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Apple's iPhone Delivers the Goods in Q4, Others On Fire

Apple’s AAPL fiscal fourth-quarter 2017 earnings and revenues breezed past the Zacks Consensus Estimate. The results were boosted by the fast growing Services segment. A spurt in Mac and iPad business was another big factor. iPhone sales, though impressive, missed the Zacks Consensus Estimate.

iPhone Performance

Revenues from the iPhone segment are the biggest contributor to the company’s top line. In the fourth quarter, iPhone contributed 54.6% to total revenues of $52.6 billion.

Apple Inc. Price, Consensus and EPS Surprise

Apple Inc. Price, Consensus and EPS Surprise | Apple Inc. Quote

In the fourth quarter of fiscal 2017, total iPhone unit sales came in at about 46.7 million, up 3% year over year. Revenues from iPhone grew 2% from the year-ago quarter to $28.8 billion, falling short of the Zacks Consensus Estimate of $29.6 billion.

We had earlier pointed out that launching three new models in quick succession will lead to cannibalization of sales. However, higher average selling price of the phones provided cushion to revenues from this segment.

The segment is poised to do well now that iPhone X has been launched. The latest edition is one of the most anticipated phones and demand is said to be off the charts. With the holiday season round the corner, we believe this segment will get a massive boost.

Other Segments Firing On All Cylinders

Apple’s efforts to lessen its dependence on the iPhone segment to drive revenues seem to be paying off with robust performance at all other segments.

The Services segment has become the second biggest contributor in a short span of time. The segment contributed 16% of the total revenues in the fourth quarter. Services – including revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, and licensing and other services – surged 34% year over year to nearly $8.5 billion. App Store sales were a big contributor. Apple Music saw 75% year-over-year growth in subscriptions.

Strong Services sales also helped to reaccelerate China business, which saw a 12% jump in revenues year over year. Services revenues hit an all-time high in the region, per Apple. Services revenues jumped over 40% in emerging markets with “great momentum in India”, said Apple CEO Tim Cook on the earnings call.

The recovery witnessed in iPad and Macs business has been an added positive. iPad and Mac units grew 11% and 10% year over year, respectively while revenues from these increased 14% and 25% year over year.

A refresh of the iPad product lineup and adoption by schools in the domestic market have played an instrumental role in driving sales. In China and India, unit sales grew 25% and 39%, respectively.

Moreover, Apple Watch sales (unit) were up 50% while the entire wearbles business was up 75%.

Encouraging Outlook

Buoyed by strength witnessed in iPhone X demand as well as across other segments and global markets, Apple gave a very encouraging outlook for the first quarter of fiscal 2018. For the current quarter, sales are expected to be in the range of $84 to $87 billion, compared with $78.4 billion reported in fiscal first-quarter 2017. The Zacks Consensus Estimate is pegged at $83.3 billion.

Zacks Rank & Stock Price Movement

Currently, Apple carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s shares marginally outperformed the broader market in the past year. The stock registered growth of 48.9% compared with the industry’s gain of 47.9%.

Stocks to Consider

Top-ranked stocks in the broader technology sector include NVIDIA Corporation NVDA, Applied Materials AMAT and Jabil Inc JBL. While NVIDIA and Jabil sport a Zacks Rank #1, Applied Materials carries a Zacks Rank #2 (Buy).

Long-term earnings growth rate for NVIDIA, Applied Materials and Jabil is currently projected to be 11.2%, 17.1% and 12%, respectively.

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