Q119 “was always going to be an interesting report because Apple changed how it reported its results,” Bill Maurer writes for Seeking Alpha. “ne thing that investors really liked is that by providing gross margins for the Services segment, Apple showed a 453 basis point rise for that category over the prior-year period. Services gross margins of 62.8% were almost double that of hardware margins that came in at 34.3% for the period. Hardware margins were down by 180 basis points over fiscal Q1 2018.”

“Yes, it is good to see Services gross margins increase. However, you have to remember a couple of key points. First, while this segment is growing its revenue number nicely, it still only represents about 13% of the overall total, so hardware still dominates. Second, the most important number here is likely operating margins,” Maurer writes. “I bring up the point about operating margin for Apple because the company has been growing its operating expenses at a rate much faster than revenues over the long term. Five years ago, for example, the company spent 7.6 cents on the operating line for every dollar of revenue generated. In the just reported quarter, the number was 10.3 cents, and we still would have been close to a dime even if Apple hit its original forecast.”

“After a disappointing start to fiscal 2019 for Apple, the company will likely need to make a decision this year on what to do with the flagship iPhone,” Maurer writes. “Does management think it should continue to target high margins, or should it lower prices a little to attempt to return to unit sales growth?”

Read more in the full article here.

MacDailyNews Take: We think Apple stays the course — premium products at premium prices for premium customers — but will get more aggressive with financing deals and pricing on older models.