As expected, Apple on Tuesday announced first-quarter 2019 results that were decidedly lower than the initial guidance of $89 billion to $93 billion. For the holiday quarter, Apple posted revenue of $84.3 billion and a net profit of $19.9 billion, a 5 percent drop over last year and the clearest sign yet sign that iPhone sales are slowing.
We don’t know how much iPhone unit sales fell, of course, since Apple has stopped providing those numbers. (Apple CFO Luca Maestri did state that the iPhone XR is Apple’s best-selling phone, and the there are 900 million iPhones in use.) But we do know how much revenue the iPhone brought in. For the holiday quarter, Apple made $52 billion on iPhone sales, compared to $61 billion in the year-ago quarter, a 15 percent drop. Assuming Apple sold fewer iPhones than last year, it’s hard to extrapolate what that means for models and sales.
In an interview with Reuters, Tim Cook stated that the company is thinking about changing its iPhone pricing policy in foreign markets. Currently, Apple sets iPhone prices in U.S. dollars, which often translates to higher prices in foreign currency. Cook told Reuters that the company is considering changing that policy so that iPhone prices are set in the local currency. That would result in lower prices in foreign markets, and possibly spur sales.
During the results announcement, Cook stated that the foreign currency exchange as one of three factors that affect iPhone sales. He also said that the lack of iPhone subsidies and the battery replacement program (which was available for a reduced price in 2018) also are factors. Cook also acknowledged that people aren’t upgrading their phpne as frequently as they used to.
Elsewhere, Apple made $6.7 billion in iPads sales (versus $5.7 billion last year), and $7.4 billion in Mac sales (an increase over last year’s $6.9 billion). Also on the upswing was Services, which posted revenue of $10.9 billion, a near-$2 billion jump over the year-ago quarter. Apple’s Wearables, Home and Accessories category (previously Other) was also a big performer, earning $7.3 billion compared to $5.5 billion last year—a 33 percent jump.
As Apple CEO Tim Cook stressed in his letter to investors earlier this year, China was a particularly soft spot for Apple in the fourth quarter. The region generated $13.2 billion during the three months from September to December compared with $18 billion last year for a more than-25 percent drop.
Going forward, Apple expects the second quarter to come in under budget too. Revenue of $55 billion to $59 billion is expected compared to last year’s $61.1 billion. Apple is likely being extremely conservative with its estimates for the second quarter after needing to revise its first-quarter guidance, but it’s still likely to be significantly lower than last year.
Apple put a positive spin on the results, with Tim Cook saying, “While it was disappointing to miss our revenue guidance, we manage Apple for the long term, and this quarter’s results demonstrate that the underlying strength of our business runs deep and wide.”
In after-hours trading, AAPL rose more than $4 on the news.