Apple’s counting on services to boost its financial results.
Angela Lang/The Techy Trends
Apple appears to be pretty optimistic about its next iPhones — and the services running on them. But worries remain about how much those new services could offset lower demand for the company’s biggest moneymaker. Sales of its marquee iPhone franchise continued to fall in the June quarter.
Apple no longer breaks out the number of smartphones it sells each quarter, but the company on Tuesday said iPhone sales slid 12% to $26 billion in its fiscal third quarter. Higher services revenue, combined with rising iPad and wearables sales, helped Apple eke out a gain in third-quarter revenue. Its overall sales and profit were better than expected.
CEO Tim Cook noted that the period was Apple’s biggest June quarter ever. He highlighted “all-time record revenue from services, accelerating growth from wearables, strong performance from iPad and Mac and significant improvement in iPhone trends.”
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At the same time, Apple projected that its fiscal fourth-quarter revenue would total $61 billion to $64 billion, an optimistic forecast compared to what Wall Street was looking for. Analysts had expected Apple’s revenue for the quarter ending in September to total $61.02 billion, according to a poll by Thomson Reuters.
“The balance of calendar 2019 will be an exciting period, with major launches on all of our platforms, new services and several new products,” Cook said in a press release.
Apple shares rose 2.9 percent to $214.90 in after-hours trading.
While Apple has been diversifying its operations into new services and products, the iPhone remains its biggest moneymaker. Its fiscal fourth quarter, which runs through September, likely will include the first couple weeks of sales of the next iPhones. Apple is expected to release three new models in September, with at least one reported to have three rear cameras. The new devices likely will maintain the same basic design as 2017’s iPhone X and last year’s iPhone XS and XS Max.
We’re all holding onto our phones longer (in the US, people upgrade about every three years instead of every two), and the biggest change to come to smartphones this year — super-fast 5G connectivity — likely won’t arrive in the iPhone until late 2020 at the earliest. The changes expected in this year’s iPhones may not be enough to get people to rush to stores.
“This is the first time since 2013 where iPhones did not account for the majority of Apple’s revenue in a quarter,” eMarketer analyst Yoram Wurmser said. “With iPhone sales dipping, Apple is trying to get more money from existing iPhone owners by promoting new services.”
Apple challenges and opportunities
Apple’s iPhone business has struggled in recent years. In 2016, Apple reported its first iPhone sales drop since the device first launched in 2007, despite the introduction of the iPhone 7 and 7 Plus in mid-September of 2016. It wasn’t until the iPhone X arrived the following year that sales again surged. But the reprieve was short-lived. In January of this year, Apple issued a rare warning — its first in nearly 17 years — that its fiscal first-quarter financial results wouldn’t be as strong as it had anticipated.
It’s not just the iPhone slowdown that could hurt Apple. The company is facing possible government investigations into its App Store business practices, and it also could see tariffs on many of its products: President Donald Trump last week tweeted that his administration won’t grant exemptions for Mac Pro parts made in China. “Make them in the USA, no Tariffs!” he said.
Apple sees services as its next big opportunity. The area, which includes the App Store and Apple Music, has soared thanks to all of us who own the 1.4 billion active Apple devices out there. In March, Apple hosted its first services-focused event, where it unveiled its first TV streaming service. Along with jumping into TV and music streaming, Apple introduced a gaming service called Apple Arcade and launched news subscriptions. It even plans to offer its own credit card, the Apple Card, this summer. Whether these services will be successful remains a question until they actually launch.
Cook lauded a “blow-out quarter” for Apple’s wearables business, which generated $5.5 billion. He said that the wearable business, powered largely by the popular AirPods headphones, is bigger than 60% of the Fortune 500.
Overall, Apple on Tuesday reported third-quarter earnings of $10 billion, or $2.18 a share, down from $11.5 billion, or $2.34 a share, a year earlier. Analysts had anticipated per-share earnings of $2.10 a share, according to a poll by Thomson Reuters.
Apple also said its revenue increased slightly to $53.8 billion, from $53.3 billion, for the three months ended June 29. Analysts expected the tech giant to report $53.4 billion in revenue, according to Thomson Reuters.
Services revenue increased 13% to $11.5 billion; wearables, home and accessories rose 48% to $5.5 billion; and iPad sales increased 8.4% to $5 billion.
