Missed the GamesBeat Summit excitement? Don't worry! Tune in now to catch all of the live and virtual sessions here.

Apple released record first-quarter 2018 financial results today and, in keeping with tradition, hosted a live question-and-answer session for financial analysts to speak with Apple CEO Tim Cook and CFO Luca Maestri. We covered the session live, with updates below in chronological order as the call proceeded.

Apple’s Tim Cook opened the session by discussing the company’s record $88.3 billion revenue, which he noted is up 13 percent over the previous record year — and the fifth consecutive quarter of revenue growth. Importantly, Cook noted that the quarter reported today was 13 weeks long versus 14 weeks last year, distorting direct dollar-for-dollar and unit-for-unit comparisons; the sales look stronger when viewed weekly rather than quarterly.

Addressing recent claims of weak demand and manufacturing cuts for the iPhone X, Cook said that the iPhone family generated its highest quarterly revenue ever and noted that iPhone X was the best-selling smartphone in the world, according to Canalys, and has been Apple’s best seller since it launched. Cook also said that sales of the Apple Watch Series 3 were twice the Apple Watch Series 2’s sales a year ago, explaining the 36 percent growth in “other products” disclosed today, which was previously forecast in independent reports.

Luca Maestri noted that the App Store generated nearly twice the revenue of Google Play. Wearables, including Beats, AirPods, and the Apple Watch, were up nearly 70 percent year over year within the “other product” category. Despite the 5 percent year-over-year unit and revenue drops disclosed in the earnings release, Mac sales in Latin America, India, Turkey, and Central/Eastern Europe were all up.


Transform 2023

Join us in San Francisco on July 11-12, where top executives will share how they have integrated and optimized AI investments for success and avoided common pitfalls.


Register Now

The iPad has continued to show growth, with 46 percent market share in the holiday quarter versus 36 percent a year ago, winning over many first-time tablet buyers. Businesses are reporting a 99 percent satisfaction rating for the iPad. As just one example of its expansion, LensCrafters will be using 7,000 iPads to conduct digital eye exams.

Maestri also noted that Apple will pay a $38 billion foreign earnings repatriation tax, and that Apple’s tax payments (including that amount) will equal $110 billion over the past 10 years. Tax reform will let Apple seek a more optimal financial arrangement for the company, and Apple expects to be net cash neutral over time. Maestri then opened the call to questions.

What are Apple’s plans for its $285 billion in cash? Maestri explains that even when the company’s cash holdings are offset by its debt, Apple still has over $160 billion, and it intends to spend the cash carefully over time. Historically, Apple has returned nearly 100% of its free cash flow to investors.

What about the iPhone X — any thoughts on the premium pricing? Cook points out that it was the most popular model, particularly noteworthy given that it was supply-constrained and expensive. It has been the most popular iPhone even through today.

In urban China and the U.S., the top five smartphones last quarter were all iPhones. In Japan and the U.K., six of the top seven were iPhones. Given the size of the smartphone market, people want some level of choice, but Apple is feeling fantastic about the iPhone X.

March quarter guidance suggests a slowing of growth — how should analysts read into it? Maestri says that they’re expecting strong revenue growth, $7 to $9 billion over last year’s quarter. The two key messages: Apple believes iPhone revenue will grow double-digits, and iPhone sell-through growth on a year-over-year basis will be accelerating this coming quarter versus the prior one. Historically, channel fill and channel inventory are different this year because of the iPhone X and its later launch; there may be a greater ASP falloff in this quarter due to midrange models having a higher number of sales.

What’s the thinking on the future of iPhone X-style premium devices in Apple’s portfolio — any color on new iPhones? Cook says Apple doesn’t provide details on upcoming products, but with the iPhone X it was setting up for the next decade and packed it full of innovation, so Apple’s going to continue pulling that string.

How about AR? Cook says he’s a huge, huge believer in AR and couldn’t be happier with the rate and pace of the developer community or how things are going right now.

How will Apple’s discounting of replacement iPhone batteries impact the rate at which customers are buying new devices? Investors can choose what they want to focus on, says Cook, and he wouldn’t want to tell them how much to adjust their estimates. However, iPhones historically have strong retained value for resale, which creates a new device sale and continues to satisfy an old customer. Apple did not consider in any way what replacement batteries would do to upgrade rates, and the company has no idea what impact that will have. Replacement rates could be different in geographies based on whether they had iPhone subsidies when the devices were initially purchased. Regardless, as the install base of devices increases, Apple’s sales of services will continue to grow.

Has the number of users gone up or down with the number of active devices? Cook says Apple doesn’t provide the former number, just the latter, as it’s the most accurate number they can provide. When asked about the number of switchers, a detail Apple sometimes provides, Cook said he doesn’t think Apple has meaningful data for the quarter.

What is the category for HomePod — smart speaker competing with Amazon and Google, or something else? And who is the target market? Cook dodges somewhat, calling the HomePod an incredible product with an unbelievable audio experience and a super digital assistant in Siri, which can also handle requests for home automation and work as a speakerphone. So the use cases are broad-based; it will be used by some for music, by others as a digital assistant, and the majority will use all of its features.

Views on M&A: Apple acquired 19 companies in 2017 and always looks for something that can accelerate its product roadmap, fill a gap, or create a new experience for customers. Apple looks at all sizes of companies, and with $163 billion in the bank will consider its options.

During the Q&A, Apple did not discuss recently announced government investigations, the Intel/ARM processor security issue, or the company’s recent public moves toward an Apple video streaming service.

VentureBeat's mission is to be a digital town square for technical decision-makers to gain knowledge about transformative enterprise technology and transact. Discover our Briefings.