By Tripp Mickle
Apple Inc. posted its first back-to-back drop in quarterly sales
and profit in more than two years, but the tech titan reported
strength beyond its struggling iPhone business and said a sharp
downturn in China showed signs of easing.
Profit dropped 16% to $11.56 billion for the three months
through March 30, while revenue slid 5% to $58.02 billion, Apple
said Tuesday.
Sales of the iPhone, long the biggest driver of its business,
fell 17% to about $31 billion -- an accelerated decline for a
product that has been hobbled by smartphone owners holding on to
devices longer and by competition from rivals in China offering
lower-price, feature-rich handsets.
The company's results exceeded analysts' expectations, which had
ebbed following a surprising slump in the previous quarter. Chief
Executive Tim Cook highlighted glimmers of hope in problem areas
including China, where he said customers have reacted positively to
Apple's move to lower iPhone prices and offer financing
programs.
"Looking back at the past five months, November and December
were the most challenging, so this is an encouraging trend," Mr.
Cook said. "We like the direction we're headed with the iPhone, and
our goal now is to pick up the pace."
Apple said it expects revenue in the current quarter of between
$52.5 billion and $54.5 billion, above consensus expectations.
Apple also blunted the damage from its iPhone business by
extending the robust growth of services like app sales and
streaming-music subscriptions, which collectively jumped 16%. It
also said it would add $75 billion to its continuing share-buyback
program.
Shares of Apple surged about 5% after-hours, after falling in
regular trading. Through Tuesday's close, Apple's stock was up
about 27% this year, recouping most of the losses it racked up in
the final two months of last year. Its market value is on course to
once again top $1 trillion.
Tuesday's report followed a mixed bag of quarterly results from
tech giants, including a major stumble by Google's parent company
Alphabet Inc. that caused its stock to plunge nearly 8% on Tuesday,
its worst decline in more than six years.
Both the digital-advertising giant and e-commerce giant
Amazon.com Inc. over the past week reported their slowest revenue
growth in four years as their core businesses showed signs of
maturity. Microsoft Corp., meanwhile, topped $1 trillion in market
value at Tuesday's close for the first time after reporting strong
earnings last week.
The iPhone's woes have threatened to define one of the weakest
years in Mr. Cook's tenure. In January, Apple reported its first
decline in revenue and profit for the holiday quarter. It last
experienced consecutive quarterly declines in 2016 amid weak demand
for the iPhone 6, which offered limited improvements over preceding
models -- much like this year's iPhone XS and XR.
Mr. Cook has combated the adversity with a new strategy:
expanding Apple's services business and increasing the price of its
gadgets. In March, it announced new subscription services for
original TV shows, videogames and magazines, as well as a credit
card. It raised prices late last year on iPads, helping it increase
sales 22% in the latest quarter even as analysts estimate shipments
remained flat.
Mr. Cook also highlighted success -- especially in China -- of
trade-in programs added to revive iPhone sales. The company is
offering customers with older iPhone models above-average prices
for those devices if they exchange them for new iPhones, he
said.
Investors have largely shrugged off the iPhone troubles and
focused on Apple's potential to generate billions of dollars in
revenue by selling subscriptions across the more than 900 million
iPhones world-wide. They also were encouraged that the company
struck a multiyear agreement in April with Qualcomm Inc. for
smartphone modem chips that should allow Apple to deliver an iPhone
in 2020 with speedier, 5G wireless technology.
"They have reset expectations," said Mike Bailey, research
director at FBB Capital Partners LLC, which has $1.1 billion under
management and counts Apple among its top-10 holdings. "The next
catalyst Apple needs to get sales growing are features like 5G.
That factor went from negative to positive in the quarter because
of the resolution with Qualcomm."
Apple's share-repurchase plan is down slightly from last year's
$100 billion commitment, which was the largest ever announced by a
U.S. company, according to data from research firm Birinyi
Associates. Apple has bought back $71.6 billion since announcing
that prior commitment, bringing total repurchases since 2012 to
nearly $275 billion. Apple didn't give a timetable for when it will
fulfill the new commitment.
The company's board also approved a 5% increase in its quarterly
dividend to 77 cents a share, building on last year's 16%
increase.
Apple continues to struggle with broader economic challenges in
China, where slower growth has hurt companies including 3M Co. and
Intel Corp. The iPhone maker's sales from Greater China, which
includes Hong Kong and Taiwan, fell 22% in the just-ended fiscal
second quarter, an improvement from the prior quarter.
Apple recently reduced iPhone prices in China to be more
competitive with lower-price handsets from rivals like Huawei
Technologies Co. and Xiaomi Corp. That bolstered sales in China
during the quarter, analysts said, but iPhone shipments still fell
30% to an estimated 6.5 million units, according to Canalys, a
market research firm.
Mr. Cook said Apple has been helped by the Chinese government's
move to stimulate the economy by reducing value-added taxes, and by
a boost to consumer confidence from signs of progress in U.S.-China
trade talks.
Apple also delivered 30% sales growth from its wearables
division that includes its smartwatch, AirPods wireless headphones
and HomePod smart speaker. Analysts project that will be a $21.76
billion business this fiscal year.
The combination of wearables and services accounted for 29% of
total revenue in the fiscal second quarter, while the iPhone fell
to 54% of sales from its typical level of two-thirds.
"Thank goodness for the services side of the business because if
they didn't have that Apple would be a super-cyclical hardware-only
company," said David Rolfe, chief investment officer of Wedgwood
Partners Inc., a St. Louis-based firm with $3.1 billion that counts
Apple as its third largest holding. "It's grown its ecosystem and
given people more reasons to stick around."
Dow Jones & Co., publisher of The Wall Street Journal, has a
commercial agreement to supply news through Apple services.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
April 30, 2019 19:31 ET (23:31 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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