What's going on?
Apple’s cart brought up the rear of the FAANGs’ quarterly reporting on Tuesday. Its produce was firm and crunchy – and investors went to town on its shares, pushing them up 5%.
What does this mean?
Sales of iPhones, which still represent over half of Apple’s revenue, were more or less as expected. But previously tepid iPhone demand from China – responsible for Apple falling off investors’ trees in January – appeared to reheat last quarter, helping Apple to beat sales forecasts overall. And as “services” revenue grew apace, rising 16% on last year, its high profit margin contributed more to Apple’s earnings fruit salad, helping profit to exceed forecasts too (tweet this).
Investors hope Apple’s new services – subscription news, video streaming, gaming, and credit cards – will keep swiping earnings higher. And, crucially, Apple’s forecast for this quarter was rosier than investors expected, keeping the stock doctor away.
Why should I care?
For markets: Eyes on the profit prize.
Apple’s share price represents what investors think its potential future profits are worth today. Those buying Apple’s stock on Tuesday appeared confident the company can sell more add-on services: only around a quarter of the world’s 1.4 billion Apple device owners currently buy any. Growing these higher-margin regular subscription fees would lead to higher future profits and make Apple’s stock more attractive – and more valuable.
The bigger picture: How much wood could an Apple chip?
The legal truce between Apple and Qualcomm in April put paid to negotiations Apple was conducting with Intel about buying its smartphone modem business. Intel’s now looking for other potential buyers – which may include Samsung. The Korean firm’s own chips business has struggled of late: on Tuesday, it confirmed a 60% quarterly profit drop from a year ago. But Austrian chipmaker AMS on Tuesday said in its results that demand from Apple was steady, and that it was also doing more business with Android-based rivals – and its stock rose 21%.