Apple watchers can sigh in relief. The company beat expectations with $52.6 billion in revenue and 46.7 million iPhones sold in the quarter ending September 30. The big surprise was in Macs and services. But given a lower-than-expected gross margin, there's work to be done going forward.

Apple has been in a tough spot (tough being relative when you have as much money in the bank as many sovereign governments) for some time. It abandoned a number of financial metrics that gave more insight into how the company and its all-important iPhone sales were doing, signs that there was less to brag about. The new top price for a phone was necessary to offset challenges in China, which was supposed to be the big growth area, as well as falling average sales prices (ASP) and the challenges in China, which was supposed to be the big growth area. ASP times iPhone units is Apple's bread and butter.

Overall, the bread fell butter-side up. Apple's guidance last quarter was $49.52 billion in revenue. Phillip Elmer-DeWitt did his usual average of analyst expectations: $50.88 billion with an expected gross margin of 38.1 percent. The number of iPhones expected to sell was 46 million.

The big surprises were in services and Macs. The former hit $8.5 billion in revenue, the largest it has ever seen. And Mac sales, with a 10 percent year-over-year change in units and 25 percent in revenue, showed that people are buying more expensive models.

But more expensive iPhones is what Apple really needs to sell. The iPhone ASP last quarter was $619. That's not the $605 of the previous quarter, but it's well below the average.

That's the point of the iPhone X. Apple has used tricks in the past to maintain iPhone sales, like in the last calendar quarter of 2015. But this time the tricks have run out.

Originally, Apple was looking at 2018 to release the iPhone X, as Mashable reported after a conversation with a number of Apple executives, including SVP hardware engineering Dan Riccio. But, "with a lot of hard work, talent, grit, and determination we were able to deliver them this year," he said.

In other words, Apple felt pressure to get this model out faster. Part was probably competitive pressure (anyone who thinks that the company doesn't worry about products from rivals has imbibed too much Kool-Aid). Another part, the need to bump up excitement and ASP to keep units moving and revenue flowing.

However, Apple didn't even start taking orders for the X until late October and early signs of production problems and low inventory could become a real pain for Apple and its investors. But that news will come out early in January. Apple is predicting between $84 billion and $87 billion in revenue and a gross margin between 38 percent and 38.5 percent.

Published on: Nov 2, 2017
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