Apple iPhone sales dropped to less than half of quarterly revenue for the first time in seven years, but CEO Tim Cook on Tuesday described the change as successfully diversifying away from a single product.
Apple today announced financial results for its fiscal 2019 third quarter ended June 29, 2019. The company posted quarterly revenue of $53.8 billion, an increase of 1 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.18, down 7 percent. International sales accounted for 59 percent of the quarter’s revenue.
Services revenue reached $11.5 billion in the period, a quarterly record.
The iPhone in the third quarter represented about 48% of Apple’s revenues, marking the first time that the product has made up less than half of sales in several years. Services and wearables are picking up the slack.
Apple’s iPhone revenue was $25.986 billion in the third quarter, about a $3 billion year-over-year decline. This year’s models aren’t expected to be much of a leap either.
The last time iPhone sales dipped below 50% of overall revenues was nearly 7 years ago, in the fourth quarter of 2012.
Trade tension has slowed down economic growth in China, a major market for Apple, which effectively cut iPhone prices in China earlier this year after currency exchange rates had made its phones too expensive for many Chinese consumers.
Apple’s market share in China declined to 5.8% from 6.4%, according to market research firm Canalys, in part because smartphone rival Huawei Technologies gained market share to become the top handset seller in the country.
But Apple experienced a smaller market share loss than competitors such as Xiaomi, Oppo and Vivo, according to Canalys data.
IPads generated sales of $5.02 billion, meeting projections of $5 billion.
Mac revenue was $5.82 billion, topping estimates of $5.4 billion and an increase from last year’s $5.3 billion.
The company said it had $5.52 billion in wearables revenue, its category for the Apple Watch, and AirPods and Beats headphones. That’s an increase from $3.7 billion a year ago.
Tim Cook, Apple’s CEO, told investors on a conference call Tuesday that Apple has 420 million paid subscribers to its own services and third-party apps. The company has set a goal of 500 million by 2020.
“This was our biggest June quarter ever — driven by all-time record revenue from Services, accelerating growth from Wearables, strong performance from iPad and Mac and significant improvement in iPhone trends,” said Cook. “These results are promising across all our geographic segments, and we’re confident about what’s ahead. The balance of calendar 2019 will be an exciting period, with major launches on all of our platforms, new services and several new products.”
“Our year-over-year business performance improved compared to the March quarter and drove strong operating cash flow of $11.6 billion,” said Luca Maestri, Apple’s CFO. “We returned over $21 billion to shareholders during the quarter, including $17 billion through open market repurchases of almost 88 million Apple shares, and $3.6 billion in dividends and equivalents.”
Apple provided the following guidance for its fiscal 2019 fourth quarter:
- revenue between $61 billion and $64 billion
- gross margin between 37.5 percent and 38.5 percent
- operating expenses between $8.7 billion and $8.8 billion
- other income/(expense) of $200 million
- tax rate of approximately 16.5 percent
Apple's projected revenue in the current quarter topped analysts’ estimates, signaling the company is optimistic about potential sales of the new iPhone models set to launch late in the period.
The forecast suggests the company anticipates that its next iPhone lineup, which won’t be a major change from the 2017 and 2018 models, and increasing revenue from services will be strong enough to return the company to growth.
Despite holding a launch event in March previewing four major new services, the company has only managed to roll out one so far, Apple News+, which has not been as successful as the company projected. Cook confirmed on a conference call that a branded credit card will launch in August. He also said that thousands of Apple employees have been testing the Apple Card, which is a partnership with Goldman Sachs Group Inc. Those services still mostly require the iPhone.