Apple's Q1 beats lowered estimate as iPhone sales drop 15%
- Apple's sales and profit fell during the holiday season for the first time in over a decade and the company warned that the slowdown has lasted into this year in a press release. The iPhone maker's revenue fell 4.5% to $84.3 billion during the three months ended Dec. 29 from a year earlier and its profit slipped by 0.5% to $19.97 billion. Apple estimated that revenue for the March quarter will be $55 billion to $59 billion, less than the average consensus estimate of $59.98 billion, according to FactSet data cited by The Wall Street Journal.
- IPhone sales dropped 15% to $51.98 billion, making the flagship device the only product to see a revenue decline among its Mac computers, iPad tablets and wearable devices like the Apple Watch. Sales in Greater China, which includes Hong Kong and Taiwan, plunged 27% to $13.17 billion as Apple lost out to less expensive Chinese brands like Huawei, Vivo and Oppo.
- Apple also is rushing to fix a bug in its FaceTime video-chat service that lets people listen to users of iPhones, iPads and Macs. A 14-year-old iPhone user in Arizona discovered the flaw and his mother posted a warning on social media on Jan. 20. Apple didn't acknowledge the problem until a week later, an embarrassing delay for a company that trumpets its privacy protections.
Apple's results were in line with lowered guidance that CEO Tim Cook provided on Jan. 2, when the company said a significant slowdown in China and supply constraints are limiting growth. Apple has been too dependent on the iPhone for sales growth, making the company vulnerable to low-cost competitors whose technology is improving. In China, Tencent's WeChat app acts like a miniature mobile operating system on Android-based phones, making their features more like Apple's iOS. China's economic growth has slowed to a three-decade low and the smartphone market has matured with total shipments dropping 14% in 2018, per researcher Canalys. Cook said the company is looking at cutting prices of iPhones in China.
IPhone sales fell 15% but Apple's overall revenue only dropped 4.5%, indicating the company is growing somewhat less dependent on a single hit product. "Many of its other devices did well, including iPads, wearables and iMacs," Yoram Wurmer, principal analyst at researcher eMarketer, said in a statement to Mobile Marketer. "But the iPhone has been the big driver for Apple's earning for the past decade, so investors will likely be curious to see how Apple plans to regain its momentum." Apple last week cut jobs in its secretive self-driving car division, leading to greater speculation about its plans in that area.
The rollout of high-speed 5G mobile technology likely will be the next major driver of smartphone sales growth, with Gartner predicting 5G mobile phones sales will total 65 million units in 2019. However, Apple isn't set to release a 5G iPhone until next year, lagging behind rival Samsung. Apple now has 1.4 billion active devices, an increase from 100 million last year, including 900 million iPhones.
Apple's wearables, home and accessories category saw a 33% gain in sales to $7.31 billion as the HomePod smart speaker was available for its first holiday season. Apple had to delay the product's release from 2017, giving rivals like Amazon and Google a chance to strengthen their dominance in the growing market for smart-home devices. Apple this month introduced the HomePod to mainland China and Hong Kong, just in time for the Chinese New Year holiday that starts on Feb. 5.
Apple's high-margin services business, which includes the App Store, Apple Pay, Apple Music, iTunes and iCloud storage, showed healthy growth of 19% to $10.88 billion, putting the company on track to reach its of annual goal of $50 billion by 2020. The company said it has 50 million paid subscribers to Apple Music and 85 million active users of Apple News, its digital news aggregator. Apple Pay transactions doubled to 1.8 billion in 2018, another healthy sign. The company is looking to build out its subscription business for magazines after acquiring online newsstand Texture last year. The tech giant also has been privately discussing a "Netflix for games" service with game developers since the second half of 2018.