Apple's Non-iPhone Businesses Shine

Despite a minority market share position in the smartphone industry versus Android, Apple continues to retain pricing power as early signs around the iPhone X indicate to us that the firm will successfully be able to raise the bar on pricing.

We will raise our fair value estimate for narrow-moat Apple to $163 per share from $145, due to the time value of money and as we boost our long-term iPhone revenue and average selling price, or ASP, estimates, along with higher revenue from Services and Other Products. We reiterate our high uncertainty rating for Apple, in light of a lack of visibility regarding both iPhone X supply and a more complicated product mix this year with three premium devices (X, 8 Plus and 8) versus two iPhones in years past (such as the 7 and 7 Plus in late 2016).

Revenue in the September quarter was $52.6 billion, up 16% sequentially, 12% year over year and above the high-end of the firm's prior guidance of $49 billion-$52 billion. iPhone sales of 46.7 million units was roughly in line with our expectations, while the far more pleasant surprises came from other businesses. Mac revenue of $7.2 billion was up 25% year over year, thanks to healthy demand for the firm's new slate of MacBook Pros. Other Product revenue rose 36% year over year, driven by Watch sales (units up 50% year over year once again) and robust demand for AirPods. Services revenue was up 34% year over year as customer engagement with iOS devices is leading to healthy AppStore revenue.

For the December quarter, Apple expects revenue in the range of $84 billion-$87 billion, which was roughly in line with Street consensus and would represent 9% year-over-year growth.

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