Apple Reports Q2 2018 Results
apple.comOne thing that is consistently amazing is how accurate Apple's guidance is.
Horace Dediu: "How accurate is Apple’s Guidance? Over the last 23 quarters the average error has been 2.63% (measuring from top of guidance range)." [0]
Imho this isn't chance but Apple management has several tools to realize it. My guesses are specific operator campaigns, pricing, supply.
What's surprising is the absence of extreme overshoot. I think smartphone market has matured enough.
They are also already a month into the next quarter by the time they announce it....
What’s even more amazing is that these so-called journalists like Mark Gurman still have a job at Bloomberg. His piece yesterday was a hatchet job, with no numbers or even anything resembling expected sales figures. [1]
[1] https://www.bloomberg.com/news/articles/2018-04-30/apple-res...
Who cares? As long as people click on the articles Bloomberg will be happy.
Is that surprising? What's the typical error margin?
They already probably have a month worth of data. They can extrapolate those numbers out. Also they have lots of data on what the trends are.
This must be a function of large numbers such that the sample is close to the expected value.
My notes:
Numbers:
- Q Rev. $51.5B to $53.5B, Est. $51.4B
- Q2 2018 revenue of $61 billion, equaling analyst's estimates. That's 16 percent growth from a year ago. It's the fastest year over year expansion since 2015
- Apple sold 52 million iPhones in the second quarter, compared to 50.1 million units in the year-ago quarter. This represents year-over-year 3 percent unit growth and 14 revenue growth
- services revenue up 31 percent from a year ago and 8 percent from the preceding three months.
- Quarter over quarter, iPhone sales fell 32 percent in terms of units and 38 percent in terms of revenue. The average selling price was $728 per phone compared with an average estimate of $740.
- The iPad made gains from a year ago. Apple sold 2 percent more in the second quarter from a year ago with a 6 percent revenue gain. It sold fewer Mac computers compared with a year ago and revenue was flat.
- other revenue, watch, pay, tv, etc Revenue was up 38 percent from a year ago.
- Cash at end of 2Q $267.2 billion vs $285.1 billion q/q
- est. 3Q operating expenses $7.7 billion to $7.8 billion
- est. 3Q tax rate about 14.5%
Commentary:
- apple store now has 270 million paying subscribers - that's 100 million more than a year ago.
- - In a note to investors, Morgan Stanley said it expects Apple to hike its capital return program by $150 billion to a total of $450 billion in returns by 2020. This would be up from the $300 billion program announced last year, which was expected to run through March-2019. Apple is also expected to up its quarterly dividend to 0.945 cents per share, up from the current 63 cents, according to Morgan Stanley.
- Apple was the largest non-financial issuer of U.S. investment-grade bonds last year.
and from Jon Elichman this was intersting
Number of iPhones sold in Q2:
Q2 2018: 52.2 million
Q2 2017: 50.8 million
Q2 2016: 51.2 million
Q2 2015: 61.2 million
Q2 2014: 43.7 million
Q2 2013: 37.4 million
Q2 2012: 35.1 million
Q2 2011: 18.6 million
Q2 2010: 8.8 million
Q2 2009: 3.8 million
Q2 2008: 1.7 million
>- music now has 270 million paying subscribers - that's 100 million more than a year ago.
That has to be wrong. They were at 40 million a few months ago.
Your right, not apple music, I mistranslated there:). Appreciate the fact checking:)
You're
;-)
>Q2 2015: 61.2 million
Worth pointing out 2015 was the last super cycle, which was the iPhone 6 and 6 Plus, Apple sold 74.5 million iPhones during the first quarter of fiscal 2015 year.
So in terms of unit in two Quarter combined, 2015 still sold more unit.
Personally i am not too happy with China's growth.
Q2 2015 was an anomaly and Cook even said so at that time.
They still got more profit from selling fewer units due to highe ASP.
Unit sales across the iPhone, iPad and Mac were a bit disappointing but better than I expected. Still, AAPL is a behemoth and the buybacks and dividends are welcome news
Why were you disappointed? Imho a traumatic unit sales drop was feared due to some supplier numbers but it didn't happen. What were you expecting?
At this point only fools peg their Apple expectations to supply chain rumors.
Well, iPhone sales have been pretty stagnant. The new iPhones Apple rolls out every year isn't exactly revolutionary. Not sure how long they can keep this up and expect people to buy new phones every cycle or every 2 cycle. The X was disappointing, given the hype, and I'd be interested to see the X sales numbers.
The Macbook Pro line is also suffering some hardware issues - keyboard, batteries, touchpad. The touch bar also has been a real annoyance, and I've been favoring my 2012 rMBP over the newer models.
Do you have an iPhone X? I'm not a big fan of Apple; I've been rooting for Android for years, and I carry two phones: a Google phone and an Apple phone.
IMO the iPhone X opened up the widest lead for iPhone there's ever been (and for work reasons I have had every generation of iPhone, and a recent high-end Android phone, usually Google's Nexus then Pixel models).
When I use the fingerprint sensor on my Pixel 2 XL, I feel like a caveman rubbing sticks together trying to make a fire. The face recognition Apple did is absolutely a huge, huge upgrade. I want that on all my devices including computers and doors.
When I see them side by side on my desk in their angled charging docks, the iPhone X screen is so much better than the Pixel 2 XL, it is hard to believe they are both using the same fundamental OLED display technology.
When I compare the precision-machined metal and awesome balanced hand-feel of the iPhone X with the plasticky cheap crap feel of the Pixel 2 XL, I wonder if Google even knows what a nice tool is supposed to feel like.
When start to use my iPhone X to ask Siri something verbally, I... go like Wait, what the fuck am I doing?? and reach into the other pocket and pull out the Google phone.
What I am trying to say, though, is that even coming from all the previous iPhones, the iPhone X is a fantastic upgrade, it feels to me like the biggest advance over the previous generation that iPhone has ever seen. The software still kind of sucks, as it has since iOS 7, but in terms of the device, I don't think it is disappointing at all when compared to any/all devices that have ever existed.
Only perhaps when compared to people's imaginary ideas of what the cutting-edge next-gen iPhone might be, could it really disappoint.
The X was disappointing even though it was the top-selling iPhone every week of the quarter?
Whether it’s disappointing or not is always relative to what expectations were.
Common expectations were that it was a sales dud, which clearly was not the case.
Some scale for the new $100b buyback program... Larger than the market cap of all but 51 of the S&P 500 (with one of those being Apple!). That's nuts!
100 Billion not spend on taxes that could benefit everyone, 100 billion on charging customers too much (because Apple obviously doesn’t need the money), 100 billion not spent on employees or hiring or R&D or keeping any of their product lines properly alive (hello Macs, hello software)
Share buyback is often a mechanism to compensate the employees, actually. It works 2 ways:
1. By boosting the value of already granted RSUs, both vested and unvested.
2. By augmenting the pool of shares that can be issued to employees as RSUs.
Are there any risks with such a huge buyback in 2019 to 2020 in a mature smartphone market and in the absence of other growth drivers next to iPhone??
No, you want a share price as low as possible for share buybacks. As long as the price doesn't get bloated the waters are clear.
[Remember, the objective of stock buybacks is to buy back shares on the open market and retire them, increasing the % ownership of each shareholder (and thereby the intrinsic value of the security) correspondingly].
[[Or you can view it as the company holding the shares for the shareholders, mathematically it's the same]]
They have the cash and people generally invest in AAPL for reasons other than having a stake in a bond fund, so it makes some sense. Buybacks vs special dividend are debatable, but impossible to say what is better until you see the future share price. They did hike the dividend substantially too so they're playing both angles.
Buybacks will also increase the dividend yield as dividends are distributed across a smaller number of shares.
No, it will decrease the amount of money they have to pay out in dividends though... Theoretically the yield would decrease since the share price should increase as shares are bought back. That said, they did also announce a dividend increase which should counteract that.
Think about it in round numbers, if there are 1 billion shares and a $1 dividend it's $1bn per dividend payment. If they buy back 100m shares, the next dividend payment would be $900m.
tl;dr dividends are declared on a per share basis, not a total amount that is divided by the current number of shares.
Come on dude, this is totally wrong.
Dividends are expressed in per share basis but that's not actually how it works, a set amount of money is set for dividends.
Share buybacks increase your % ownership of a company (if you're a shareholder), directly increasing the intrinsic value of your shares
That is a pretty stellar earnings release. Congratulations on another quarter of excellent execution!
I think what Apple needs are some barbarians at the gates. Something which challenges them to be greater than they are, rather than sitting back on their laurels. I continue to be surprised that they don't step into the cloud computing pool. There are some solid advantages to having a cloud infrastructure that you can use to deploy new initiatives at scale.
I also wish they would spin out their computer business (Macbook, Ma Pro, Mac Mini, iMac) into its own division. While I chided Google for creating Alphabet, having your own identity can sharpen your focus if it is done well. It would also let them decide where they wanted to go with some of the legacy product lines.
> I also wish they would spin out their computer business (Macbook, Ma Pro, Mac Mini, iMac) into its own division
To me, one of the core strengths of Apple is integration of all its devices, and it seems to me that creating separate divisions competing with each other would risk undermining this integration.
In the late 90s, I heard hair raising stories of how various divisions at Sun were operating at cross purposes due to a myoptic focus on their own balance sheets. I believe you worked there. In your opinion, were the competing divisions a strength or a weakness of Sun?
It is true, Sun did it poorly :-) What Apple has that Sun didn't are vertical product stacks. A 'Macintosh' company has its own hardware, software, and (shared) sales channels. The 'iDevice' company has its own hardware, software, and (shared) sales channels. I think that separation could work.
From where I could watch, Sun's biggest issue was that they forgot they were a systems company and started trying to be a components company. They had also pretty much become completely afraid of 'open' systems at that point. Playing tricks on competing SPARC computer companies, screwing up the OS portability, etc.
As far as I can tell, Microsoft suffered similar problems, with their desktop oriented divisions occasionally holding back the mobile divisions. It's not like Apple never suffers from any organizational dysfunction, but I feel that separating divisions actively incentivizes dysfunction.
macOS and iOS share quite a bit of software, both in the sense of code bases that have overlap on the two platforms, and code bases that need to work together (e.g. for handoff, or features like Apple Watch unlocking a Mac). Not so sure about the hardware situation, but there is at least some sharing going on. And in many cases, the people behind the technology are shared as well.
Something like Project McQueen?
https://venturebeat.com/2016/03/17/apple-cloud-project-mcque...
They also has their own CDN.
Yes something like that, although no follow up after 2016 other than one cryptic speculation about a data center project [1].
[1] http://fortune.com/2017/02/21/apple-data-center-project-isab...
One reason we don't see much follow up is because DC are not of interest to most users. But their DC has definitely grown. Much like their CDN.
Then there is the DC project in Ireland, more in HongKong, and few other places. I think their original plan were to have most of its cloud usage move back to its infrastructure by 2019, given delays in many parts of DC may be 2020.
I've migrated most of my family to Apple, mostly to reduce my support burden. Now I'd like the remaining 10% gap to be closed.
I'm past ready for the loving embrace of cradle-to-grave iCloud awesomeness.
Why can't I backup my macOS devices to iCloud?
Why can't I send iCal invites via iMessages?
I don't want to reconfig my email clients (et al) on each device.
Whatever 1Password does for me, I want built-in, and better.
I'm kind of thrilled to see Mac revenue flat and unit sales down 3%. I was really worried that these keyboard problems wouldn't have any effect on the bottom line and give them an excuse to ignore it; hopefully this is setting off alarm bells and getting them to see that, yes, it really unacceptable and needs to be fixed.
I hope that's Apple's response too. But I fear they might just conclude to that their expertise is in cell phones and they shouldn't invest too much in laptops after all. Maybe introduce some more gimmicks and see if anything sticks. I really hope I'm wrong. I'd love to see an MBP I could get excited about.
I think that would be a mistake. I believe at least, that Apple owes a lot to the size of it’s developer computer. Get them off Apple and you’re one step closer to Android, then you start developing apps for non-Apple products.
MacStories has some visualizations with data from previous quarterly results https://www.macstories.net/news/apple-q2-2018-results-xxx-bi...
APPLE SEES 3Q REV. $51.5B TO $53.5B, EST. $51.4B
APPLE 2Q REV. $61.1B, EST. $60.9B
APPLE REPORTS NEW $100B BUYBACK PROGRAM, BOOSTS DIVIDEND BY 16%
APPLE 2Q IPHONE UNITS SOLD 52.2M, EST. 52.3M
Also they have services at 9.2B vs consensus 8.4B, which is a fantastic beat and 31% growth YoY.
$100 billion buyback? I thought cash repatriation was supposed to lead to an explosion of onshore investment.
It is an onshore investment. They are investing in Apple stock.
I think the Apple future may not look good for a few reasons:
1. iPhones units sold stalled for 3 years in a row. This means the company need to seek every year some trick to earn more from each phone. It is not obvious if they'll be able to do for a long time.
2. Top Android devices are improving and Google Pixel 2 is really an incredible device that is making some iOS users switching. I've no data but my nerd friends are doing this a lot, and sometimes what you see in the nerd-sphere in a few years happens in the normal market.
3. They are struggling at competing in the space of the biggest ecosystems around phones. Cloud, computational photography, assistant.
You are joking, right?
1. They have grown since last 2nd quarter, and are still pulling in ridiculous profits.
2. No one is buying the Pixel, they will probably sell 5 million this year if lucky. Less than 1/10 what Apple sold in this quarter alone. The S9 has also been struggling.
3. Cloud has grown.
> I've no data but my nerd friends are doing this a lot, and sometimes what you see in the nerd-sphere in a few years happens in the normal market
"Nerds" are the group most adept at switching back and forth so your anecdote really isn't useful in the slightest. And the numbers really don't show a systemic move back to Android.
Also this group may be trend-setters because it does happen sometimes. But far more often it doesn't. Otherwise we would've seen everyone cancel Facebook, use Bitcoin for all payments and vote for Bernie Sanders.
> They are struggling at competing in the space of the biggest ecosystems around phones. Cloud, computational photography, assistant.
iMessages is a killer platform that only exists on iOS. iCloud simply just works for most people storing photos and backing up their devices. Portrait Mode has been a key marketing differentiator in the photography space. And whilst Siri isn't as good as Alexa/Google Assistant in some areas it is better in others.
Just a slight point: iMessage is only relevant in Australia and US. In Europe, its WhatsApp, in China, WeChat, in Japan, LINE, etc. iMessage is not a competitive advantage in the markets where Apple can extract greatest growth going forward.
It's incredible this comment was downvoted. Is verifiable truth.
iMessage is good...for now. I don't know about others, but more and more I notice little quirks and bugs, like messages being out of order, and syncing with macOS can be iffy. I really hope they work to improve it in the next year or two, because it's starting to wear on me a bit.
No way.
They don’t tell you the longevity of devices. From what I see, iPhones are cutting off the oxygen from android. My kids school is what use as a reference... literally 80/20 iPhone to non iPhone. The SE and used phones make it more attractive than throwaway androids that are un-upgradable.
Enterprises, same thing. I talk to a few companies/gov with an aggregate total of probably 200k phones. 95% iPhone.
Google is amazing at services. But the OEM bullshit, carrier concessions are hurting them. My guess is that they will make a Chrome phone to fix that. Google Photos alone is a killer app when they do that.
The future looks good for their services revenue considering the current growth momentum and the 1.3 billion active Apple devices they can sell services to.
2. Here's one nerd who made the exact opposite jump from Android to iOS in 2017-2018, also from misc Linux machines to Apple. But personal anecdotes don't really matter, do they?
After half a year of this, I'm quite happy. The competition will have to make some miracles to make me want to change back.
I agree that Apple has revenue challenges, and that the smartphone market has fully matured.
However, I think there is a compelling future where the iPhone is the heart of a constellation of devices that we use everyday. Actually, that is not even the future, that is the present. The sheer power of the devices in our pockets is only just now being realized.
In such a world, Apple is poised to have significant competitive advantages over others. That is, hardware and software integration. The next 5-10 years are going to be as exciting as the original smartphone revolution.
I still think there are huge potential market for iPhone and Mac. Especially on the Mac, the problem is Apple is a little slower without Steve Jobs.
I think the past two to three years they have been way too distracted with Apple Park, arguably the biggest Apple product since the iPhone. I think next two to three years will be important to show if they could really steer well without Steve. But I am already not liking their touchbar and quality issues on mac and FaceID, notch on iPhone X
2. No, iOS people are not switching. They are staying but not buying newer models due to lack of innovation. Personally I would never switch to the cesspool named Android. Laggy, malware infested garbage
I switched to Android due to no 4" phone options, there's less options on the Android side too though. And the incredible push of Apple Music and removal of the headphone jack were just the icing on the cake of switching.
However, the experience of the Samsung Galaxy S8 (which was just to get me familiar with the platform while I looked for a better phone) was incomprehensibly poor. People keep telling me that it's Samsungs software that's crappy but it's really unacceptable for a flagship phone to be this crappy.
> Personally I would never switch to the cesspool named Android. Laggy, malware infested garbage
Yeah, those sound sketchy to me too. Perhaps you could switch to the non-laggy non-malwareinfested non-garbage android phones.
> Laggy
At least Google isn't making your phone laggy on purpose! (too soon?)
Joking aside, there are a lot of sketchy, crappy Android devices, but there are also some decent ones (e.g. straight from Google). I suspect you've only been exposed to the crappy ones.
Google has tried to release a phone before and they fail hard. The phone stops getting updates. If you want an android device with updates you have to get a BlackBerry.
Android OS is horrible because it's always different. From release to release. From phone to phone. Everyone has their own little tidbit to add and makes it non uniform.
> The phone stops getting updates
What? They provide major OS updates for 2 years, and security updates for 3 years.
> Android OS is horrible because it's always different
Are you referring to OEM modifications to Android? It's really hard to follow your rant.
> They provide major OS updates for 2 years,
In iOS land, 2 years is just getting started for OS updates - generally you get 5 years or so. That's one of the reasons so many iPhones get handed down and resold compared to Android devices.
Hence the stalled iphones sales growth. I don't disagree that having a phone that is supported by the manufacturer for so long is a good thing, I very much agree with this! But if the manufacturer loses incentive to do so, then don't expect them to continue doing it for long.
You mean that time when Samsung and practically all major Android makers cheated at benchmarks? https://www.anandtech.com/show/7384/state-of-cheating-in-and...
1. Maturing smartphone market.
4.No other growth drivers in sight after the failure of apple watch to become huge.
I think it would be highly surprising if anyone invented a new product category at the scale of smartphones any time in the next few decades.
> No other growth drivers in sight after the failure of iwatch to become huge
Apple Watch is the number one smart watch.
It sold 8 millions unit last quarter (a rise of 10.3%) and represents about half of all smart watch sales. You would have to be deluded to think that it isn't anything other than a huge success.
Apple watch is successful in smart watch market. Smart watch market seems not to be a billions-unit market. That's what I mean.
> Smart watch market seems not to be a billions-unit market.
How many billions unit markets are there out there?
One. There is one, and Apple makes almost all of the money in that market.
Two—don't forget about ballpoint pens.
yup...
1. iphone is a mature product.
2. no onvious new groundbreaking product releases on the horizon (a watch is not it).
3. desktops are dying, and their replacements, the ipads, are stagnating.
4. intel screwed them with processor roadmaps intel had no hopes of meeting (cannonlake, anyone?)
5. no longer visionary on the future of computing (seem to be chasing all the flavors of the month lately).
6. services growth is a lagging indicator on the health of the ecosystem (or walled garden, if you prefer).
7. product and design mishaps all over (dongles, broken keyboards, homepod's a dud so far).
8. waning customer loyalty (customers are staying with apple not from excitement but from apathy in the space)
9. the low hanging fruit in ubiquitous, mobile and personal computing have been plucked (just the hard stuff remains).
i'm not suggesting all is lost, but from my vantage point outside the company, it's concerning. airpods and the pencil seem most promising in the short term to me. airpods hold the promise of voice computing (if siri could get her act together), and the pencil promises to be the first techology to truly kill off paper, but neither of those hold any certainty.
The Watch plus AirPods = the easier 2/3ds of a pervasive computing system. Audio plus haptic feedback is significant. Add a good set of AR glasses, which is the hard part, and you have something really interesting.
Siri needs improving, though, no question.
yes, but pervasive AR is not coming any time soon.
i think the next step is getting a computer to be contextually useful through an audio interface, rather than sight and touch. haptic is helpful but i don't see how it can encode enough useful yet intuitive info to be a standalone interface.
the problem is not that apple is not working on this (since it is). it's just that it's not obvious that apple has a clear vision of how to get to the future. they are chasing all the shiny things at once, throwing them all at the wall to see which one(s) sticks.
(to be clear, this is not an endorsement of google and android btw. they're even worse in this regard, but they're taking more of a microsoft strategy of being all things to all people anyway.)
> 6. services growth is a lagging indicator on the health of the ecosystem (or walled garden, if you prefer).
How very convenient that you seem to think you can handwave away the ridiculously huge growth in services by saying it's a lagging indicator. No chance at all that it could be partly due to new and more compelling services offerings (music, icloud)?
You sound almost as confident as the 'analysts' who predicted a down quarter with a failing and cancelled iPhone X.
the point i was making is that, yes, the services business is growing, but that's basically reaping the fruits sown by the iphone/ipad business (and macs and ipods before that), so it's lagging as an indicator of the trajectory of the company.
apple is the best at understanding what ordinary consumers want out of computing devices, and services are very complementary to that. but i'm skeptical that services should be the future of apple, because that's straying away from what they're best at. services as the long term strategy is a (potentially dangerous) distraction, and apple should keep its eye on the consumer electronics ball.
i wouldn't mention such things if i didn't think it had merit to consider (as a customer, investor, competitor, or simply a spectator). we're on hacker news, not sitting in a trading pit trying to eke out 47 nanoseconds of information asymmetry, so take it for what it's worth.
Desktops are dying while they realized highest Mac revenue ever this quarter? Not following the logic.