Apple earnings beat expectations as it sells pricier iPhones

World’s most valuable technology company posted third-quarter revenue of $53.3 billion and profits of $2.34 per share

The Apple iPhone X was launched in 2017. Elijah Nouvelage / AFP

Apple on Tuesday posted quarterly results that topped Wall Street targets and forecast revenue in the current quarter above expectations, driven by sales of higher-priced iPhones and revenue from services like the App Store, Apple Music and iCloud.

Apple beat sales estimates in part by selling fewer but pricier iPhones. The company sold 41.3 million units, below expectations of 41.8m units.

The average iPhone selling price hit $724 (Dh2,660), beating analyst expectations of $694, according to data from FactSet. Apple chief financial officer Luca Maestri told Reuters that customers were buying costlier models and the $999 iPhone X was the quarter’s best seller.

Apple posted third-quarter revenue of $53.3 billion and profits of $2.34 per share, compared with analyst estimates of $52.3bn and $2.18 per share, respectively, according to Thomson Reuters. Apple shares rose 2.3 percent to $194.63 in after-hours trading.

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The world’s most valuable technology company also forecast revenue of $60bn to $62bn for its fiscal fourth quarter, which will include early sales of soon-to-be-announced phone models, beating the $59.6bn analysts expected.

As smartphone buying has plateaued, Apple has extended its iPhone line with both pricier and cheaper versions, from the iPhone X to the lowest priced $349 iPhone SE. It has also soothed investor concerns with a $100bn stock buyback program and promises of growth from services such as streaming music and video, where Apple faces competition from rivals including Spotify Technology and Netflix.

But several of Apple’s services do not face strong rivals. Mr Maestri told Reuters that sales from Apple Care, the company’s warranty offering, were up 27 per cent versus a year ago, although the company did not disclose a dollar figure for sales.

Apple was largely spared in last week’s tech sector sell-off when shares of Facebook, Twitter and Netflix fell sharply on concerns about their future growth. With a market capitalisation of more than $900bn, Apple is tickling at the title of world’s first trillion-dollar company.

Apple’s biggest selling products do not yet face duties stemming from the United States-China trade disputes, but US President Donald Trump has threatened hundreds of billions of further tariffs whose product categories have not yet been enumerated.

But one of the categories potentially affected by tariffs is the Apple Watch, which is one of Apple’s growth drivers. Mr Maestri told Reuters that the company’s so-called "wearables" business – which includes the Apple Watch and its AirPods headphones, among other items – has generated $10bn in sales in the past 10 quarters and saw sales increase 60 per cent in the most recent quarter. “We are not able to catch up to demand yet and continue to add capacity for the AirPods,” Mr Maestri said.

Apple’s margins are facing pressure as it moves to put pricier components, such as OLED displays that show more vivid colours, into its products. The company said it expects gross margins of 38 per cent to 38.5 per cent in the fourth quarter, compared with analyst expectations of 38.3 per cent. Analysts are also closely watching Apple’s operating expenses, which have been increasing as its research and development costs outpace its revenue growth.

Services revenue was $9.5bn, beating analyst expectations of $9.1bn. The revenue included $236m from resolving lawsuits such as Apple's long-running dispute with Samsung.

Apple said it expects operating expenses of $7.95bn to $8.05bn in the fourth quarter, compared with analyst estimates of $7.8bn.