Apple Wearables, Services Put the Company Back on the Growth Track

Published July 31st, 2019 - 07:00 GMT
Mac, iPad and accessories, plus marked improvement in China, help revenue grow again after 2 quarters of dips.
Mac, iPad and accessories, plus marked improvement in China, help revenue grow again after 2 quarters of dips. (Shutterstock)
Highlights
Fourth-quarter sales expectations of between $61 billion to $64 billion also topped expectations of $60.98 billion, according to Refinitiv estimates.

Apple on Tuesday announced revenue and profits that bested analysts' expectations for its fiscal third quarter, lifted by June-quarter-best services and "blowout" wearables figures, putting the company back on the growth track after two consecutive quarters of dipped sales.

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The iPhone maker - enjoying a market cap of $960.61 billion as at press time - reported revenue of $53.8 billion, 1 per cent up from a year ago, beating Wall Street views of $53.39 billion.

And though iPhone sales - the company's most crucial revenue-driver - were down 13.4 per cent to $25.99 billion, Mac, iPad and, most notably, Wearables, Home and Accessories picked up the slack, climbing 10.7 per cent ($5.82 billion), 8.4 per cent ($5.02 billion) and 48 per cent ($5.53 billion), respectively.

Services - which includes, among others, the App Store and Apple Pay, and which has consistently broken records - also rose, up 12.6 per cent to $11.5 billion, a fresh third-quarter high. It did miss a forecast of around $11.7 billion, but that would have been an 18 per cent growth after factoring out foreign exchange effects and a one-time payment from lawsuits last year.

"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," Apple CEO Tim Cook said in the statement accompanying the results.

Net income, however, was at $10.04 billion, down 14.8 per cent from $11.52 billion a year ago, which can be attributed to the ongoing US-China trade war that has hit Apple's base in the world's second-largest economy.

But, somewhat ironically, Apple's performance in China posted significant improvement, and played a major factor in driving last quarter's results: Compared to the previous two quarters in which sales dropped 25 per cent and 22 per cent, iPhone sales were down only 4.1 per cent to $9.16 billion.

Fourth-quarter sales expectations of between $61 billion to $64 billion also topped expectations of $60.98 billion, according to Refinitiv estimates.

'Blowout'

The results are continuing proof that Apple is no longer relying on its flagship iPhone to drive its business, instead diversifying more into other segments that have become more appealing to its users.

During the conference call with media that began at 1am UAE time after the results were released, Cook mentioned that Apple's services and wearables revenue combined is now nearing the size of a Fortune 50 company.

It was an "absolutely blowout" quarter for wearables, he specifically said.

The Apple Watch, he added, hit a new record for the third quarter. While Apple does not give specific figures for its timepiece, Cook said that 75 per cent of buyers were first-timers.

The wireless AirPods headset was also robust, he added.

In the Greater China market, the CEO said that Apple enjoyed sequential improvement in each segment, including the App Store's strong growth. Trade-in offers also aided.

On Apple's recent acquisition a significant portion of Intel's modem unit - a strategy seen as Apple moving towards more independency on manufacturing its own chipsets, Cook said: We see this as a great opportunity to expedite the development of future products, and further our long-term strategy of owning the core technologies that go into our products." 

Chief financial officer Luca Maestri said that Apple's net cash was at $102 billion at the end of the June quarter.

Apple shares were up 4.3 per cent as at press time.

Cook also hinted on a big year ahead for Apple.

"These results are promising across all geographic segments, and we're confident about what's ahead," he said in the statement.

"The balance of calendar 2019 will be an exciting period, with major launches on all platforms, new services and several new products."

And on the prospects of a 5G iPhone, Cook was mum. Apple is rumoured to release a device - or devices - that will be compatible with the next-generation mobile standard next year.

As always, Apple does not comment on speculation or future products, but Cook offered an insight, saying that, as this point in time, we are in the "extremely early innings" of 5G.


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