Apple FQ4 17 – All things X.

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X hits the spot.

  • Apple reported good results and guided strongly for FQ1 18 as it has managed to deal with some of the production problems with the iPhone X which will result in slightly better than expected shipments in FQ1 18.
  • FQ4 17 revenues / EPS were $52.6bn / $2.07 compared to estimates of $50.7 / $1.87.
  • Slightly soft iPhone 8 demand has been offset by a 25% jump in Mac shipments and a 14% jump in iPad.
  • Both of these products have clearly gained some share as the end markets for PCs and Tablets have remained quite soft.
  • The big problem with the iPhone X has been the facial recognition system where suppliers have struggled to produce enough components to the specification demanded by Apple.
  • I suspect that the slight relaxation of the original security requirement has enabled more of the 3D sensors to meet the grade enabling the slightly better supply underpinning FQ1 18 guidance.
  • As a result, guidance for FQ1 18 was slightly ahead of expectations with revenues / gross margins of $84bn – $87bn / 38.0% – 38.5% forecast compared to expectations of $84bn / 38.5%.
  • The traditional lines outside the stores that were completely absent when the iPhone 8 / 8+ became available, have formed for the availability of the iPhone X leading me to believe that the company is on track for a pretty good replacement cycle.
  • However, I do not think that the iPhone X will offer a cycle nearly as big as the iPhone 6 and my concern is that this is what the market is looking for.
  • In expectation of this super cycle, the valuation of Apple as expanded materially leaving me concerned that much of these heady expectations has already been priced into the stock.
  • Consequently, the valuation argument for Apple is not nearly as strong now as it was 12 months ago, leaving somewhat less inclined to hold the shares for the long-term.
  • I continue to prefer Tencent which has some upside left given its global leadership in Digital Life coverage and Baidu which represents the cheapest way to invest in the trend of AI.
  • Microsoft continues to be steady albeit much less exciting than the other two.


5 thoughts on “Apple FQ4 17 – All things X.

  1. With Apple guiding, when last year’s 14 week quarter is taken into account, for 15%+ revenue growth in FY18Q1, its arguable that the market (Apple’s PE of 19) isn’t even accepting of Apple’s accelerating growth for the last 4 Qs let alone expecting a super cycle of iPhone replacement.

    • There in lies the difference. Consensus expectations and the share price are expecting a super cycle. I do not believe that the iPhone X will create one. Thats all.

  2. Senior people at Apple have repeatedly stated that Apple has not “relaxed the original security requirements” for FaceID. Their PR statement was “Bloomberg’s claim that Apple has reduced the accuracy spec for Face ID is completely false and we expect Face ID to be the new gold standard for facial authentication.” You must be aware of that. So why trot out discredited and dishonest FUD?

    • Because it helps support his predetermined bias for Baidu, Tencent and MS.

      iPhone 8 demand hasn’t been soft. While they don’t break out phone models in their numbers, the 8 has been a strong seller. For years, they’ve tried to minimize the lines outside stores by making them available without issue online. That wasn’t possible for iPhone X, but it doesn’t mean the lack of lines equates to a lack of demand, which is what Richard is presupposing.

      Poorly thought out assumptions and repetition of untruths is the hallmark of this blog, whether it’s the Bloomberg nonsense cited here, or the “FaceID failed on stage in demo” claim which has also been shown to be false.

      What would make Richard happy more than anything is if Google were to take Android proprietary and sell a device in quantities similar to Apple’s. They haven’t done the former, and haven’t figured out how to do the latter. All of this ignores what should surprise people who think of them as a phone seller: Apple made most of their money in this report from services, a category that pundits usually think of Apple as being weak in.

      Also interesting is Richard’s continued contention that there’s no value in holding Apple stock. And yet, it’s as high as it’s ever been.

      • Hello.
        This does not warrant a response until you:
        1) provide facts and evidence to prove your position. (mine on iPhone 8 comes from asking distributors, operators and retailers).
        2) get your facts right. Apple makes almost all of its profit from the iPhone.
        3) Read what I have written more carefully (re Face ID).

        Then we can discuss.
        However I would point out that this is a free blog so if you don’t like like it please feel free not to read it.

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