MacDailyNews presents live notes from Apple’s Q218 conference call

MacDailyNews ^ | May 1, 2018

[Swordmaker]

MacDailyNews presents live notes from Apple’s Q218 Conference Call with analysts starting at 5pm EDT/2pm PDT today.

Apple will provide live audio streaming of its Q118 Results Conference Call using Apple’s industry-leading QuickTime multimedia software.

The company posted quarterly revenue of $61.1 billion, an increase of 16 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.73, up 30 percent. International sales accounted for 65 percent of the quarter’s revenue. For Q318, Apple guided for revenue between $51.5 billion and $53.5 billion.

Live notes from Apple’s Q218 Conference Call in reverse chronological order:

•  AAPL after hours: $175.49, +$6.39 (+3.78%) @ 4:59PM EDT
•  AAPL after hours: $175.69, +$6.59 (+3.90%) @ 4:49PM EDT
  

• Start of conference call
  
• Tim Cook introductory remarks:
  
• New March quarter records for revenue and earnings
• Quarterly revenue of $61.1 billion, an increase of 16 percent from the year-ago quarter
• Wearables up nearly 50%
• Quarterly earnings per diluted share of $2.73, up 30 percent
• 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.
• Cook: This is the first cycle in which the top-of-the-line iPhone has also been the most popular
• Apple Pay active users more than doubles, transactions more than tripled YOY
• Apple grew revenue in all of geographic segments, with over 20% growth in Greater China and Japan
• Apple’s wearables business now the size of a Fortune 300 company
• Apple Watch is the best selling watch in the world
• HomePod widely recognized for having the best quality sound for a product in its class; coming to more markets soon
  
• Q218 data summary:
  • iPhone: 52.217 million units (vs. 50.763 million units, +3% YOY), $38.032 billion revenue (vs. $33.249 billion, +14% YOY)
  • Mac: 4.078 million units (vs. 4.199 million units, -3% YOY), $5.848 billion revenue (vs. $5.844 billion, 0% YOY)
  • iPad: 9.113 million units (vs. 8.923 million units, +2% YOY), $4.113 billion revenue (vs. $3.889 billion, +6% YOY) l Services: $9.190 billion revenue (vs. $7.041 billion revenue, +31% YOY)
  • Other Products: $3.954 billion revenue (vs. $2.873 billion, +38% YOY)
• Cook talking up quarter’s product and software releases:
• AAPL after hours: $172.65, +$3.55 (+2.10%) @ 5:11PM EDT
• Cook: “We believe privacy is a fundamental human right.”
• Cook: Double digit growth is all geographic segments
• Cook: “We have the best pipeline of products and services that we’ve ever had.”
• Cook: Recent corporate tax reform allows us to utilize our earnings more effectively
• Cook: U.S.Tax reform makes it possible to execute our capital return program more efficiently
• Apple’s Board has approved a new $100 billion share repurchase authorization and a 16 percent increase in our quarterly dividend
• Maestri: $15.1 billion in operating cash flow
• iPhone ASP: $728
• With the greater flexibility we now have from access to our global cash, we can more efficiently invest in our US operations and work toward a more optimal capital structure
• 78% of enterprise buyers plan to purchase iPhones
• iCloud storage up 50% YOY, setting a new record
• Wearables (Apple Watch, AirPods, Beats) accounted for 90% of all “Other Products” revenue
• Wearables includes sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and other Apple-branded and third-party accessories
• Other Products includes sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and other Apple-branded and third-party accessories
• 73% of enterprise buyers plan to purchase iPads
  
  
• AAPL after hours: $174.08, +$4.98 (+2.95%) @ 5:21PM EDT
  

• 502 Apple Retail Stores now open worldwide
• Apple has $267 billion in cash and marketable securities; net cash of $145 billion
• Apple returned $27 billion to shareholders in dividends and buybacks during the quarter
• From the inception of its capital return program in August 2012 through March 2018, Apple has returned $275 billion to shareholders, including $200 billion in share repurchases
• Apple will complete the execution of the previous $210 billion share repurchase authorization during the third fiscal quarter
• Apple’s Board has declared a cash dividend of $0.73 per share of Apple’s common stock payable on May 17, 2018 to shareholders of record as of the close of business on May 14, 2018
• Apple continues to plan for dividend increases annually
• Apple is providing the following guidance for its fiscal 2018 third quarter:

  • revenue between $51.5 billion and $53.5 billion
  • gross margin between 38 percent and 38.5 percent
  • operating expenses between $7.7 billion and $7.8 billion
  • other income/(expense) of $400 million
  • tax rate of approximately 14.5 percent

• Analysts’ questions begin 
  
• Cook: iPhone revenues up 14% YOY, driven mainly by iPhone X
• We have a variety of iPhone customers, so Apple will provide a variety of iPhone models for different customers
  
• Cook: Customers chose iPhone X for each and every week more than any other iPhone since launch
  
• Cook: “iPhone X is a beloved product.”
• Cook: “I could not be prouder of the product [iPhone X].”
• Cook: Services grew 31%, all time record of $9.2 billion; each of the geos grew at least 25%
• Cook: Services is very broad based
• Cook: We are on target toward our 2020 goal of doubling 2016 Services revenue
• Cook: China and the U.S. have this unavoidable mutuality. “I’m optimistic… Both countries can win and grow the pie, not just allocate it differently.”
• Services includes revenue from Digital Content and Services, AppleCare, Apple Pay, licensing and other services
• Installed base is growing at double digit levels YOY
• Cook: I think Services business is a huge opportunity
• Cook: iPhone X was the most popular smartphone is all of China last quarter
• Greater China grew 21% YOY thanks to iPhone, Mac, wearables, services
• The top three best-selling smartphones in China in the quarter were iPhones
• Luca: Gross margin is guided flat due to more difficult cost environment in memory components
• Cook on user privacy: “You’re not our product. Privacy is a fundamental human right.”
  
• AAPL after hours: $174.80, +$5.70 (+3.37%) @ 5:41PM EDT
  
• Luca: We believe AAPL is undervalued so we prefer to spend on buybacks primarily vs. dividends
• We want to buy back the stock at the right time. We will update at the end of every quarter and update the entire program annually at this time of the year
• Cook: Health is an area of great interest and Apple thinks they can make a real difference
• Cook: India set a new first half record; Apple continues to put great energy into India; It’s a huge market and many people will be moving into the middle class over time
• China has nearly 2 million iOS app developers
• Cook: We feel very bullish on China; the market is more than just iPhone. Mac gained share in China last quarter. Services are growing, too.
• Cook: We price iPhones for the value that we are delivering. iPhone X is jam-packed with technologies that set up smartphones for the next decade
• Cook: iPhone X surprised us by being the best-selling iPhone for every week since it launched
• Luca: We feel that NAND and DRAM component pricing will turn into positives soon
• Cook on smartphone market: There were still half a billion feature phones sold
• Cook: iPhone market share [unit share] is low compared to the smartphone market; our job is to convince people to buy iPhones
• Cook: I don’t buy the view that the smartphone market is saturated and, certainly, the “iPhone market” is not saturated
• Cook: The smartphone market is the best market in the world
• Cook: We’re very happy to be a part of the smartphone market (Of course they are since they take the lion’s share of the profits! – MDN Ed.)
  
• End of conference call.
  
• AAPL after hours: $174.79, +$5.69 (+3.36%) @ 5:59PM EDT

[Swordmaker]

Apple posts its best 2nd Quarter in history, blowing away critics claims the iPhone X was not selling.
• Q218 data summary:
– iPhone: 52.217 million units (vs. 50.763 million units, +3% YOY), $38.032 billion revenue (vs. $33.249 billion, +14% YOY)
– Mac: 4.078 million units (vs. 4.199 million units, -3% YOY), $5.848 billion revenue (vs. $5.844 billion, 0% YOY)
– iPad: 9.113 million units (vs. 8.923 million units, +2% YOY), $4.113 billion revenue (vs. $3.889 billion, +6% YOY)
– Services: $9.190 billion revenue (vs. $7.041 billion revenue, +31% YOY)
– Other Products: $3.954 billion revenue (vs. $2.873 billion, +38% YOY)—PING!

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[Enlightened1]

I hope Tim is not “cooking” the books.

I do not see the iPhone Xs like I did see other iPhone’s like the 7 and 6.

As a matter of fact I only know 1 person that ownes an iPhone X.

Everyone else has an iPhone 6, 6s, 7 or 7s.

It just seems odd they have all these iPhone sales, but all I see are people hanging on to their old iPhones.

This does not make sense to Apple telling their supply chain they do not need as much as they anticipated?

Like I said I hope Tim is not “cooking” the books.

[miliantnutcase]

Too bad they seem to have abandoned their Mac Pro and MacBook Pro. Their mobile platforms just make too much money to care.

[Flick Lives]

It just seems odd they have all these iPhone sales, but all I see are people hanging on to their old iPhones.

—

The thing is that an iPhone 6, now several generations old, is still perfectly fine as a smart phone and an 8 or a 10 is only incrementally better, but not dramatically so in day to day use.

All smart phones are good enough now that it is hard to see some dramatically better version in the near term to displace them. Somewhere down the road, I’m sure someone will come out with a radically better phone. Perhaps with a dramatic breakthrough in battery technology. Or maybe metallurgy that enables a phone to bend and not break.

[Falconspeed]

Thank you for the notes.

Cook: time to “invest in our US operations.” Bravo. Thank you, Mr. Cook and President Trump.

Some curiosities: iPhone X is the best selling iPhone? iWatch is the best selling watch? iPhone is the best selling smart phone in China?

I wish I purchased Apple stock while living in San Francisco in 1994. I missed out, big time.

[PreciousLiberty]

“I do not see the iPhone Xs like I did see other iPhone’s like the 7 and 6.

As a matter of fact I only know 1 person that ownes an iPhone X.

Everyone else has an iPhone 6, 6s, 7 or 7s.”

It was mentioned that 65% of the quarterly revenue came from international sales. I’m guessing you live in the US, where smartphone saturation is among the highest in the world... Of course anecdotal evidence is fairly meaningless regardless.

Going forward, I expect iPhone X sales (and sales of the rumored iPhone X+!) will be strong in the US as people reach a natural upgrade point. I also think a good number of folks, such as myself, avoid being early adopters so the kinks can be worked out.

[conservatism_IS_compassion]

• Wearables (Apple Watch, AirPods, Beats) accounted for 90% of all “Other Products” revenue
• Wearables includes sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and other Apple-branded and third-party accessories
• Other Products includes sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch and other Apple-branded and third-party accessories

My impression is that the second of those three bullets is wrong (who “wears” an AppleTV?), makes the “paragraph” incoherent, and should’ve been edited out.

[Crusher138]

I consider the Mac line of computers to be the glue that holds all of the other Apple products together.

Sad to see them neglecting it.

Of course sales of Macs are down. When you haven’t updated the Mac Pro or Mac Mini for years and have made some strange design choices on the new Macbooks, I would expect as much.

I am in need of a new production computer and my choice currently is a three-year-old design Mac or a Windows computer.

If my Mac Pro died today, I’d buy a Windows machine, and I’m probably not alone.

[Swordmaker]

My impression is that the second of those three bullets is wrong (who “wears” an AppleTV?), makes the “paragraph” incoherent, and should’ve been edited out.

It is. It’s a typo from the note taker. It’s the actually the “other products” category, which does include AppleTV, HomePod, iPod touch, and other Apple branded and third party accessories as well as the AppleWatch, AirPods, etc.

[Mark17]

As a matter of fact I only know 1 person that ownes an iPhone X.

I own one, and I think SM does too. I bought mine at an Apple store, in Modesto, California. They directed me to the set up table. There were about 12 people, at the table, setting up their new IPhones. 11 had the X, and one had the 8 plus.
When I got there, the table was full, and when I left, it was still full. I don’t know what happened before I arrived at the store, or what happened after I left.

[TheBattman]

Your pragmatic observation/assumptions don’t fit reality. Around here - LOTS of iPhone X on the streets -

Talking to the Mobile folks at the local Sams Club - they say the X is STILL selling well.

For the first month after they hit the shelf, one could hardly find one available - as they would be sold before they even got unpacked from shipping, and it wasn’t the “supply problem” that was reported - they really did sell a BUNCH of them.