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Apple’s iPhone sales revenue fell 15 percent during holiday quarter

Apple’s iPhone sales revenue fell 15 percent during holiday quarter

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Overall revenue is down 5 percent

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Illustration by Alex Castro / The Verge

Apple just announced its financial results for the company’s Q1 2019 fiscal quarter, which includes the 2018 holiday shopping season. Apple reported revenue of $84.3 billion, a decline of 5 percent from one year ago, and quarterly earnings per share of $4.18. “Revenue from iPhone declined 15 percent from the prior year, while total revenue from all other products and services grew 19 percent,” Apple said in a press release. Analysts had estimated revenue of $83.97 billion and earnings of $4.17 per share. It was the first decline for both revenue and profit in a holiday quarter that Apple has posted since the iPhone’s introduction more than a decade ago.

“While it was disappointing to miss our revenue guidance, we manage Apple for the long term, and this quarter’s results demonstrate that the underlying strength of our business runs deep and wide,” said Tim Cook. Apple now has an active install base of 1.4 billion devices, which Cook said is “a great testament to the satisfaction and loyalty of our customers, and it’s driving our services business to new records thanks to our large and fast-growing ecosystem.” iPhones account for 900 million of those devices. iPad revenues were up 17 percent against the year-ago quarter; Mac was up 9 percent; and Wearables / Home / Accessories were up by 33 percent.

Cook warned that underwhelming iPhone results were on the way earlier this month. The company briefly halted trading of its shares on January 2nd and lowered its holiday period revenue guidance, with Cook acknowledging “lower than anticipated iPhone revenue” in a letter to investors. “While Greater China and other emerging markets accounted for the vast majority of the year-over-year iPhone revenue decline, in some developed markets, iPhone upgrades also were not as strong as we thought they would be,” Cook wrote.

Apple Debuts Latest Products
Apple is highlighting record revenues for services, Mac, iPad, and its wearables division to balance disappointing iPhone results.
Photo by Justin Sullivan/Getty Images

At the time, Apple projected revenue of $84 billion, as much as $9 billion below the high end of its original guidance ($89 billion to $93 billion). The downturn was attributed to weak iPhone demand. Cook cited the phasing out of carrier subsidies and strong US dollar as other factors impacting iPhone upgrades, and he suggested Apple’s battery replacement program is leading consumers to hold on to older iPhones longer.

Apple faces a huge challenge in China

But the company says China is the main challenge: Apple reported revenue of $13.17 billion in Greater China for Q1, down nearly 27 percent compared to a year ago. Apple has found itself embattled in China by smartphone makers who price their devices far lower than the iPhone, and the country’s economic slowdown is only complicating the outlook. Apple also leans heavily on China for manufacturing, so if the ongoing trade war between China and the US gets worse, it could take a heavy toll. “January looks better than December looked. And I think if you were to graph up trade tension it’s clearly less in January than it was in December,” Cook told Reuters in an interview ahead of today’s earnings. “I’m optimistic that the two countries will be able to work things out.” Apple has been hit hard on Wall Street in recent months, with its stock falling a third from a record high back in October.

Apple no longer includes unit sales for iPhone, iPad, and Mac when reporting quarterly earnings. The company announced this change in November, which analysts took as a sign of declining sales. Units sold had for years been used as a marker for Apple’s growth — even as iPhone sales have generally gone flat for several years. But iPhone revenue (and average selling price) in prior quarters had been climbing with the release of premium iPhones priced at $1,000 and over. Today’s earnings reflect the first full quarter of availability for all three of Apple’s 2018 iPhones: the iPhone XS, XS Max, and XR. Apple has been more aggressive about advertising trade-in discounts for iPhones in recent weeks, and Cook has alluded to new payment plans to help ramp up upgrades.

Apple’s services business is still on a tear

Apple continues to point to its services division as one of the company’s ongoing success stories. That segment of the company’s business, which includes iCloud, the App Store, Apple Music, Apple Pay, iTunes digital content, iBooks, AppleCare, and other efforts, climbed to over $10.8 billion in revenue for the December quarter, Cook said in his January note, with the final reported number at $10.9 billion. Apple’s upcoming subscription video service will also be factored into services.

“Revenue outside of our iPhone business grew by almost 19 percent year-over-year, including all-time record revenue from Services, Wearables and Mac,” he wrote. “Our non-iPhone businesses have less exposure to emerging markets, and the vast majority of Services revenue is related to the size of the installed base, not current period sales.” Apple says it is on track to double the size of its services business in 2020 from where it was in 2016. Last year, a Morgan Stanley analyst predicted the division could skyrocket to over $100 billion in revenue by 2023.

“Wearables, Home, and Accessories” — a mysterious mix of the Apple Watch, AirPods, Apple TV, HomePod, Beats-branded headphones, and other accessory products — took in $7.3 billion during Q1, enough to surpass the iPad business and almost that of the Mac. But the combination of products makes it fuzzy to figure out how any one of them is faring. Still, Apple CFO Luca Maestri said this area of Apple’s business is approaching the size of a Fortune 200 company all by itself.

The earnings call also offered up a few interesting tidbits:

  • Apple says it will adjust iPhone pricing in countries where weakened foreign currency has led the iPhone’s MSRP to jump higher.
  • China hit pause on approving new games for the App Store last year, and Apple admitted the move is having a noticeable impact on revenue in the region. “The App Store in China is a large business for us,” Maestri said on the call. “We believe the issue around approval of new game titles is temporary in nature but clearly it’s affecting our business right now.”

Inside the US, the company is continuing to expand its retail initiatives like Today at Apple, the free learning sessions that Apple offers to customers who visit its stores. Over 50 new sessions are being added to the program, Apple announced earlier today, calling Today at Apple “a great resource for families and kids of all ages interested in photography, coding, art and design and more.” Hey, if you spend enough time at the Apple store, maybe you’ll pick up an accessory on the way out.