After the bell on Thursday, Apple reported September quarter (fiscal fourth quarter) revenue of $62.9 billion (up 20% annually) and GAAP EPS of $2.91, topping consensus analyst estimates of $61.46 billion and $2.78. However, for the seasonally big December quarter, the company guided for revenue of $89 billion to $93 billion, largely below a $92.94 billion consensus and implying 3% annual growth at the midpoint.
Shares initially fell in after-hours trading due to the guidance, and added to their losses after CFO Luca Maestri stated on the earnings call that Apple plans to end its historical practice of breaking out iPhone, iPad and Mac unit volumes. They're down 6.9% in Friday trading; on the year, Apple is still up over 20%, after having surged in August and September following a strong June quarter report.
Here are some notable takeaways from Apple's earnings report and call.
1. The Company Partly Blames its Guidance on Currency Swings
As is the case for many other U.S. multinationals, a stronger dollar is pressuring Apple's top line. Maestri noted forex is expected to have a $2 billion impact on December quarter revenue, and a 2-percentage-point impact on revenue growth.
He also indicated the outlook bakes in macro uncertainty related to emerging markets, and also related to the supply/demand balance for new products (presumably, the iPhone XR is one of them). In addition, Maestri noted the fact that Apple launched its flagship iPhone in the September quarter this year and a cheaper iPhone in the December quarter, after having done the reverse last year, will have some revenue impact.
2. Apple Insists Unit Sales Figures Don't Mean as Much Now
"[T]he number of units sold in any 90-day period is not necessarily representative of the underlying strength of our business," said Maestri. To a large extent, Apple's September quarter performance backs up this stance. While iPhone, iPad and Mac units were respectively flat, down 6% and down 2%, total revenue rose 20% thanks to strong iPhone average selling price (ASP) growth as well as major increases in the company's Services and "Other Products" revenue.
Nonetheless, markets like transparency and dislike uncertainty. As one analyst question on the call drove home, Apple's plans to stop sharing unit figures has stoked fears -- justifiably or not -- that the company is making the change because it expects to see iPhone unit declines in future quarters.
3. iPhone ASPs Soared
Thanks to iPhone X demand, as well as some initial iPhone XS and XS Max sales, Apple's iPhone ASP came in at a whopping $793. That's well above a year-ago level of $618, and also above a $751 consensus. As a result, iPhone revenue (59% of total revenue) rose 29% to $37.19 billion even as units, which came in at 46.9 million, were roughly flat.
Maestri did caution on the call that the aforementioned shift in this year's iPhone launch schedule relative to 2017 will result in tougher ASP comparisons for the December quarter. Going into earnings, the iPhone ASP consensus for the December quarter, a seasonally strong one for ASPs, was at $809.
4. China Is Healthy, But Other Emerging Markets Are Under Pressure
After rising 19% in the June quarter, Apple's "Greater China" revenue (it covers mainland China Taiwan and Hong Kong) grew 16% to $11.4 billion. While a recent government moratorium on game approvals is impacting the Chinese App Store, Tim Cook noted that both iPhone and "Other Products" sales grew at a strong double-digit clip in the region.
On the other hand, Cook admitted Apple is "seeing pressure" in other emerging markets, such as India (flat annually), Brazil (said to be "down somewhat"), Turkey and Russia, thanks partly to currency swings. "[E]ach one of the emerging markets has a bit of a different story, and I don't see it as some sort of issue that is common between those for the most part," he added.
5. Services Missed Estimates, But Is Still Growing Strongly
Services revenue came in at $9.98 billion, below a $10.2 billion consensus -- the Chinese game-approval halt may have played a role, and so might the lapping of the one-year anniversary of a favorably-revised search ad revenue-sharing deal with Alphabet/Google (GOOGL) - Get Report . However, after backing out a $640 million year-ago accounting adjustment, revenue still grew 27%, as Apple benefits from continued double-digit growth in its installed base as well as better monetization of existing users.
Cook mentioned Apple saw "new all-time revenue records for the App Store, cloud services, AppleCare, Apple Music and Apple Pay," and noted Apple Pay transaction volume tripled annually. The total number of paid subscriptions supported by Apple's ecosystem (and for which Apple gets some kind of cut) is said to be up 50% to over 330 million.
Going forward, Apple plans to include some revenue related to its estimated value of services provided for free with its hardware in its Services reporting line, rather than in its hardware lines.
6. 'Wearables' Sales Continue Growing Rapidly
After growing 60% in the June quarter, Apple's "wearables" revenue, which covers the Apple Watch, AirPods and Beats headphones, rose over 50% in the September quarter. That helped Apple's Other Products revenue, which also covers the Apple TV, accessories, the HomePod and iPods, grow 31% to $4.23 billion, slightly above a $4.18 billion consensus.
Maestri included Apple TV sales were also strong during the quarter. The September launch of the well-received Apple Watch Series 4 will provide a boost to Other Products sales in the December quarter, which is a seasonally huge one for Apple's smartwatch.
7. Macs and iPads Had a Ho-Hum Quarter
Mac units fell 2% to 5.3 million, while Mac revenue rose 3% to $7.41 billion. iPad units, hurt by weakness in the broader tablet market, fell 6% to 9.7 million, with revenue dropping 15% to $4.09 billion.
The iPad Pro, MacBook Air and Mac Mini refresh that was unveiled earlier this week should provide some boost to December quarter iPad and Mac sales. Maestri noted that over half of all Mac buyers during the quarter, and nearly half of all iPad buyers, were first-time purchasers.
8. Gross Margin Still Isn't Moving Much
The September quarter's GAAP gross margin (GM) was at 38.3%, in-line with guidance of 38% to 38.5% and up slightly from a year-ago level of 37.9%. Apple's December quarter GM guidance is also at 38% to 38.5%, which compares with a year-ago level of 38.4%.
While margins are benefiting from iPhone ASP growth and lower flash memory prices, forex swings, which (absent price hikes) lower how much revenue Apple collects in dollars outside of the U.S., are a headwind. Maestri noted Apple expects to see a 0.9-percentage-point sequential impact this quarter from forex, while also indicating higher initial costs for new products will weigh on margins.
Going forward, Apple plans to individually break out its costs for product and services revenue, which will allow investors to calculate the gross margin the company is seeing for each type of revenue stream.
9. R&D Spending Is Picking Up
Apple's R&D spend rose 26% in the June quarter to $3.7 billion, and 25% in the September quarter to $3.75 billion. The spending increases come amid reports that the company is working on an AR/VR headset that could launch in 2020, and also amid hiring activity that has created fresh speculation about a project to build a fully-fledged car.
10. Buybacks Continue at a Brisk Pace
Boosting EPS some: Apple spent $19.4 billion on stock buybacks last quarter, after having spent $20 billion on them in the June quarter. As a result, the company's diluted share count stood at 4.85 billion, down from 5.18 billion a year earlier.
Maestri reiterated Apple's goal of eventually having a neutral net cash (cash minus debt) balance. With the company still having $122.6 billion in net cash at the end of last quarter, that suggests (provided Apple doesn't splurge on a major acquisition) a lot more stock will be repurchased in the coming years.
TheStreet's Eric Jhonsa previously covered Apple's earnings report and call through a