Downwards spiral
Should Apple be worried about decreasing sales?
For several years, after every new model of iPhone, commentators have claimed sales failed to meet expectations. That’s never been true… until now. Apple has stopped releasing unit numbers, but revenue from iPhone sales fell by some 14 per cent in the last financial quarter, leading to a shock earnings warning.
On January 2, Apple issued a warning to investors revising its projections for the financial quarter ending December 31 ahead of the final figures (which have not yet been released at time of writing). Revenue for the quarter would come in at around $84bn, it said, substantially below its November projection of $89bn–$93bn (from which Wall Street had reached a “consensus” figure of $91bn). Analysts pointed out that this was the first time Apple missed its projections since the March quarter of 2016. After the news, Apple’s share price fell by 10 per cent (although it was already heading downwards from a high point at the start of October).
The shortfall, Apple revealed, was entirely due to “lower than anticipated iPhone revenue, primarily in Greater China.” China’s economy slowed in the second half of 2018, Apple said, and the company believes “the economic environment in China has been further impacted by rising trade tensions with the United States.” This has affected consumer confidence and retail activity particularly in the Chinese smartphone market.
Based on Apple’s figures, analysts estimate that Apple’s revenue from China declined by as much as 25 to 30 per cent year–on–year, and that China has plummeted from 18 per cent of Apple’s total sales the previous quarter to nearer 10–12 per cent.
However, there were problems outside of China, too. “In some developed markets, iPhone upgrades also were
not as strong as we thought they would be,” Apple added. This was partly because of a long–term decline in carrier subsidies making phones more costly, price increases resulting from the strength of the US dollar (which also reduced foreign revenues), and even Apple itself cutting the price of battery replacements, which all led to users holding on to their current phones a little longer instead of wanting to upgrade.
The high prices of all the new models, and the lack of any equivalent to the discontinued “affordable” iPhone SE, were also a factor, analysts added. In a follow–up interview with CNBC, Apple CEO Tim Cook implicitly acknowledged this, highlighting Apple’s trade–in program, which can cut the cost of an upgrade iPhone quite significantly.
Cook said he did not think customers in China were widely spurning Apple because it was an American company. In fact, Apple’s installed base in China grew over the past year, and its Services revenue in China hit a new high, he went on to say.
The same was true globally. Apple’s installed base of active devices hit a new high, “growing by more than 100 million units in 12 months,” Cook said, and “revenue outside of our iPhone business grew by almost 19 per cent year–over–year, including all–time record revenue from Services, Wearables, and, of course, Mac.
“Services generated over $10.8bn in revenue during the quarter, growing to a new record in every geographic segment, and we are on track to achieve our goal of doubling the size of this business from 2016 to 2020.
“Wearables grew by almost 50 per cent year–over– year, as Apple Watch and AirPods were wildly popular among holiday shoppers; launches of MacBook Air and Mac mini powered the Mac to year–over–year revenue growth, and the launch of the new iPad Pro drove iPad to year–over–year double–digit revenue growth.”
The unprecedented number of new products wasn’t entirely a positive, though. It led to constrained supply of iPad Pro and Apple Watch Series 4 “for much or all of the quarter,” and also MacBook Air and even AirPods.
On January 3, Apple added that “the App Store had a record–breaking holiday week and New Year’s Day. The holiday week was our biggest week ever, with more than $1.22bn spent on apps and games, and New Year’s Day set a new single–day record at more than $322m.”
So despite analysts calling this “Apple’s darkest day in the modern iPhone era,” there was some good news to offset the bad — and to keep matters in perspective, AppleInsider pointed out that this will still be Apple’s second–biggest quarter in history.