Apple perks up on demand for services, accessories

An Apple store in Beijing (above). Investors are looking to Apple's services business to fuel growth as sales of iPhones (left) slow.
An Apple store in Beijing (above). Investors are looking to Apple's services business to fuel growth as sales of iPhones slow.PHOTO: REUTERS
An Apple store in Beijing (above). Investors are looking to Apple's services business to fuel growth as sales of iPhones (left) slow.
Investors are looking to Apple's services business to fuel growth as sales of iPhones (above) slow.PHOTO: APPLE

SAN FRANCISCO • Apple has said sales in China are stabilising and touted how rising demand for services and accessories such as Apple Music and Apple Watch helped offset a record drop in iPhone revenue.

Sales of iPhones, which account for more than half of the company's revenue, fell 17 per cent in the fiscal second quarter from a year earlier and slightly missed analyst expectations.

After Apple slashed prices in China, iPhone sales picked up towards the end of the quarter and revenue rose from iPads, wearables and services. While consumers may be putting off phone purchases longer than in the past, they are deepening ties with the company's brand.

Apple shares, which have mostly recovered from an end-of-year sell-off, are rising towards a new high. They gained more than 5 per cent in after-hours trading on Tuesday after Apple announced the results and plans for a new US$75 billion (S$102 billion) share buyback.

Apple said it expects revenue of between US$52.5 billion and US$54.5 billion for the quarter ending in June, above analysts' average estimate of US$51.93 billion, according to IBES data from Refinitiv.

In an interview, Apple chief executive Tim Cook said iPhone sales started to strengthen during the last few weeks of the fiscal second quarter, including in China. "These, along with the continued success with wearables and so forth, give us some confidence that things are getting a bit better," he told Reuters.

Apple posted net earnings per share of US$2.46 for the March quarter, down 9.9 per cent from a year earlier, against Wall Street's average estimate of US$2.36. Actual net income declined 16.3 per cent to US$11.56 billion. Apple spent a record US$27 billion on share buybacks and dividends during the fiscal second quarter.

Apple has wrestled with a slowdown in iPhone sales in key markets such as China and saw its first year-on-year decline in iPhone revenue for the holiday shopping season. The slowdown stemmed in part from the iPhone's high cost and competition from rivals.

Buybacks boost earnings per share by cutting the number of shares outstanding.

Apple said iPhone revenues were US$31.05 billion, slightly below analyst estimates of US$31.1 billion, according to data from FactSet.

But revenue from wearables and accessories sales of US$5.13 billion beat estimates of US$4.79 billion, according to FactSet data. And services revenue, which includes sales from iCloud, the App Store and other businesses, reached US$11.45 billion, compared with analyst estimates of US$11.32 billion, according to FactSet.

Apple has wrestled with a slowdown in iPhone sales in key markets such as China and saw its first year-on-year decline in iPhone revenue for the holiday shopping season.

The slowdown stemmed in part from the iPhone's high cost and competition from rivals such as Huawei, Xiaomi, Oppo and Vivo - all of which sell cheaper phones with features similar to the iPhone's.

But Mr Cook said price adjustments in China, along with lower Chinese taxes on the iPhone and the trade-in and financing deals Apple offered, helped iPhone sales start to recover towards the end of the quarter. He also said he is "optimistic" that the United States and China will soon reach a trade deal.

Investors are looking to Apple's services business to fuel growth as iPhone sales slow. Apple recently revealed a new credit card offering and subscription services for news, television and gaming, though only the news subscription is currently available for purchase.

Apple on Tuesday said it has 390 million subscribers to both its own and third-party services on its devices. The company has set a goal of 500 million by next year.

Mr Tom Plumb, founder of Wisconsin Capital Management and an Apple shareholder, said the results looked good, especially the uptick towards the end of the quarter.

But other shareholders, like Mr Brian Pirri, a principal at Apple shareholder, New England Investment and Retirement Group, said they took the results with a "grain of salt" because expectations were low heading into the report.

"I don't think the phones are the answer. (Apple) is going to need to continue to innovate, and I don't see a ton out of this report that excites me," Mr Pirri said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 02, 2019, with the headline 'Apple perks up on demand for services, accessories'. Print Edition | Subscribe