Apple shares sail to record high on healthy iPhone sales

(Reuters) – Apple Inc on Tuesday delivered surprisingly strong fiscal third-quarter earnings and signaled that its upcoming 10th-anniversary phone lineup is on schedule, driving the stock up 6 percent to an all-time high in after-hours trading.

The stock climbed above its intraday record high to $159.10 after the company reported better-than-expected iPhone sales, revenue and earnings per share. The stock price move was expected to help drive the Dow Jones Industrial Average over the 22,000 mark on Wednesday.

Apple also said it hit a milestone of 1.2 billion iPhones sold.

The April-June quarter is traditionally a soft one for Apple as the market waits for the September launch of new iPhone models. But Tuesday’s results show that iPhone buyers may be less inclined than they once were to delay purchases until a new model is out.

The iPad product lines also showed unexpected strength, service revenue continues to grow at a healthy clip, and even the much-maligned Apple Watch showed a 50 percent sales increase.

Apple is widely tipped to adopt higher-resolution OLED displays for the latest iPhone, along with better touchscreen technology and wireless charging – which could come with a $1,000 plus price tag.

The phone is expected to launch in September.

The company forecast total revenue of between $49 billion and $52 billion for the current fourth quarter, while analysts on average were expecting $49.21 billion, according to Thomson Reuters I/B/E/S.

Apple’s fourth quarter generally includes first-weekend sales of the company’s latest devices.

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The forecast “makes it fairly certain that at least some new iPhone models will be released on the normal schedule,” said analyst Jan Dawson of Jackdaw Research. “That doesn’t necessarily mean all new models will go on sale then, or that they’ll all be in abundant supply, but I would think it means that at the very least the successors to the current phones will be available.”

But Bob O’Donnell, chief analyst at TECHnalysis Research, cautioned that if Apple releases cheaper models before the premium models in its 10th anniversary phone lineup, the cheaper models could dampen sales of more expensive units released closer to the holidays.

The company said iPhone sales rose 1.6 percent to 41.03 million in the third quarter ended July 1, above analysts’ average estimate of 40.7 million units, according to FactSet StreetAccount. Apple sold 40.4 million iPhones a year earlier.

But a lower average iPhone selling price of $606, well below Wall Street expectations of $621, caused iPhone revenue to come in at $24.8 billion, below expectations of $25.5 billion.

Apple Chief Financial Officer Luca Maestri told Reuters the weak price was partly explained by Apple lowering the flow of inventory by 3.3 million units, which he said were “entirely at the high end of the range.”

Apple reports how many phones it sells to retailers, not how many phones it sells to consumers, what is known as a sell-in basis. When factoring how many existing “high end” phones the company cleared out of retail inventory, Maestri said average selling prices were higher.

The company’s net income rose to $8.72 billion, or $1.67 per share, from $7.80 billion, or $1.42 per share, a year earlier.

Revenue rose to $45.41 billion from $42.36 billion in the quarter, typically the company’s weakest, beating expectations of $44.89 billion.

China Revenue Down, Autonomy to the Future

Apple said revenue from emerging markets excluding China grew 18 percent, a bright spot. But sales from the Greater China region fell 9.5 percent to $8 billion in the latest quarter, as consumers switched to newer domestic offerings.

The decline was smaller than recent quarters. Apple’s Maestri said mainland China revenue was flat, as were iPhone sales in the mainland. Sales of other Apple products rose in mainland China and were also up in Taiwan.

“The decline from a market standpoint was concentrated in Hong Kong, which is a place that has been really affected by a reduction in tourism because the Hong Kong Dollar is pegged to the U.S. dollar,” Maestri said.

Apple CEO Tim Cook also directly addressed the company’s decision to remove so-called VPN apps from the App Store in China. Those apps help Chinese users circumnavigate government internet restrictions.

“We would obviously rather not remove the apps, but like we do in other countries we follow the law wherever we do business,” Cook said. “We believe in engaging with governments even when we disagree. This particular case, we’re hopeful that over time the restrictions we’re seeing are lessened, because innovation really requires freedom to collaborate and communicate.”

Strong iPad sales of $4.9 billion – almost $1 billion above Wall Street expectations – and a 21.6 percent jump in the company’s services business that includes the App Store also helped boost revenue. In particular, Apple said that Walmart Stores Inc would buy 19,000 iPads to train as many as 225,000 employees. The company also said it increased production of AirPods, its wireless headphones.

Apple CEO Tim Cook declined to directly address U.S. President Donald Trump’s claims that Apple will build three new factories in the U.S., instead citing the company’s job creation efforts and a $1 billion U.S. manufacturing fund.

Cook also hinted that Apple’s experiments with self-driving cars may include ambitions that extend beyond cars. He said the company is making a “big investment” in autonomous systems.

“From our point of view, autonomy is sort of the mother of all AI projects,” Cook said. “And the autonomous systems can be used in a variety of ways, and a vehicle is only one, but there are many different areas of it. And I don’t want to go any further with that.”

Reporting by Anya George Tharakan in Bengaluru and Stephen Nellis in San Francisco; Editing by Sriraj Kalluvila, Bernard Orr

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Kelly’s challenge? Bringing stability to Trump White House

President Trump’s chief of staff, John Kelly, faces a daunting task in his new role: bringing order and discipline to an unruly White House that has struggled to notch much-needed victories.

On his first day, Kelly made a statement about who is in charge by axing Anthony Scaramucci, the brash former Wall Street financier who intensified the drama inside the West Wing during his tumultuous 10-day stint as communications director.

But the hard work is just beginning for Kelly, whose success depends on whether he can quell the fighting and end the competition between rival power centers for influence within the White House.

He’ll also need to contend with managing his own boss and with winning legislative victories.

While Kelly earned bipartisan respect during his four-decade career in the Marine Corps, he has virtually no experience wheeling and dealing with members of Congress.

“It’s exponentially more challenging than anything John Kelly has done in his life, and he’s done a lot of things,” Chris Whipple, author of “The Gatekeepers: How the White House Chiefs of Staff Define Every Presidency,” said in a Tuesday interview with WNYC.

“He’s got to not only be empowered to be first among equals in the White House to execute Trump’s agenda, but most importantly, he has to be the guy who walks into the Oval Office, closes the door and tells Donald TrumpDonald TrumpHow Polish populism explains Trump and the rebirth of nationalism Lewandowski: Priebus ‘ultimately responsible’ for White House leaks Ex-Cruz aide: Now Bannon is establishment voice in Trump White House MORE what he doesn’t want to hear,” he added. “If he can’t do that, then this will fail.”

The early signs are promising for Kelly. White House officials say he has been given full authority over the staff and that all aides will report to him. Ousted predecessor Reince Priebus never had such power.

In a Monday staff meeting, Kelly said he’d been empowered to impose more control over who meets with the president and how he receives information and advice.

Yet doubters inside and outside the West Wing wonder if Kelly will hold on to that power. They point to Trump’s tendency to favor a more freewheeling organizational style.

Kelly must contend with the president’s Twitter account and Trump’s daughter and son-in-law, Ivanka Trump and Jared Kushner, who both serve as senior White House advisers.

The couple, who reportedly tried to convince Trump to hire deputy national security adviser Dina Powell as chief of staff, eventually backed his selection of Kelly. A source close to the couple said the pair will follow whatever structure he wants to impose.

But that could mean accepting limits on access to the Oval Office and communicating with the president about official business that previously did not exist.

Some interpreted a Monday tweet from the president’s elder daughter that said she looked forward to working “alongside” Kelly as a sign that she views the new chief of staff as a counterpart rather than a superior.

A Republican operative who worked under Priebus expressed skepticism that rules on access regarding the president’s family would change.

If people listen to him, “that’s great,” the source said. “Color me skeptical — I’ll believe it when I see it.”

“If ‘Javanka’ short-circuit his authority, that’s going to be a problem,” said another Republican source, using a nickname for the couple.

A major part of Kelly’s job will be managing the White House’s legislative agenda.

Kelly served as the Marine Corps commandant’s liaison to the House in the late 1990s, and Capitol Hill veterans say that lawmakers’ deep well of respect for him bodes well for success.

Still, delivering a victory on tax reform, the White House’s next agenda item, could prove difficult, said Doug Heye, who served as deputy chief of staff for communications for former House Majority Leader Eric CantorEric CantorSpecial interests hide behind vets on Independence Day What to watch for in Comey’s testimony Trump nominates two new DOD officials MORE (R-Va.).

“The second part of the job is making sure that Trump and the administration stay out of their own way in trying to enact these things,” he said. “He’s got a difficult job internally and externally.”

There is broad optimism among Washington Republicans that Kelly will prove better than his predecessor.

“It was really smart for the White House to change leadership ahead of the tough fight over taxes,” said one Republican Hill veteran, who said the ObamaCare repeal effort might not have collapsed if Kelly had been chief of staff from the beginning.

Kelly also comes on board as Trump is weighing whether to sign bipartisan legislation from Congress that would make it harder for him to roll back sanctions on Russia. The White House said Tuesday that Trump plans to sign the legislation, but the White House’s previous criticism of the measure raised questions about whether he will follow through.

“To not sign that legislation would be, I think, not wise for the president to do,” said Anita McBride, who served in the Reagan administration and in both Bush White Houses. She predicted Kelly would share that advice in private.

Trump might be more willing to listen to advice from Kelly.

The president has repeatedly referred to Kelly as one of “my generals,” the three top officers he hired to serve in his administration. By contrast, Trump is said to have treated Priebus with little respect behind closed doors.

About a month ago, Kelly — then the Homeland Security secretary — cleared the room during an Oval Office meeting to confront Trump about his complaints that the U.S. was admitting too many high-risk travelers, according to The Associated Press.

It’s unclear if Kelly will challenge Trump to cut down on his tweets or adopt a less off-the-cuff style. Trump allies say the president’s style helped him win the 2016 election, underscoring the need to “let Trump be Trump.”

Trump has made it clear he’s not giving up Twitter any time soon.

“Only the Fake News Media and Trump enemies want me to stop using Social Media (110 million people). Only way for me to get the truth out!” he tweeted Tuesday.

The last general to serve as White House chief of staff, Alexander Haig, was praised for his handling of the job under President Nixon.

But he lasted only a month under President Ford following Nixon’s resignation.

“Gerald Ford had a model very much like Donald Trump’s,” Whipple said Sunday on CNN. “All of his senior advisers were coming and going willy-nilly. Haig was unable to control the chaos; it was absolute chaos.”

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