Apple’s bullish outlook overrides iPhone slump
Apple sh rugged off lower-than-expected sales for the iPhone on Tuesday as shares rose sharply after market close, when investors got a glimpse of a far more important number: how the company projects sales to be next quarter.
The company projected that it would make $60 billion to $62 billion next quarter, exceeding analyst expectations of $59.6 billion. The forecast is a measure of how well Apple thinks it can fare in a market where consumer interest in having the latest and greatest continues to wane.
Apple, which makes about 56 percent of its revenue from the iPhone, has had to deal with slowing sales growth for its biggest product. The lure of faster, thinner, lighter phones used to send shoppers rushing to stores for the latest smartphones. But for the past couple of years, even premium smartphones have lost some appeal, and consumers are holding on to their phones for longer between upgrades.
Both Apple and Samsung have responded by offering more expensive phones. Samsung, Apple’s chief smartphone competitor, cited less frequent upgrades as a reason its flagship models failed to deliver expected sales in its Monday earnings call. Its mobile unit reported a 22 percent drop in sales revenue to $20.2 billion from the same time last year.
Yet Apple fared far better than its rival, delivering $29.9 billion in iPhone revenue, of an overall $53.2 billion. It reported $11.5 billion in profit, up from $8.7 billion in the third quarter of 2017.
“Our Q3 results were driven by continued strong sales of iPhone, Services and Wearables,” chief executive Tim Cook said in a statement.
Shares rose nearly 6 percent in Wednesday trading to close at $201.50 a share — edging the company closer to its pursuit of a $1 trillion market value.
Samsung and Apple have countered slowing sales growth by offering more expensive phones, which deliver greater profits. Yet that strategy has its pitfalls. Samsung acknowledged it has to take a two-pronged approach to growing its mobile business in an earnings call. “We will also strengthen price competitiveness and actively develop advanced technology in our mass models to aggressively respond to market conditions,” Samsung’s vice president of mobile communications Lee Kyeong-Tae told investors Monday.
Apple historically has kept its prices steady, and kept its new premium phones at a premium price. But analysts expect that Apple will release three new models in the fall, to diversify its offerings and convince those who did not upgrade to the iPhone 8 or the iPhone X that it’s time to buy a new phone.
Smartphones still drive an enormous portion of both companies’ revenues and the devices are still projected to generate $78 billion in 2018, according to a new estimate from the Consumer Technology Association. But Apple and Samsung are also eyeing other areas of their businesses for growth. Samsung has touted its growing chip business; Apple, meanwhile, has focused more on services such as the App Store and its entertainment businesses as growth drivers. In the last quarter, Apple’s services made $9.5 billion.