Apple pleased by iPhone X sales despite reports of slashed unit production

Apple Inc.’s iPhone X was in the news recently after the company reportedly cut its production numbers in half in response to disappointing sales, but you wouldn’t have known that listening to CEO Tim Cook during the company’s Feb. 1 conference call.

Instead, Cook emphasized that the first quarter of 2018 generated Apple’s highest-ever iPhone revenue numbers, contributing to the company’s highest-ever install base of 1.3 billion devices – a 30 per cent rate of growth in two years – and a record $88.3 billion (all figures USD) in revenue – a 13 per cent rise over the same record-setting period last year.

“iPhone X was the best-selling smartphone in the world in the December quarter… and it has been our top selling phone every week since it launched,” Cook said. “In fact, revenue for our newly launched iPhone was the highest of any lineup in our history, driving total Apple revenue above our guidance range.”

Unreleased among the company’s official numbers were exact iPhone X unit sales: the company only revealed that 77.3 million iPhone units were sold during the quarter – its highest-ever numbers for a 13-week quarter, according to the company, and worth approximately $61.78 million in revenue.

Nor did Cook comment on reports last week that Apple was cutting iPhone X production in half, though though CFO Luca Maestri said a reduction in iPhone unit orders is typical after the initial holiday quarter, and that thanks to its higher price, the iPhone X’s revenue numbers would look more disappointing than usual as unit orders dropped.

“We typically reduce channel inventory for our newest iPhones in Q2, because they enjoy very large demand in the initial weeks of sales, which are compounded by the holiday season in Q1,” Maestri said. “So we anticipate doing that in Q2 this year as well.”

“As you know, our newest products this year have a higher ASP (average sale price) than they had in the past,” he continued. “And so as a result, as we reduce inventories of these newest products, the overall ASPs for iPhone in Q2 will naturally decline sequentially by a higher percentage than we have experienced historically.”

Record unit growth, customer satisfaction

Responding to an analyst’s question about falling iPhone demand, Cook only emphasized that iPhone revenue growth “across all the geographic segments was in the double-digits,” and that the company expected fewer quarterly sales because the device didn’t begin shipping until early November.

“The team did a great job of getting into supply/demand balance there in December,” he said. “But since the launch of iPhone X, it has been the most popular iPhone every week.”

He also emphasized that customer satisfaction “is literally off the charts” on the iPhone X, citing data from 451 Research indicating U.S. customer satisfaction ratings of 96 per cent or higher across iPhone models.

Nor did Cook offer a straight answer to another analyst’s question about flat iPhone unit growth, saying only that the previously owned market has continued to expand and that the iPhone in general has the largest residual rate of any device. He also said the company’s much-publicized response to controversy over its practice of slowing down older iPhone models to conserve battery power by allowing users to shut the feature off was not made with consideration to its effect on upgrade rates.

“We did it because we thought it was the right thing to do for our customers,” Cook said. “Sitting here today, I don’t know what effect it will have, and… it was not in our thought process of deciding to do what we’ve done.”

Overall, Cook said, Apple “could not be more pleased” with its current performance, especially its growing active unit base.

“I think the active devices are hugely important and that’s the reason that we released the number two years ago, and the reason that we’re releasing that again today,” he said. “That number speaks to the strength of the product the loyalty of the customer, the strength of the ecosystem. And so we do put a lot of weight behind that.”

The number of active devices also fuels the growth of Apple’s services division, which delivered revenues of $8.5 billion – an increase of 18 per cent over last year, Cook said. The number of paid subscriptions reached 240 million by the end of December – an increase of 30 million in the past 90 days alone – with the App Store alone generating nearly twice the revenue of Google Play, according to a recent report from App Annie.

Our thanks to investment research platform Seeking Alpha for the transcriptions from Apple’s Feb. 1 Q1 earnings call.

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Jim Love, Chief Content Officer, IT World Canada

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Eric Emin Wood
Eric Emin Wood
Former editor of ITBusiness.ca turned consultant with public relations firm Porter Novelli. When not writing for the tech industry enjoys photography, movies, travelling, the Oxford comma, and will talk your ear off about animation if you give him an opening.

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