Apple earnings show increasing immunity to smartphone malaise

Bloomberg

Apple Inc.’s results confirmed that, while the days of double-digit smartphone industry growth are over, Chief Executive Officer Tim Cook has a plan to withstand the slowdown.
The shares gained after the company reported iPhone sales in line with analysts’ expectations, gave a bullish revenue forecast and highlighted a surging services business.
The numbers show that Cook’s strategy of selling a growing array of services through a base of more than 1.3 billion Apple devices is working. The smartphone sector saw shipments fall 2 percent in the past year, according to Strategy Analytics, so the company must evolve beyond its reliance on a device that still accounts for more than 60 percent of revenue.
“Slowly but surely, (Apple) is morphing into more than just an iPhone story and is displaying ability to sustain revenue growth irrespective of iPhone trajectory,” Amit Daryanani, an analyst at RBC Capital Markets, wrote in a research note.
The company reported iPhone unit sales grew just 2.9 percent in the fiscal second quarter. While the flagship iPhone X may not have matched the hype from its launch late last year, the device’s $999 starting price helped boost phone revenue growth 14 percent.
Cheaper iPhone models for emerging markets, and wearable gadgets like the Apple Watch, also drove revenue growth. “Growth in the near-term will come from higher iPhone X pricing, a lower-cost iPhone SE update, selling more services like Pay to its premium subscribers, and increasing output of its surprisingly popular Watch portfolio,” said Neil Mawston, an analyst at Strategy Analytics.
Revenue from services surged 31 percent to a record $9.2 billion in the quarter. The App Store, Apple Music, iCloud storage and Apple Pay all generated record sales, Cook said. The company is expanding these offerings with original videos and a news subscription service.
As long as Apple continues to sell around the same number of devices each year — 217 million iPhones, more than 40 million iPads, and almost 20 million Macs in fiscal 2017 — it can sell users of these devices a growing list of services that integrate tightly with the hardware.
“You have to start thinking about Apple differently going forward,” Dan Morgan, senior portfolio manager at Synovus Trust Company, wrote in a recent note. “Apple can support the stock as the investment thesis evolves from one of product cycle to services-led growth.”
An Apple Music subscription costs $10 per month (unless they’re on a family plan), and the number of paying users recently hit 40 million. The middle tier for iCloud storage costs $2.99 a month. The company now has 270 million paid subscribers across applications and its own services, up by 100 million from the same period a year ago.
Cook suggested new services are in the works and that Apple’s installed base of devices grew by double digits from a year earlier. “This is just a huge opportunity for us and we feel very good about the track that we’re on,” he said.

Apple’s $22.8bn in repurchases set another record
Bloomberg

The $22.8 billion that Apple Inc showered on shareholders in the form of buybacks from January through March is a record, according to a tally by Standard & Poor’s. Not that it’s anything new for the iPhone maker. Of the 20 biggest quarterly repurchases ever carried out by US companies, nine were by Apple. The company’s repurchases in the period exceed the current market value of more than 270 firms in the S&P 500, data compiled by Bloomberg show.
Apple boosted its dividends from 63 to 73 cents a quarter, or $2.92 a year, implying an annual payout of $14.8 billion. That tops the $13.9 billion by Exxon Mobil as the largest by any publicly traded US company, Howard Silverblatt, senior index analyst at S&P, said in a note. Apple has decreased its shares by a fifth over the past four years as it increased its
per-share earnings.
“It’s a great thing in the fact that they’re giving that capital back to shareholders in the way of a buyback and reducing those numbers of shares is just going to spread those earnings,” said Gary Bradshaw, a portfolio manager at Hodges Capital Management in Dallas, which owns about 250,000 shares of Apple for its clients. “That’s what I love to see in making an investment.”