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Apple Preview: Slowly Entering New Apple as a Service Paradigm

We believe an upcoming paradigm shift in investing in Apple will move shares meaningfully higher over the next two years. Apple reports Q3 results on Tuesday, July 31st. Here’s what we expect:

  • iPhone units of 41.6M (+3% y/y), essentially in-line with the Streets 42M estimate.
  • About $25B in capital return, which supports a 3-year path to net cash neutral. The Street is generally expecting a 5+ year timeline.
  • Services growth of 19%, slightly higher than the Street at 18%.
  • Key takeaways should be: 1. iPhone is becoming a stable business, performing more like software than hardware; 2. the pace of the capital return is faster than investors have been expecting.


We expect the midpoint of the guidance for Sep-18 to be 1-2% ahead of the Street. Consensus calls for 1% iPhone unit growth in the Sep-18 quarter, which does not properly reflect expectations of three new iPhones this fall (one refresh of the iPhone X, one 25% larger model, and one lower-priced LCD model).

Beyond the quarter

  • The set up for FY19 is favorable, given the Street is expecting flat iPhone units (220M), which we view as conservative. We expect iPhone unit growth in FY19 to be 3%.
  • The new paradigm related to investing in Apple, which is 2-3 years from becoming consensus, is defined by a stable iPhone business, a growing Services segment, a faster-than-expected capital return program, and the introduction of new products.
  • Apple has four growth opportunities not yet reflected in AAPL’s share price: original video content, AR wearables, personal health, and autonomous vehicles.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

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