Shares of the tech giant were up more than 5% after it announced better than expected results for the financial quarter ending in December 2018.

By Daniel Herborn

Posted on January 30, 2019

Revenue from iPhone sales was down 15% on the previous year. The result marked the first time since the iPhone was introduced that Apple’s revenue and profit declined in a holiday quarter.

The sluggish iPhone sales were offset, however, by a 19% growth in services, which reached a new high of US$10.9 billion in revenue. Revenue from Home and Accessories also rose 33% and iPad revenue was up 16%.

Overall, revenue for the quarter was at US$84.3 billion, slightly outstripping analyst estimates it would be around US$83.97 billion.

There are now 1.4 billion active Apple devices

“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,” Apple CEO Tim Cook said.

“Our active installed base of devices reached an all-time high of 1.4 billion in the first quarter, growing in each of our geographic segments. That’s 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.”

Apple has diversified its revenue streams in recent years with a number of new offshoots such as its digital wallet service, Apple Pay, which facilitated more than 1.8 billion transactions in the quarter, more than twice the volume it had a year ago.

The service businesses operated at a healthy gross margin of 63%. Analysts are closely watching the company’s services division and are relying on it to drive growth.

Investors were also heartened to hear Tim Cook say he saw some signs that trade tensions between the US and China had eased during 2019.

On the earnings call, Cook said that customers were hanging on to iPhones for longer than they had in the past. This development, combined with the macroeconomic climate in key emerging markets, were responsible for the decline in iPhone revenue, he said. iPhone sales may have also plateaued as a result of it hitting market saturation.

China downturn presents a challenge for Apple

The most significant trend for Apple in emerging markets was the downturn in China, where it had generated more than US$51 billion in revenue the previous fiscal year. Last year, however, China experienced its slowest economic growth since 2009 and Apple sales were down 27% in the end-of-year quarter, costing the company around US$5 billion in lost revenue.

Apple phones are also facing increased price-based competition from competitors Huawei Technologies and Xiaomi Corp. in China. Back in November, the company stopped reporting unit sales, a move seen as linked to declining sales. Cook has foreshadowed the company cutting the price of its flagship phone, something it has long resisted, in response to slowing growth internationally.

Looking forward, Apple is projecting revenue between US$55 and US$59 billion for the quarter ending in March.

This year will also see the launch of Apple’s still mysterious streaming service, which is expected to be launched in April.

Header image credit: Mike Bloomberg