Brief:

• Apple reported better-than-expected sales and profit as the iPhone maker's services revenue surged 31% to $9.2 billion in Q2 2018 from a year earlier, per a company press release. The App Store, Apple Music, iCloud storage and Apple Pay all generated record sales, CEO Tim Cook said in a conference call Tuesday with analysts.
• IPhone sales rose 2.9% to 52.2 million units, in line with analyst estimates of 52.3 million. The average iPhone selling price was $728, compared with a forecast of $740, which suggests that the flagship iPhone X (which retails for $999) didn’t sell as many units as some had expected, per Bloomberg. In the prior quarter that included the holiday season, iPhone sales slipped 1% from a year earlier to 77.3 million units. 
• Overall, Apple revenue rose 16% to $61.1 billion in the three-month period, the fastest growth in more than two years. 

Insight:

Apple's growth story is gradually shifting from hardware sales to its services business as the company builds out the iPhone platform with app sales, music streaming subscriptions, cloud storage and mobile payments. Investors grew worried about reports from electronics suppliers about weak demand for high-end mobile devices, another sign the smartphone boom has reached near-saturation. This may be partly why the iPhone maker is expanding to other offerings like original videos and a news subscription service. Apple has said services will be a $50 billion per year business by 2021, a goal that, as of now, looks achievable based on the strong 31% growth reported on Tuesday.

Apple's "other products" segment, which includes AirPods headphones, the Apple Watch, Apple TV and the HomePod smart speaker, posted strong growth with revenue rising 38% to $3.95 billion. Apple Watch got a boost from new models with cellular connectivity that launched in recent months. The HomePod, whose release was delayed until after the key holiday season, has significantly lagged rivals like Amazon's Echo speakers.

However, the iPad business was relatively flat with unit sales of 9.1 million, slightly up from 8.9 million a year ago. The company debuted an updated $329 student-focused iPad in March and is working on an upgraded Pro model with facial recognition for later this year. While iPads dominate the tablet market, most consumers don't update the devices as frequently as smartphones, leading to slower comparative sales growth.

Revenue for Apple in China rose 21% from a year earlier, which allayed fears that consumers are avoiding expensive iPhones in favor of local handset makers like Oppo and Vivo. The iPhone X's $999 starting price was out of reach for many consumers, but Apple also has a broad selection of models and price points to fit people's budgets. The company is working on a lower-cost model that has some of the X's features like 3D facial recognition and an edge-to-edge screen.