Production snags aren’t taking the shine off Apple. Customers ordering today won’t see the much-awaited iPhone X until December, and developers are still figuring out the augmented-reality apps that make it worth buying. But Tim Cook’s company shipped more handsets and coined more money than expected in the latest quarter. And hiccups aside, the new phone will accelerate demand for services going forward.
Scene setter
Apple sold $52.6 billion of products and services in the three months ended Sept. 30, and earned $10.7 billion. Yet these are largely a scene setter for the company with a $885 billion market capitalisation. The company unveiled its new 8 and X model phones in September. The 8 model was only in stores for about a week before the quarter ended, and people could only order the high-end X afterwards. Even so, the numbers were good enough to boost the stock by 3% in after-hours trading.
Although demand for the 8 appears relatively tepid, Apple said pre-orders for its X model, which starts at $999, were off the charts. However, the company is having trouble making enough of them. Customers have to wait five to six weeks to receive phones.
Apple estimates revenue in the current quarter should be about 9% higher than last year, implying any X manufacturing problems are being ironed out. But if the company can’t bring yields up on key new components such as sensors for facial recognition, then delays could cascade during the important holiday season.
Longer-term opportunities more than compensate for these short-term problems. The first wave of augmented-reality apps are now available. Programs that allow a handset to act as a real-world tape measure, hang pictures evenly and figure out if a couch fits in your living room are already useful, but merely scratch the surface of what’s possible. Improved processors and sensors in the 8 and X should eventually generate more sales of both handsets and apps.
Milking users
That means Apple can milk more and more cash out of users. Just look at the recently ended quarter. Sales of apps, streaming music and online data storage hit a record $8.5 billion, or 16% of all sales. A year ago, they accounted for only about 13%. It’s also selling more wireless headphones and watches. These sorts of items accounted for 6% of revenue, up a percentage point from a year ago.
Add it all up, and the iPhone gold mine has plenty of nuggets left.
( The author is a Reuters Breakingviews columnist. The opinions expressed are his own )
