Apple’s Q1 2018 earnings call: iPhone X and Apple Watch Series 3 are top sellers

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Apple released record first-quarter 2018 financial results today, and in keeping with tradition is hosting a live question-and-answer session for financial analysts to speak with Apple CEO Tim Cook and CFO Luca Maestri. The Q&A session will focus substantially on two broad themes: details of Apple’s business performance from October 1 through December 31, 2017, and vague guidance for the current quarter January 1 through March 31, 2018.

This story is being updated in chronological order as the call proceeds; refresh it for regular updates.

Apple’s Tim Cook opened the session by discussing the company’s record $88.3 billion revenue, which he noted is up 13 percent over the previous record year — and the fifth consecutive quarter of revenue growth. Importantly, Cook noted that the quarter reported today was 13 weeks long versus 14 weeks last year, distorting direct dollar-for-dollar and unit-for-unit comparisons.

Addressing recent claims of weak demand and manufacturing cuts for the iPhone X, Cook said that the iPhone family generated its highest quarterly revenue ever, and noted that iPhone X was the best-selling smartphone in the world according to Canalys — it has also been Apple’s best seller since it launched. Cook also said that sales of the Apple Watch Series 3 were twice the Apple Watch Series 2’s sales a year ago, explaining the 36 percent growth in “other products” disclosed today.

Luca Maestri noted that the App Store generated nearly twice the revenue of Google Play. Wearables, including Beats, AirPods, and the Apple Watch were up nearly 70 percent year over year within the “other product” category. Despite the 5 percent year over year unit and revenue drops disclosed in the earnings release, Mac sales in Latin America, India, Turkey, and Central/Eastern Europe were all up.

The iPad has continued to show growth, with 46 percent market share in the holiday quarter versus 36 percent a year ago, and winning over many first-time tablet buyers. Businesses are reporting a 99 percent satisfaction rating for the iPad. As just one example of its expansion, LensCrafters will be using 7,000 iPads to do digital eye exams.

Maestri also noted that Apple will pay a $38 billion foreign earnings repatriation tax to Apple, and that Apple’s tax payments (including that amount) will equal $110 billion over the past 10 years. Tax reform will let Apple seek a more optimal financial arrangement for the company, and Apple expects to be net cash neutral over time. He then opened the call to questions.

What are Apple’s plans for its $285 billion of cash? Maestri explains that even when its cash holdings are offset by its debt, Apple still has over $160 billion, and intends to spend the cash carefully over time. Historically, it has returned nearly 100% of its free cash flow to investors.

What about the iPhone X — any thoughts on the premium pricing? Cook notes that it was the most popular model, noteworthy particularly given that it was supply-constrained and expensive. It has been the most popular iPhone even through today.

In urban China and the U.S., the top five smartphones last quarter were all iPhones. In Japan and the U.K., six of the top seven were iPhones. Given the size of the smartphone market, people want some level of choice, but Apple feels fantastic as pertains the iPhone X.

During the Q&A, Apple may also address ongoing concerns over iPhone slowdowns related to battery performance, but is unlikely to discuss recently announced government investigations. It historically has provided nearly no guidance regarding upcoming product roadmaps, such as new iPhones, except to clarify or amplify earlier statements. Analysts will likely ask about the HomePod, Intel/ARM processor security issue, public moves towards an Apple video streaming service, and seek further quantification on the seemingly improved sales performance of the Apple Watch.

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