Apple’s reliance on iPhone sales begins to fade in earnest

Sales of smartphone now account for less of tech giant’s revenues

Trouble ahead? Analysts remain concerned that iPhone users are upgrading handsets less frequently and that the full brunt of trade wars has yet to hit. Photograph: Reuters

Trouble ahead? Analysts remain concerned that iPhone users are upgrading handsets less frequently and that the full brunt of trade wars has yet to hit. Photograph: Reuters

 

IPhone sales now account for less than half of Apple’s revenues. But the company is taking a glass half-full approach.

Luca Maestri, Apple’s finance chief, said: “The 48 per cent [revenue share of the iPhone] is, in a way, a positive for us. It shows the company is becoming broader.”

The Silicon Valley company played up the variety and depth of its business lines on Tuesday, saying that a 12 per cent year-on-year fall in iPhone sales in the third quarter was offset by a rosier picture than expected in China and booming growth in its “wearables”, such as AirPods earphones and Apple Watches.

As a result, overall revenues in the quarter to June were up 1 per cent year-on-year to $53.8 billion (€48.3 billion), ahead of analysts’ expectations.

Thomas Cooke, a business professor at Georgetown University, said: “They have diversified themselves in such a way that the iPhone is not so critical. It used to be, ‘tell me how many iPhone units were sold’, and that was it. Now it’s, ‘tell me about the iPhone – but tell me about all the rest’.”

As recently as early 2018, iPhones made up 70 per cent of Apple’s top line.

“It’s worth taking a step back and digesting the bigger picture here,” chief executive Tim Cook told analysts as he explained why Apple is pushing into gaming, Netflix-style video streaming and credit card services. “Apple is alone in offering this kind of value and ecosystem to its customers.”

The group’s resilience in China played a major role in sending shares up 4.5 per cent in after-hours trading. In January, Apple was forced to issue a rare revenue warning owing to a slowing Chinese economy, fuelling investor fears that the trade tit-for-tat with the US was hurting profits and tarnishing its brand image against the likes of Huawei and Samsung.

But revenue across greater China declined only 4 per cent to $9.2 billion in the third quarter – compared with a 22 per cent decline three months earlier – and in constant currencies revenue actually grew.

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“Each of our categories [in China] – iPhone, iPad, Mac, wearables, services - everything improved sequentially,” Mr Cook said. “So we couldn’t be happier with the progress.”

Mr Cook said Beijing’s stimulus programme, including a “bold” cut in the value added tax, had helped. Meanwhile, Apple improved its financing efforts to drive new phone buyers and enhanced its trade-in programme to lure a new segment of customers into the Apple ecosystem where it can sell high-margin subscription services.

Analysts remain concerned that iPhone users are upgrading handsets less frequently and that the full brunt of trade wars has yet to hit, but Tuesday’s results offered a glimpse at how Apple can focus less on iPhone sales and instead leverage its record 240 million paying subscribers across platforms such as Music, TV, apps and AppleCare.

Mr Maestri noted that outside of the iPhone, quarterly revenue grew 17 per cent from a year ago. Apple’s services business gained 13 per cent to $11.5 billion, wearables grew 48 per cent to $5.5 billion, Mac sales added 11 per cent to $5.8 billion and iPad sales increased 8 per cent to $5 billion.

Apple also forecast its next quarter’s revenue to be between $61 billion and 64 billion, ahead of analysts’ forecasts for $61 billion.

Daniel Ives, analyst at Wedbush Securities, said the “robust guidance” was the highlight of the earnings release. “We would characterise this . . . as a major feather in the cap for the bulls that should drive the stock to new highs over the coming months,” he told clients. – Copyright The Financial Times Limited 2019