Ahead of Apple's (AAPL 1.27%) first-quarter earnings report on Tuesday, investors were primarily looking for the company to show that it can reverse its recent declining iPhone business. And Apple did exactly this, reporting 5% year-over-year growth in both iPhone unit and revenue growth, helping the company's total revenue increase 3% year over year. Even better, the company said it expected more growth in its second quarter.
But beyond Apple's financial performance, investors likely had other questions on their minds -- questions more suitable for management's earning call following the release. To this end, I laid out three questions Apple management would hopefully address during the call. As it turns out, Apple management addressed all three of these important topics.
Apple CEO Tim Cook. Image source: Apple.
Here's how Apple CEO Tim Cook and his management team answered these three questions on Tuesday:
1. How confident is management in its product pipeline?
While the iPhone did return to growth in Apple's first quarter, it was still relatively slow growth. The iPhone's headwinds have put the pressure on the company to develop new products to help accelerate growth. While investors obviously shouldn't have expected Apple to spill the beans on anything specific on Tuesday, Tim Cook did express confidence in the company's pipeline of upcoming products.
In Apple's first-quarter earnings press release, Cook said Apple is "very excited" about the products in its pipeline. And during Apple's earnings call, Cook showed even more enthusiasm, saying, "we've got some exciting things in the pipeline; I feel really, really good about it."
2. What could Apple's services revenue growth look like going forward?
Services continue to grow in importance to Apple, and the company's first quarter was no exception. Services revenue climbed 18% year over year, growing to about 9% of total sales, up from about 8% last year. And even this growth understates how sharply the segment is climbing, as the company's services segment benefited from a one-off $548 million patent-infringement payment in the year-ago quarter.
App Store sales are helping fuel services growth. Image source: Apple.
Going forward, Cook said (here's a Reuters transcript of the earnings call) that he expects services to become even more integral to Apple's business:
Services are becoming a larger part of our business, and we expect the revenues to be the size of a Fortune 100 company this year. Our services offerings are now driving over 150 million paid customer subscriptions. This includes our own services, and third-party content that we offer on our stores. We feel great about this momentum, and our goal is to double the size of our services business in the next four years.
These expectations for Apple's services segment translate to a forecast of about 20% annualized growth over the next four years.
3. If there's a tax break for repatriation, does Apple plan to take advantage of it?
With President Donald Trump saying he plans to offer a one-off tax holiday for U.S. companies to repatriate their overseas funds at a lower tax rate, investors have good reason to be interested in what Apple's CEO thinks of this. After all, of Apple's $246.1 billion in cash and marketable securities, an incredible $230.2 billion is outside of the United States.
Fortunately, Cook talked about this potential holiday, signaling he expected Apple to take full advantage:
I am optimistic given what I'm hearing, that there would likely be some sort of tax reform this year, and it does seem like there's people in both parties that would favor a repatriation as a part of that. So I think that's very good for the country and good for Apple.
But Cook said investors will have to wait to see how repatriated funds would be allocated:
What we would do with it -- let's wait and see exactly what it is -- but as I've said before, we are always looking at acquisitions. We acquired 15 to 20 companies per year for the last four years, and we look for companies of all sizes, and there's not a size that we would not do based on just the size of it. It's more about the strategic value of it.
Beyond acquisitions, Apple could obviously allocate funds toward other capital investments in its own business, a dividend increase, a special dividend, share repurchases, or even all of the above.
While these were some of the more important topics covered during the call, management also covered more details on the company's services business, its regional results, the smartphone market, and more. Investors can find a copy of the earnings call on Apple's investor-relations website.
