By Tripp Mickle
Apple Inc. has shaken free of last year's iPhone slump, posting
record revenue and a return to profit growth in the latest quarter
behind strong sales of its flagship smartphone as well as apps and
AirPods wireless earbuds.
The tech giant reported revenue rose 9% in the December quarter
to $91.82 billion, driven by blossoming sales of devices and
services connected to the iPhone such as smartwatches and
streaming-TV subscriptions. Sales of iPhones, which account for
more than half of its revenue, rose 8% to $55.96 billion.
Shares of Apple, which have more than doubled over the past
year, rose 1.5% in after-hours trading.
Apple executives said they expect the robust sales growth to
continue in the current quarter, though they acknowledged the
coronavirus outbreak had introduced some uncertainty in China, its
second most-important market and the country where most of its
products are manufactured.
Chief Executive Tim Cook said Apple is limiting travel to China
because of the health crisis and has reduced store operating hours
in the country. He said Apple has alternatives sources to its
suppliers in Wuhan, the region at the center of the outbreak that
triggered a broad market selloff Monday. Factories outside of Wuhan
have pushed back plans to reopen after the Lunar New Year to Feb.
10 from the end of January, he said.
Mr. Cook said the company's guidance for record fiscal
second-quarter revenue of $63 billion to $67 billion represents a
wider-than-normal range due to the uncertainty. Apple counts on
China for nearly a fifth of its sales and relies on its workforce
to assemble most of the iPhones, iPads and Macs it sells around the
world.
The results for its fiscal first quarter marked a return to form
for Apple, which last year failed to report a quarterly revenue
record for the first time since the iPhone's 2007 release. A year
ago, it slashed its guidance for the first time in more than 15
years. An iPhone sales slump and an economic downturn in China led
to the company's first decline in fiscal-year revenue since
2016.
Apple snapped out of a slowdown in its smartphone business by
introducing new services and accessories that would appeal to
owners of the 900 million iPhones world-wide. The addition of a
credit card and video-subscription service helped increase sales of
services 17% in the latest quarter, the company said. Meanwhile,
the introduction of the $250 AirPods Pro with noise cancellation
helped fuel a 37% surge in the company's wearables business, which
also includes smartwatches and iPods.
"Demand for AirPods continues to be phenomenal, particularly for
our new addition AirPods Pro," Mr. Cook said during a call with
analysts.
The growth in both those businesses has energized investors and
helped the company's stock record one of the biggest one-year
rallies in history. Apple's share price has more than doubled from
last year's low, adding more than $725 billion to its value, well
above the total value of Facebook Inc.
"This is continued evidence that services can transform the
company," said Mark Stoeckle, chief executive of Adams Funds, a
Baltimore-based investment firm with $2.5 billion under management
that counts Apple among its largest holdings. " Tim Cook has
brought out products that have not only added to revenue and
earnings but done so within an ecosystem where that cash cow -- the
iPhone business -- has been the beneficiary."
Net income for the latest period rose 11% to $22.24 billion,
marking Apple's first quarterly profit increase in more than a year
and a new company record. Per-share earnings for the quarter were
$4.99; analysts surveyed by FactSet had expected $4.54.
Additional cameras on the three phone models released in
September and a $50 price cut on the base model helped the iPhone
business return to growth. Still, iPhone sales were below the
company's December-quarter peak of $61.1 billion two years ago.
To give a jolt to its smartphone business, Apple plans to
release a low-price iPhone this year that is expected to be an
update to the $399 SE model it first released in 2016. It also is
expected to release its first 5G iPhones in the fall, offering a
new generation of wireless speed that has Wall Street analysts
forecasting a return to iPhone shipment growth in 2021.
Sales in Greater China, which includes Hong Kong and Taiwan,
rebounded in the December quarter, rising 3% after a yearlong
decline. Apple's sales in the region of apps, as well as
smartwatches and iPads, continue to grow, even as the iPhone
business is challenged by Chinese rivals and a broad slowdown in
smartphone sales.
Apple blunted the challenge to its iPhone business and gained
market share by reducing iPhone 11 prices, Canalys said. The firm
predicted unit sales will improve with the release of a 5G iPhone
in China.
"Tim Cook has made a huge bet on China, so Apple is more
vulnerable than most companies on the sale and supply-chain side,"
said Steve Milunovich, technology strategist at Wolfe Research. He
said that Apple could manage any loss in sales from people shopping
less over the Lunar New Year because of the viral outbreak but
would face a "worst-case scenario" if production was disrupted at
factories.
In the Americas, Apple's largest geographic segment, services
helped deliver a 12% increase in sales. The company launched its
credit card and Apple TV+ streaming service in the U.S. in the
second half of last year.
The company didn't provide subscription numbers for its Apple
TV+ video service. Launched in November with a price of $4.99 a
month, its marquee drama, "The Morning Show," starring Jennifer
Aniston, Reese Witherspoon and Steve Carell, was nominated for a
Golden Globe, but other planned releases such as a film and
documentary have been challenged by controversy over their subject
matter.
Mr. Cook said in a statement that the number of active Apple
devices world-wide rose to 1.5 billion from 1.4 billion a year ago.
The 7% increase represents a deceleration in growth from prior
years, but shows that Apple is continuing to increase its customer
base as it aims to sell more services.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
January 28, 2020 19:06 ET (00:06 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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