For a quarter for which sales expectations were depressed, Apple Inc. (AAPL) soundly beat estimates with the help of an impressive turnaround for a long-pressured business. And for a quarter for which fears have been running high that iPhone 8 production delays would crimp sales, the company issued an outlook that went a long way towards calming such worries.
With shares having barely budged since the company's last earnings report and (in spite of big early-2017 gains) still trading at moderate multiples going into earnings, that was a recipe for a sharp move higher. One that possibly isn't finished.
Apple reported June quarter (fiscal third quarter) of $45.41 billion (up 7% annually, or 9% in constant currency) and GAAP EPS of $1.67 (up 18%), beating consensus analyst estimates of $44.89 billion and $1.57. It also guided for September quarter revenue of $49 billion to $52 billion, up from $46.9 billion a year ago and largely above a $49.2 billion consensus.
Shares rose 6.3% after hours to $159.50, and made fresh highs. They're now up 37% on the year. iPhone/iPad suppliers also got a boost: Cirrus Logic Inc. (CRUS) rose 4.2% to $65.70, Skyworks Solutions Inc. (SWKS) rose 3.1% to $107.50, Qorvo Inc. (QRVO) rose 2.7% to $69.90, Jabil Inc. (JBL) rose 1.2% to $30.78 and Broadcom Ltd. (AVGO) rose 2.8% to $255.40.
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iPad sales were easily the biggest surprise in the report: After having dropped 12% annually in the March quarter, iPad revenue grew 2% to $4.97 billion, trouncing a $3.95 billion consensus. Unit sales rose 15% to 11.4 million, reversing the March quarter's 13% drop and ending a very long string of annual declines.
As the gap between unit and revenue growth drives home, the iPad turnaround wasn't driven by the high-end iPad Pro line, which Apple refreshed at its early-June WWDC conference and which it has been heavily promoting as a notebook substitute. Rather, it was driven by the mid-range tablet -- simply called the iPad -- that the company launched in March. Though its specs are marginally inferior to those of the iPad Air 2 it replaced in Apple's lineup, the iPad's $329 starting price also makes it $70 cheaper, and it looks like that provided a big sales boost.
Education market buyers, many of whom have embraced Alphabet Inc./Google's (GOOGL) Chromebooks, appear to be fans of the new iPad: Apple's iPad unit sales to the U.S. education market rose 32% to over 1 million. The company also reported seeing strong iPad demand from first-time Chinese and Japanese buyers, and noted Walmart Stores Inc. (WMT) will be deploying more than 19,000 iPads for employee training. iPad average selling price (ASP) did drop by $54 annually to $436 due to a smaller mix of Pro sales, but given the unit growth, it's hard for Apple to complain.
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iPhone units rose 2% to 41 million from the year-ago period's depressed levels, roughly matching expectations. With ASP rising by $11 (a little less than expected) to $606, revenue grew 3% to $24.85 billion. End-user sales were a little stronger than that, given Apple saw a larger-than-usual 3.3-million sequential unit drop in iPhone channel inventory.
But more than the June quarter numbers, it's the September quarter sales guidance that bodes well for iPhone sales, as it suggests Apple will record a healthy amount of iPhone revenue towards quarter's end. Particularly since -- as Tim Cook noted on the earnings call -- strong iPhone 8 anticipation is currently pressuring iPhone sales.
Considering all the reports to the effect, it's still possible that Apple is facing iPhone 8 production challenges. But the challenges might simply restrict September quarter supplies, rather than fully push back shipments to the December quarter. And it's worth keeping in mind that Apple has also been expected to launch iPhone 7S models that will act as more incremental upgrades to the iPhone 7 and 7-Plus, and be priced accordingly.