Strong iPhone prices, cash plans buoy Apple shares after muted outlook (VIDEO)

NEW YORK, Feb 2 — Stronger iPhone prices and hints by Apple Inc yesterday that it could return more than half of its US$285 billion (RM1.11 trillion) in cash to shareholders eased concerns among investors, even as the world's biggest technology company gave a disappointing revenue outlook for the current quarter.

Apple also reported it sold fewer iPhones over the holiday quarter than Wall Street had expected.

But the revenue outlook for the first three months of 2018 “was not as bad as some feared,” said Jun Zhang of Rosenblatt Securities Inc. Apple's comments about plans for its US$163 billion in net cash helped boost shares 3.3 per cent to US$173.48 in after-the-bell trading.

“Over time, we are trying to target a capital structure that is approximately net neutral. We will have approximately the same level of cash and debt on the balance sheet,” Apple's chief financial officer, Luca Maestri, told Reuters in an interview.

“We’re going to take that balance down from US$163 billion to zero,” Maestri said, referring to Apple's current level of cash net of debt.

He did not say whether the reduction in net cash would come in the form of returning capital to shareholders, capital expenditures or acquisitions.

The cash plans are a “pleasant surprise,” Brian Colello, an analyst at Morningstar Inc, said. “This goes a bit against Apple’s historically conservative capital structure.”

Trip Miller, managing partner at Gullane Capital Partners and an Apple investor, said the move to a level balance sheet was good news. “Let's face it, this cash has been doing nothing for us over the last six years,” he said.

People walk in front of a branch of US technology company Apple in Zurich, Switzerland April 5, 2016. — Reuters pic
People walk in front of a branch of US technology company Apple in Zurich, Switzerland April 5, 2016. — Reuters pic

Apple forecast revenue of US$60 billion to US$62 billion and gross margins of between 38 per cent and 38.5 per cent for its fiscal first quarter ending in March. Analysts were expecting US$65.7 billion in sales and a gross margin of 38.9 per cent for the March quarter, according to Thomson Reuters I/B/E/S, though some had forecast sales as low as US$60 billion.

Thrivent Financial analyst Peter Karazeris said the low revenue forecast had been expected by many analysts and investors following a string of “credible reports” that Apple had cut parts orders.

“I’m happy we’ve gotten the bad news that I was expecting guided into the stock. It was probably a little overbaked,” he said. “Now we’re focusing on metrics that really matter like free-cash generation and shareholder returns.” Thrivent holds Apple shares.

Bright spots in the fiscal first quarter ended Dec 30 included average selling prices for the iPhone that topped Wall Street predictions, at US$796 versus expectations of US$756. The strong prices offset unit sales of iPhones that missed Wall Street expectations, coming in at 77.3 million units versus estimates of 80 million.

“It was really driven by the success of the iPhone X and also the iPhone 8 and iPhone 8 Plus,” Maestri told Reuters of the pricing strength. “The new lineup has done incredibly well.”

The company posted revenue of US$88.3 billion and profit of US$3.89 per share, from US$78.4 billion and US$3.36 per share a year earlier. The results beat analyst expectations of revenue of US$87.3 billion and profits of US$3.86 per share.

Apple's services business, which includes Apple Music, the App Store and iCloud, grew 18 per cent to US$8.4 billion, missing analyst expectations of US$8.6 billion. Maestri said the lower services revenue was because the holiday quarter was only 13 weeks rather than 14 weeks.

The services revenue was down slightly from US$8.5 billion the quarter before.

“That's something to watch as we roll further into 2018,” said Miller of Gullane Capital. “Does that continue to stagnate, or was that a one-time bump in the road?”

Maestri also said Apple's installed base of active devices reached 1.3 billion, 30 per cent higher than two years ago and representing an expansion of potential customers for the services business.

Apple said it expected its tax rate for the March quarter to be 15 per cent following changes in US tax law. The company said last month it plans to make a one-time tax payment of US$38 billion on its overseas cash and has a five-year, US$30 billion US capital expenditure plan.

The company did not say how much of its overseas cash it would bring back to the United States in the short term and gave no new information about its capital return programme, which it typically updates each April. — Reuters

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