Apple Jumps After Beating Muted Expectations, Despite $5 Billion Plunge In China Sales

In the aftermath of two recent shockers, first the company's surprise announcement that it would stop reporting iPhone, iPad, and Mac unit sales, which correctly led some analysts and investors to believe that something was amiss, followed by the recent unprecedented stunner when the company cut guidance only for the first time in 18 years, when it said that instead of hitting its $89 billion to $93 billion target it would report earnings of $84 billion, it is safe to say that Wall Street's expectations for Apple's fiscal Q2 earnings were not high.

Which is probably why Apple stock appears to be happy that there were no more shockers in the just-released earnings, which while a far cry from the company's historical massive beats, did beat Wall Street expectations modestly, which appears to be sufficient to keep the skeptics at bay.

Specifically, for its holiday, Q2 2018 quarter, Apple reported:

  • Revenue of $$84.310BN, while down from $88.293BN a year ago - the first decline in Apple's holiday quarter revenue since 2001 - beat Wall Street estimates of $83.97BN
  • EPS of $4.17, just above the consensus exp. of $4.18.

Something else to note: while EPS grew from $3.89 to $4.18 Y/Y this was entirely due to the company's lower tax rate, with Apple's tax provision dropping from $7BN a year ago to $3.94BN.

With Apple no longer breaking out unit sales, investors have to rely on revenue numbers, and for iPhones, they were disappointing, as expected, as revenue declined 15% Y/Y to $51.982BN from $61.104BN a year ago. At the same time, total revenue from all other products and services grew 19% with services revenue reaching an all-time high of $10.9 billion, up 19 percent over the prior year.

(Click on image to enlarge)

Of course with Apple desperate to pivot to a services-driven business, it will have a hard time, because as Bloomberg Intelligence analyst John Butler notes, "Apple really wants you to think in terms of services, but iPhone still drives the bus."

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