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Analysts cite robust iPhone X demand, continued services growth as highlights of earnings

With Apple's March quarter results quieting naysayers, at least for the time being, analysts have started to react to the company's blockbuster second quarter earnings.

After Apple beat expectations in Tuesday's earnings release, Amit Daryanani of RBC Capital Markets titled his note "Proving Skeptics Wrong...Again," while setting his Apple price target at $203.

"More than just an iPhone story"

"The strength in revenues reflects continued growth from iPhones (+14% revenue, 3% unit growth) coupled with acceleration in services (+31% y/y) and other (wearables, +37% y/y)," Daryanani added. "We think slowly but surely, [Apple] is morphing into more than just an iPhone story and is displaying ability to sustain revenue growth irrespective of iPhone trajectory."

Other analysts also noted the better-than-expected iPhone performance.

"Investors have so far seemed unimpressed by the iPhone X uptake since its launch," Robert Cihra of Guggenheim Partners wrote in a note Wednesday. "But we think they should be MORE impressed by Apple's ability to raise its blended iPhone ASP double digits Y/Y while effectively still maintaining unit share in an otherwise no-growth smartphone market, illustrating the power of its high-end demographic and peel-off-the-top model."

Cihra maintained his buy rating for Apple's stock and set a price target of $215.

"Other businesses matter"

Ben Schachter of Macquarie Research was a bit less enthusiastic, setting his price target at $197 and maintaining his outperform rating.

"The fact that iPhone could be somewhat weak and yet the model can show EPS growth of 30% y/y is a testament to a model that is evolving," Schachter wrote.

"While iPhone is clearly still the single most important input, [Apple] is showing that its other businesses matter, and success in Services is now a major factor. While we have been more cautious on some of the Services drivers recently, [Apple] showed that Services is now diversified enough that despite our concerns on slowing App Store growth, other drivers are working."

Jun Zhang of Rosenblatt Securities maintained his Buy rating and set a target of $180.

"We believe that after Apple reported a slightly better quarter and guided better than the market anticipated, Apple's supply chain should look towards an increase in the 2nd half," Zhang wrote in his note. "Due to meaningful design upgrades and different component solutions for the new iPhone Models, Apple needs to reduce most of their components, such as panels, RF, 3D sensing, and some commodity components. We believe this is the key reason that Apple's supply chain might still provide weak guidance for the June quarter, even as Apple's guidance was better than expected."

Zhang added that "We think iPhone shipments in the June quarter may be higher than our previous estimates of 37 mln units. Based on Apple's recent guidance, we now believe iPhone shipments may be in the range of 38-39 [million] units."

The supply chain remains a bad predictor of Apple's earnings

The analyst whose skeptical note two weeks ago sent Apple's stock tumbling, Katy Huberty of Morgan Stanley, acknowledged that she'd gotten it wrong.

"Weaker iPhone supplier results suggested meaningful downside in the June quarter which didn't come to fruition," Huberty said. "While forecasted iPhone shipments of 39M units is lower than our 42M estimate a month ago, it's far better than our 34M estimate which reflected the weaker June quarter outlook from suppliers like TSMC and AMS."

"Further, iPhone ASPs will actually decline less than seasonal in June given March quarter sell-through," added Huberty. "ASPs were higher than reported given the iPhone X channel inventory drawdown."

Huberty also noted that the services category, which surged 31 percent year over year, is now the "primary growth driver."

Steve Milunovich of UBS kept his buy rating and set a price target of $190. He had four key takeaways: The iPhone X is selling better than commonly thought; services and wearables have picked up slack to provide revenue balance as the iPhone matures; the dividend hike was smaller than it could have been, and that the inventory increase is "component buy-aheads to procure better pricing."

Milunovich also addressed the weeks of negative stories from the supply chain.

"Why the supply chain negativity? The caution appears to reflect mix more than units," said Milunovitch. "Perhaps Apple is using the current processor for the coming LCD model, and the high-end mix might be less next cycle. Services growth of 31% was impressive — Apple should reach its goal of doubling services over four years organically."