inc on Tuesday, 1 May, reported resilient iPhone sales in the face of waning global demand, and promised $100 billion in additional stock buybacks, reassuring investors that its decade-old smartphone invention had life in it yet.
Apple's quarterly results topped Wall Street forecasts, which dropped ahead of the report on growing concern over the iPhone. The Cupertino, California-based company also was more optimistic about the current quarter than most financial analysts, driving shares up 3.6 percent to $175.25 after hours.
Suppliers around the globe had warned of smartphone weakness, playing into fears that the company known for popularising personal computers, tablets and smartphones had become too reliant on the iPhone.
Heavy Emphasis on Buybacks Will Bolster Share Prices
Sales of 52.2 million iPhones against a Wall Street target of 52.3 million was a comfort and up from 50.7 million last year, according to data from Thomson Reuters I/B/E/S.
Apple bought $23.5 billion of stock in the March quarter, and said it planned to hike its dividend 16 percent, compared with a 10.5 percent increase last year. Analysts believe the heavy emphasis on buybacks will bolster share prices, but some investors wished Apple had found different uses for the cash.
“I’d hoped for more on the dividend side or maybe a strategic investment,” said Hal Eddins, chief economist for Apple shareholder Capital Investment Counsel.
Apple posted revenue for its March quarter of $61.1 billion, up from $52.9 billion last year. Wall Street expected $60.8 billion, according to Thomson Reuters I/B/E/S.
Average selling prices for iPhones were $728, compared with Wall Street expectations of $742. The figure is up more than 10 percent from $655 a year ago, suggesting Apple's iPhone X, which starts at $999, has helped boost prices.
High Demand for iPhone X
Analysts had feared the high price was muting demand for the iPhone X, but Apple chief executive Tim Cook said it was the most popular iPhone model every week in the March quarter.
"This is the first cycle that we've ever had where the top of the line iPhone model has also been the most popular," Cook said during the company's earnings call.
iPhone X Shaped up to Be “a Good, not a Great Product”
The iPhone X has shaped up to be "a good, not a great product. There was a time prior to its introduction that investors expected it to be a great product," said Thomas Forte, an analyst with DA Davidson Companies.
Positive iPhone news boosted shares of chip suppliers.
Skyworks Solutions Inc rose 2.9 percent, Broadcom Inc was up 2 percent, while Cirrus Logic gained 4.3 percent.
Apple also predicted revenue of $51.5 billion to $53.5 billion in the June quarter, ahead of the $51.6 billion Wall Street expected as of Monday evening, and the share repurchases in the March quarter drove Apple's cash net of debt down slightly to $145 billion.
"We are returning the cash to investors as we have promised," chief financial officer Luca Maestri told Reuters in an interview.
Profits were $2.73 per share versus expectations of $2.68 per share, as of Monday, and up from $2.10 a year ago.
Apple's services business, which includes Apple Music, the App Store and iCloud, posted $9.1 billion in revenue compared with expectations of $8.3 billion. Heading into earnings, investors were hopeful that growth in that segment could help offset the cooling global smartphone market.
Need to Continue to Boost Subscriptions on its Platforms
Julie Ask, an analyst with Forrester, said Apple's services segment results were positive but warned that Apple needed to continue to boost subscriptions on its platforms, which reached 270 million users in the March quarter and includes people who subscribe to third-party apps on the iPhone as well as Apple's own services like iCloud.
Apple traditionally updates its share buyback and dividend program each spring, and the $100 billion it added this year compares with an increase of $50 billion last year.
In February, Apple said it planned to draw down its excess cash, although Cook had downplayed the possibility of a special dividend.
But investors have had concerns around Apple because of brewing trade tensions with China.
Greater China sales rose 21 percent from a year earlier, Apple's best growth rate there in 10 quarters, to $13.0 billion. While there has not yet been a tariff on devices such as Apple's iPhone, Cook traveled last week to Washington to meet with U.S. President Donald Trump at the White House to discuss trade matters.
“I’m a big believer that the two countries together can both win and grow the pie, not just allocate it differently,”
Apple has been emphasizing its contributions to the U.S. economy in recent months, outlining a $30 billion U.S. spending plan and highlighting the tens of billions of dollars it spends each year with U.S.-based suppliers.
In recent months, Apple has been emphasizing the size of its overall user base, which includes used iPhones, rather than focusing strictly on new device sales, a sign of the increasing importance of making money off users without selling them new hardware.
(This article has been published in an arrangement with Reuters)
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