Apple Hopeful iPhone Trends Reversing Course; Services Revenue Surges; Stock Up
Apple posted its highest Services revenue ever, $11.4 billion, in the March quarter, up from $9.8 billion a year ago, said CEO Tim Cook on Tuesday’s earnings call. That 16 percent growth rate didn't offset a 17 percent global revenue decline in iPhones to $31 billion. Canalys reported Wednesday that iPhone shipments worldwide sank 23.2 percent in Q1 to 40.2 million shipments amid a global “freefall” in smartphone shipments that retreated for the sixth straight quarter.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
Overall Apple revenue dropped to $58 billion from $61.1 billion, largely on the drop in iPhone sales, it reported. The company had strong growth in wearables and the iPad, which had its highest growth rate in six years to $4.8 billion, Cook said. Wearables revenue rose to $5.1 billion from $3.9 billion, but Mac sales dipped to $5.5 billion from $5.8 billion, due partly to constraints in processor supplies, he said.
Despite iPhone revenue declines, management was encouraged by “positive customer response” to recent pricing actions in China and India, said Chief Financial Officer Luca Maestri. While iPhone sales dropped year on year, late-Q1 performance improved over the December quarter in China, the Americas and Japan, he said. Cook expressed optimism about Apple’s position in China due to price adjustments, government stimulus programs that cut the value-added tax from 16 to 13 percent, trade-in and replacement programs at retail and an improved U.S.-China trade dialogue.
IPhone revenue was “better than expected,” BTIG's Walter Piecyk wrote investors Tuesday night, but he noted “very discouraging replacement cycle trends” in developed markets. IPhone sales improved in late Q1 from recent lows in Q4, and stabilization in China is a reason Apple could return to overall growth “two quarters earlier than we previously expected,” said the analyst. Lengthening iPhone replacement cycles remain a concern as bottoming has “failed to materialize,” Piecyk said. He believes the low is near “even without a major change in Apple’s product lineup this year, although admittedly our confidence is waning.”
In Services, Apple Pay, one of several services expanding or launching this year, will get a high-profile boost when New York's Metropolitan Transit Authority begins its limited early summer Apple Pay rollout in buses and subways, said Cook, joining markets including London, Tokyo and Shanghai. Apple Pay availability in transit systems will spur broader adoption, Cook maintained, leading to more consumers using the contactless pay service. Ticketmaster will accept Apple Pay for ticket purchases on the web and through its app, Cook added, with over 50 entertainment and sporting event venues launching contactless tickets this year, including many NFL stadiums.
Apple hit a high of over 390 million paid subscriptions at the end of March, up 30 million in the quarter, said Cook. Seeking Alpha's Michael Wiggins De Oliveira highlighted that stat in a Wednesday recap, saying: “When we think about how much investors are willing to value Netflix” with 150 million subscribers, it’s “mind-blowing that Apple’s figure will soon triple that of Netflix.” But the analyst noted Apple remains “very much dependent” on products.
Cook declined in Q&A to comment on Apple’s view of 5G, in response to an analyst’s question on how resolved litigation and licensing agreements with Qualcomm could affect its 5G rollout. The company tries to “select the right time that things come together and get those into products as soon as we can.”
Cook noted cost pressures over the past couple of years and said trends in commodity markets are “going in the other direction” with DRAM and NAND: “It's difficult to project what happens next, but it's the aggregate of all of it that really matters from a price point of view.”
Shares closed 9.9 percent higher Wednesday at $210.52.