Apple sets revenue and iPhone sales records in Q1 of 2017

Andrew Cunningham

iPhone growth helped propel Apple to a much-improved Q1 of 2017.

Andrew Cunningham

Apple has just released its earnings report for the first quarter of fiscal 2017, which runs from the beginning of October to the end of December. Things are off to a solid start after a weak 2016—total revenue, iPhone sales, Mac sales, and services all did well, and Apple CEO Tim Cook claimed it was the Apple Watch's best quarter ever, as well. Profit, iPad sales, and sales in China were all down, but they're the only dim spots.

Apple made $17.9 billion in profit and $78.4 billion in revenue, compared to $18.4 billion in profit and $75.87 billion in revenue in Q1 of 2016. The company's gross margin was 38.5 percent. These results beat Apple's guidance for the quarter, which predicted revenue between $45.5 billion and $45.7 billion and a profit margin between 37.5 and 38 percent.

The company predicts that it will make between $51.5 and $53.5 billion in the second quarter of fiscal 2017, with profit margins between 38 and 39 percent. These numbers compare favorably to the $50.6 billion the company made in Q2 of 2016, though they're still below the $58 billion that Apple made in Q2 of 2015.

Breaking down the revenue by territory, most parts of the world look pretty good. There was small but noticeable growth in Europe and the Asia-Pacific region and more significant growth in the Americas and Japan. The only dark spot is China, where sales fell from $18.37 billion to $16.23 billion. Growth in China was part of why Apple's fiscal 2015 was as strong as it was, and continued softness in that part of the world could explain why the company is pushing more aggressively to break into relatively untapped markets like India.

The iPhone beat last year's all-time unit sales record by a few million units, and revenue growth was up by 4.7 percent. Apple said that demand for both iPhone 7 models had exceeded Apple's internal models but that the iPhone 7 Plus was especially strong—it sold better relative to the iPhone 7 than the iPhone 6S Plus and iPhone 6 Plus sold relative to their smaller counterparts. The strength of the iPhone 7 this quarter bodes well for future quarters since the iPhone 6S consistently struggled to match or beat the success of the iPhone 6. iPhone revenue is nearly 70 percent of Apple's earnings, so the company's financial results are heavily dependent on strong phone sales.

Though iPad sales and revenue showed some signs of bottoming out last quarter, they're back to a double-digit decline this quarter. Apple didn't release any new iPads in the fall as it has done for the last few years, which could explain some of the drop-off; new tablets are currently rumored to be coming in the spring. Unit sales slid from 16.12 million tablets to 13.08 million tablets, a fall of almost 19 percent, while revenue slid almost 22 percent from $7.08 billion to $5.53 billion. Since revenue fell more steeply than unit sales, we can safely assume that when people are buying iPads, they're often opting for cheaper (and aging) models like the iPad Air 2 or iPad Mini 4 rather than the more expensive iPad Pros.

Mac unit sales have rebounded after a few quarters of decline, and Mac revenue is actually up by around $500 million, hopefully proving to Apple that people actually will buy Macs when the company releases new ones. Both the revenue growth and the unit sales growth can be attributed to the new MacBook Pro, which was the first update to Apple's pro laptops in a year and a half, and the Touch Bar models in particular are much more expensive than their predecessors.

The "other products" category, which encompasses the Apple Watch, the Apple TV, Beats headphones, USB-C dongles, and other accessories, was a weak point. Apple doesn't break unit sales out for any of these products, so it's hard to say why revenue was down by 7.5 percent. But Cook mentioned that the Apple Watch had its best quarter ever, so it seems likely that the decline was caused by other products. The Apple TV wasn't updated last year, and the fourth-generation box is looking increasingly undesirable next to competing boxes from Roku and Amazon. The Apple TV is more expensive than those options, and it's missing features like 4K video support.

Finally, revenue from services like iCloud, Apple Music, and the App and iTunes Stores was up by more than a billion dollars, growing 18.3 percent year-over-year. Apple CFO Luca Maestri pointed out that the revenue growth was even more impressive because the 2016 number was boosted by a $548 million payout from a patent infringement lawsuit.