Brian Colello: Apple reported solid first-quarter results. The second-quarter forecast was a little light, but they're expecting some currency headwinds, so not too bad. Overall the earnings report was a positive.
The big highlight was iPhone sales as expected: 78 million units, breaking an all-time record. So they saw very little, if no effects of taking out the headphone jack, which was a bit of a worry going into the quarter, a couple of quarters ago.
Perhaps the real positive from the iPhone this quarter is the average price and the mix toward the 7 Plus. The 7 Plus was extremely popular this quarter. Average price per phone was $695 which was an all-time high. So really strong mix toward the 7 Plus. People were really looking at that dual camera and upgrading. Then that's been a positive for Apple this quarter.
The other bright point for the iPhone is double-digit growth in many mature markets, the U.S., Japan, western Europe. In the U.S. we saw many subsidies and specials for free iPhones. So we think that contributed a bit. But still seeing solid growth in mature markets was a real positive. China was down as discussed. Hong Kong was weak, but mainland China was flat on a total revenue basis across all products. So even China wasn't that bad. Apple did well across all other regions of the world.
The other big highlight from the quarter was Apple's services business. They announced a target to try to double their services revenue over the next four years. It's a really aggressive target in our opinion. That's higher than our estimates and what we were expecting. But they cited strong growth in AppleCare, in iCloud storage; App Store continuing to do extremely well.
We think this is still a little bit of a lagging indicator. It's hard to see Apple grow the services business if people stopped buying iPhones and the installed base goes down. But the fact that people are upgrading, they're getting switchers from Android, and they're driving, not just the initial hardware sale, but services and software sales on top of it is a real positive for Apple. So overall a very good quarter, positive situation at this point.
We liked Apple, certainly when it was trading below $100, it's starting to come back toward our favor value estimate. We were at $133 going into the quarter. Overall a very good quarter for Apple.