Tim Cook, Apple's chief executive, released a confident note on Tuesday, insisting that the iPhone's future remained bright despite the expectation that its drop in sales would continue in the near term.
"Macroeconomic factors will come and go. We saw a big advantage, continuing to focus on the things we can control, "Cook told investors after Apple reported a 5 percent drop in revenue in the three months to December to $ 84.3 billion. "We would not change our position for anyone."
Apple's shares rose more than 5 percent in the after-hours trading, with net earnings dropping 0.5 percent to $ 20 billion in the first fiscal quarter. Those figures came in better than Wall Street feared after a shock alert earlier this month that a slowdown in Chinese consumer spending and a slower pace of iPhone upgrades would mean that Apple would lose its own estimates for the first time in more than 15 years. .
Still, in its view, Apple said it expects revenue for the fiscal second quarter ending in March to be between $ 55 billion and $ 59 billion, or a 3-10% drop in relation to it of the previous year. This compares to Wall Street's previous expectations of revenue of about $ 59 billion.
"We expect the key factors that affected iPhone performance in the first quarter will also take effect in the second quarter," Luca Maestri, Apple's chief financial officer, said in an interview. Currency movements would represent up to 200 basis points of the percentage decline, he added.
"We expect a weaker macroeconomic environment every year, especially in emerging markets, including China," he told the Financial Times. "On the other hand, we expect to continue to increase revenue from the rest of the business, outside of the iPhone."
Apple declines in China revenue in December quarter
Apple reported that iPhone revenue in the December quarter fell 15 percent to $ 52 billion, while the rest of its business – including online services like iCloud and App Store, iPads, Apple Watches and Macs – increased by 19 %. cent.
In a teleconference with analysts, Cook highlighted the strong prospects of Apple's service business to help offset the decline in iPhone sales.
A total of more than 900 million iPhones were in active use at the end of 2018, Apple revealed on Tuesday, up 75% or 9% from last year. Ben Bajarin, an analyst at Creative Strategies, said the statistic – which Apple never revealed before – was "far bigger than most people thought."
That held up to Cook's insistence that digital services could capture some of the slack in iPhone device sales. Last year's revenues from Apple's services division – which includes Apple Pay and Apple Care, as well as Google's payments to remain the default iPhone search engine – are larger than those of blue-chip companies including Oracle, Nike and Coca-Cola. and are approaching Facebook sales.
"Our large and growing installed base is not only a powerful testament to the satisfaction and loyalty of our customers, but it is also fueling our rapidly growing service business," he said, pointing to a 19% increase in service revenue. "We are very happy not only with growth, but also with the breadth of our portfolio of services. . . Our ecosystem is stronger than ever. "
Services are also more profitable than device sales. Apple generates a gross profit margin of 63% on services, compared to 34% on its hardware products.
Apple's reputation for developing reliable services that also protect users' privacy was affected this week when a bug in the FaceTime application came up that allowed users to listen to other people's iPhones before they answered an incoming call. Apple was forced to disable the feature while preparing a software update to fix the problem.
However, Cook said that Apple would continue to expand its portfolio services, including setting a target of 500 million subscriptions by the App Store by 2020, each generating a commission for Apple and also expanded to original video, with a new TV. application should be released in the coming months.
"We see major changes in customer behavior happening now," Cook said of TV and video consumption, "and we think it will accelerate over the course of the year, with the breakdown of the cable package we have been talking about for years. Let's get involved in a number of ways. "
Apple shares rose to $ 163 a share after the trading session on Tuesday, up from a low of around $ 142 in early January, when it warned of declining iPhone sales.
Despite Cook's upbeat performance, Apple still relies on iPhone sales for 62% of its total revenue, at a time when the smartphone market is facing global declines.
The latest results mark the first time since the iPhone's launch that Apple has not provided quarterly sales to its handsets. Analysts at Canalys estimate that Apple sold 71.7 million iPhones in the fourth quarter, down 7 percent year-over-year but still surpassed Samsung, making it the world's largest maker of smartphones in units in the last three months of 2018.
The smartphone market in general fell 6% in the fourth quarter of 2018, according to Canalys, while customers keep their existing devices longer and many established markets reach saturation.
However, Chinese smartphone makers Huawei and Oppo have managed to counteract the downward trend, increasing unit shipments by 47% and 21%, respectively, Canalys said.
Huawei's competition has been increasing pressure on Apple in China, where the smartphone market has been slowing overall. Apple's revenue in China fell 27% in the December quarter.