For Proof That Apple Is Still the King, Just Check Out Its Gross Profit Margin

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In this Market Foolery segment, host Chris Hill and Motley Fool Funds' Bill Barker dig into the numbers from Apple's (NASDAQ: AAPL) Q3.

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The cyclical nature of its revenue can make it tough to measure this tech giant, but essentially, everything outperformed. And as the services segment grows, so too does its profit margin. Still, what the world is watching for now are possible delays in the new iPhone rollout. Also, will the 10-year anniversary of the device bring anything special? 

A full transcript follows the video.

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This podcast was recorded on Aug. 2, 2017.   

Chris Hill: Third-quarter revenue comes in north of $45 billion. As impressive as that is, their gross profit margin, 38.5%. Was there a number that stood out to you with this quarter? For me, the gross profit margin, continuing to tick up just a little bit, is maybe the most impressive thing about Apple.

Bill Barker: That's a function in part of the services, which are higher margin, and those being a bigger chunk and growing faster than the rest of the company. In fact, growth is hard to anchor on with Apple, because with the cycle of new iPhones coming out, it's not 10% more sales every year over year kind of growth. Sometimes one of the iPhones hits and there are millions more units than the year before, and then you're off cycle and it's much less. Second quarter is always the weakest for Apple. In terms of bottom-line profitability, this is the least important quarter. More important is, are they going to get the new iPhone 8, or whatever they're calling it, out in time for September? And the higher-end phone in time for Christmas, possibly? But it was a good quarter. Everything -- iPad, iMac, iPhones -- all outperformed expectations.

Hill: Do you think there's a legitimate chance that they're going to miss this new iPhone release? I know there are rumors that the launch of the iPhone 8 is going to be pushed back, and part of those rumors are informed by a report out of Apple, because Apple puts a blackout period for their employees when something big is coming along. It's essentially Apple saying, "Don't take any vacation for this block of time." Reportedly, the block of time is enormous this fall. It's early September to late November. But they're not going to miss altogether, are they?

Barker: Miss altogether as in nothing happening before Christmas, you mean? No.

Hill: That would be surprising.

Barker: I think the conference call, which I haven't listened to to but read some of the reports of, indicate that Cook is presenting a normal outlook for the rollout of the phone. There's no indications there that there's going to be a miss. So the rumors do not have as much traction today that there's going to be a delay.

Hill: This will be the 10-year anniversary of the release of the iPhone. Is it, in your mind, fair or unfair that there are heightened expectations for this iPhone release because it's the 10-year anniversary?

Barker: That would be unfair, because there's no cause and effect. Thinking that a 10-year anniversary has to lead to anything significantly different is, really, the downfall of many marriages. You expect, here's that 10-year anniversary, somebody's got to deliver on this. Look, really, why? Just because it's 10? Come on. What did you do for your 10-year anniversary?

Hill: I honestly don't remember, it was so long ago.

Barker: I delivered, actually.

Hill: Did you?

Barker: Yeah.

Hill: Do tell.

Barker: Here's what I did for my 10-year anniversary. We went back to, I arranged every night for 10 nights, to go back to --

Hill: I remember this!

Barker: -- a restaurant that had been a big part of our courtship years, or, early getting to know each other time, and with friends that we had lost touch with or were still in touch with. It was a great way to revisit old memories and old friends, and then it was a surprise every night as to where we were going.

Hill: I don't remember what I did for our 10-year anniversary, but what you did was so much better.

Barker: Yeah. I'm not going to claim that other anniversaries have lived up to that.

Hill: You're just coasting on it since then.

Barker: Yeah, I'm still talking about it. I don't know what anniversary I'm at now, but it's more than 20.

Hill: You may ask yourself, what does this have to do with investing? The answer is, we see this all the time in the business world -- companies coasting off one great thing they did one time, and the expectations that follow.

Barker: Yeah. Whatever Apple does is unlikely to match what I did for my 10-year anniversary. I think we can all agree on that.

Hill: I don't think there's going to be 10 nights worth of an iPhone 8 release, if that's what you're suggesting.

Barker: Exactly, like a new phone every day for 10 days, and you have no idea how good it's going to be.

Bill Barker owns shares of Apple. Chris Hill has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.