iPhone sales beat but Services is the real star here

Apple surprised us with iPhone sales rising to $51.3B vs. estimates of $48.9B. Some of this was likely due to the backlog of customers who were unable to purchase a new phone during the company’s supply crunch in China the previous quarter. We’re most impressed with services growth, which grew +5.5% to $20.1B. An astonishing figure: almost one billion people now use Apple’s services (iCloud, Apple music, Apple TV, Apple Pay, etc). We think as iPhone sales slow Services revenue will become more and more important – when you buy an Apple device you are effectively giving residual royalties to Apple for the rest of the device’s life. Hardware sales fell ~31%, in line with weakening consumer spending for “big ticket items” (aside from iPhones, which continues to surprise). Pleased to see continued buybacks: another $90B of stock repurchases are authorised for this year. Continue see upside as +$190 and downside as $+140 – impeccable results once again. Note that Apple opened its first store in India this year – so far “switcher” numbers (Android users converted to iPhone) are looking good and we think this will be a continued growth area for the company.

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