Services, wearables buoy Apple results as iPhone sales drop

July 31, 2019 09:20
Apple has seen its business grow in every category outside of iPhone in the quarter ended June , says CEO Tim Cook. Photo: Reuters

iPhone sales dropped to less than half of Apple's quarterly revenue for the first time in seven years, a development that CEO Tim Cook described as a reflection of the firm's successful efforts to reduce its reliance on a single product.

According to results announced on Tuesday, US tech giant saw iPhone sales revenue fall 12 percent in the quarter ended June to US$25.99 billion, after dropping 17 percent in the previous quarter, Reuters reports.

Wearables and other accessories revenue, however, rose nearly 50 percent, topping market expectations.

Apple said revenue for its “wearables, home and accessories” segment that contains devices like the Apple Watch and AirPods was US$5.53 billion, compared with analyst estimates of US$4.81 billion.

Services revenue rose 12.6 percent to US$11.46 billion, slowing and slightly missing expectations but setting a new record, according to the report.

Apple’s Greater China sales, which had gone into a near free fall earlier this year, dipped only slightly, assuaging concerns that US-China trade tensions were undermining Apple’s standing in one of its most important markets. 

“We actually grew in mainland China,” Cook told Reuters. “Non-iPhone revenue grew 17 percent. We grew in every category outside of iPhone.”

For the fiscal third quarter ended in June, Apple reported a 1 percent rise in global revenue to US$53.8 billion and a 7 percent drop in earnings per share to US$2.18.

Analysts surveyed by Refinitiv had expected revenue of US$53.39 billion and EPS of US$2.10.

Moribund global mobile phone sales have led Apple to focus on accessories like the Apple Watch and growth in music, apps, gaming, video and a credit card coming in August.

In mainland China, Cook said the overall number of Apple device users had grown in the fiscal third quarter, helping to increase the market for its services, whose sales were up by more than 10 percent there.

Apple said it expects revenue for the current fiscal fourth quarter to come in between US$61 billion and US$64 billion, compared with analyst estimates of US$61.02 billion.

At the high end of Apple’s forecasted range, sales would beat the prior year’s US$62.90 billion in sales, despite the fact that analysts expected continued lackluster iPhone sales until 5G models arrive in 2020.

Apple did not give the number of active Apple devices, but in January it said it was 1.4 billion, with 900 million of those being iPhones. Investors used the number, called the installed base, as a proxy for how many subscribers it can gain for its services business.

Cook told investors on a conference call Tuesday that Apple has 420 million paid subscribers to its own services and third-party apps. The company has set a goal of 500 million by 2020.

Trade tension has slowed down economic growth in China, a major market for Apple, which effectively cut iPhone prices in China earlier this year after currency exchange rates had made its phones too expensive for many Chinese consumers.

Apple’s market share in China declined to 5.8 percent from 6.4 percent, according to market research firm Canalys, in part because smartphone rival Huawei Technologies gained market share to become the top handset seller in the country.

But Apple experienced a smaller market share loss than competitors such as Xiaomi, Oppo and Vivo, according to Canalys data.

Cook said iPhone price adjustments, plus the Chinese government’s move to cut phone taxes, helped keep iPhone sales in China from eroding further.

“Our trade-in and financing programs are doing extremely well in China,” Cook told Reuters. “Because of the active installed base is growing in China, our services business is doing very well, growing double digits.”

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