As pundits grow more convinced that the iPhone, after 12 years, has finally reached peak saturation, Apple’s latest earnings report Tuesday managed to hold the company’s line.
Apple’s first fiscal quarter of 2019 mostly met expectations, with earnings per share clocking in $4.18, slightly up from the $4.17 expected.
The company had previously told investors to brace for a revenue miss. In November, the company pegged $89 billion to $93 billion in revenue, but recalibrated in early January with a guidance of $84 billion. The actual number comes as no real surprise, clocking in at $84.3 billion. During the same period last year, Apple raked in revenues of $88.3 billion.
Still, the news was good enough reason for Wall Street to exhale a bit. Apple shares jumped 3 percent in extended trading.
But there were still a few facets that are tough to ignore — including flagging iPhone revenue.
Apple no longer reports iPhone unit shipments or average sales from Apple devices. The company has nixed those metrics, and the tactic has sparked plenty of fears that the iPhone has peaked or is in decline. Indeed, its iPhones did stumble: The segment brought in $51.98 billion in revenue, landing under the $52.67 billion expected. It’s Apple’s first iPhone sales decline in more than two years, representing a decline of 15 percent over this holiday quarter.
Of course, the tech giant would naturally prefer to talk about services. After all, it’s more comfortable redirecting the spotlight toward a growing segment, away from its troubled hardware business.
Apple has been focusing heavily on services like music and movies, apps, Apple Pay, iCloud and other features. Indeed, services revenue edged out expectations, with $10.9 billion versus $10.87 billion. But the showstopper is the gross margin in services — its 62.8 percent reported far exceeds Apple’s overall 38 percent margin.
“While it was disappointing to miss our revenue guidance, we manage Apple for the long-term,” said Apple chief executive officer Tim Cook. “And this quarter’s results demonstrate that the underlying strength of our business runs deep and wide.”
As for users, Apple’s active install base covers 1.4 billion devices across iPhones, iPads, Macs and other devices. For Cook, it’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.”
Maybe so. The company’s “Wearables, Home and Accessories” category, which includes the Apple Watch, came in just under the $7.33 billion estimated, with $7.31 billion. But the figure represents 33 percent growth over the same period last year. In other words, for the quarter, Apple’s smartwatch, smart home products and accessories comprise its fastest-growing segment by revenue.
Apple appears to be in the midst of a reexamination of its approach. In his pre-earnings announcement, Cook blamed weakness in the China market as a primary reason for his company’s revenue miss during this holiday period. Now it’s looking at releasing a wave of less expensive phones for other markets.
As a brand whose rise to the top was fueled by a reputation for premium experiences, it’s notable that the company is eyeing a senior market now for its Apple Watches. Meanwhile, it’s also dealing with fallout from a recently discovered FaceTime bug, which routes audio even before call recipients pick up the line.
It all makes for what could be a pivotal year for Apple. How it reacts to domestic and global market forces, and how it balances a waning iPhone business with a growing services segments and new targets for its smartwatches could set the tone for years to come.