If Apple is struggling, what does this signal for the wider tech economy?
Apple last night (29 January) reported first-quarter revenues of $84.3bn, missing Wall Street revenue expectations by $4bn.
Earlier this month Apple CEO Tim Cook warned investors and analysts to brace themselves for bad news, accurately predicting revenues of around $84bn, blaming macroeconomic and currency conditions and weak sales in China. But the elephant in the room was poorer iPhone sales.
‘We manage Apple for the long term’
– TIM COOK
Apple confirmed that revenues from iPhone sales were down 15pc while total revenues from other products and services were up 19pc. This is a major change for Apple since the iPhone has, until now, seen nothing but unstoppable growth.
Services revenue, however, reached an all-time high of $10.9bn, up 19pc, while revenues grew for Mac and Wearables (9pc), Home and Accessories (33pc) and iPad sales (17pc).
“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,” said Cook.
“Our active installed base of devices reached an all-time high of $1.4bn in the first quarter, growing in each of our geographic segments. That’s a great testament to the satisfaction and loyalty of our customers, and it’s driving our Services business to new records thanks to our large and fast-growing ecosystem.”
So, what’s happening?
To say the world has reached peak smartphone, or peak iPhone, would be lazy analysis because Apple still sold a lot of iPhones in Q1, or what is known as the pivotal holiday quarter.
While the company no longer reveals precisely how many units per category it sells, it still makes a lot of money from the iconic mobile device – $51.9bn in fact compared with $7.4bn from Mac devices and $6.7bn from iPad devices.
But it has fallen considerably when you think it made revenues of $61.1bn this time last year from the iPhone.
Key factors include the dip in sales in China by more than 26pc. Trade tensions between the US and China aren’t helping and, now that the US Department of Justice has thrown criminal charges at Huawei, things aren’t likely to change. Another factor is that people in China are spoiled by choice with local makers from Huawei to Xiaomi and Oppo selling mid- to high-end devices that are attractive as well as affordable.
Buyers are balking at the prospect of spending $1,000 or more on new flagship devices such as the iPhone XS and XS Max. Not only that, but operators are no longer subsidising new devices the way they had been earlier in the smartphone revolution. Matters were not helped by Apple good-naturedly applying a battery replacement programme that enabled owners of older devices such as the iPhone 6S to rejuvenate their devices rather than buying the newer models.
Hasn’t Apple been here before?
If you’ve studied the history of Apple, you’ll know it has been in much tighter spots.
It nearly went bankrupt in 1997 only to rise phoenix-like from the ashes with returned CEO Steve Jobs at the helm. In 2001, just a few years after turning things around with the iMac, the company reported a lousy Q1 with revenue at the time of just $1bn, down 57pc. Apple has come a long way from reporting $1bn quarters.
Remember that the Apple of 2019 is a very different beast from what it was back then. Outside of the iPhone, each of its other product groups records revenues at such a scale that they could be a Fortune 500 company in their own right.
Like I recommended before, keep an eye on Services, which has just reported the highest revenue yet from categories such as the App Store, Apple Pay, iCloud and advertising. Apple Pay alone saw 1.8bn transactions in the quarter while revenue from the cloud was up 40pc.
Apple may be bruised from having to report fewer smartphone sales but if it sneezes, it means other tech companies may catch a cold.
Watch what other players such as Facebook, Qualcomm, Samsung, Amazon, Microsoft, PayPal and LG report this week. Guaranteed it will be a mixed bag, with some excelling in cloud while others struggle with changing consumer sentiment and sabre-rattling between the US and China.