Apple Quarterly Earnings Report Includes a Huge iPhone Shortfall

Posted on January 29, 2019 by Paul Thurrott in Apple, iOS with 56 Comments

Apple announced another impressive financial quarter, but iPhone revenues dropped by an alarming 15 percent, indicating a unit sales drop-off that is much worse than that of the overall smartphone industry.

“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,” Apple CEO Tim Cook said in a canned statement.  “Our active installed base of devices reached an all-time high of 1.4 billion 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.”

Apple posted net income of $20 billion on revenues of $84.3 billion in the quarter ending December 31, 2018. Those are impressive figures, for sure. But revenues fell markedly from the $88.3 billion posted in the same quarter a year ago.

Apple no longer provides unit sales figures for individual products. So we only have a few data points to work from.

First, iPhone revenues dropped 15 percent to $52 billion. So Apple’s most important business is still directly responsible for 62 percent of its total revenues. Add in the Services business—which is valid since those services only exist because of iPhone—and we see that they together contributed almost 75 percent of Apple’s total revenues.

Interestingly, Apple reported that its other businesses, collectively, grew by 19 percent. Mac, iPad, and wearables all saw revenue increases from the same quarter a year ago.

Apple’s vaunted Services business, meanwhile, continues to grow—it hit $10.87 billion in the quarter, up 19 percent year-over-year. But Services still constitutes under 13 percent of Apple’s revenues. If this business magically doubled, it would still provide less than half the revenues of iPhone. (And that’s never going to happen, at least in the short term, of course.)

Apple also reported that it generated a cash flow of $26.7 billion in the quarter. The firm now has a net cash balance of $130 billion.

Apple expects to post revenues of $55 billion to $59 billion in the current quarter. In the year-ago quarter, it reported revenues of $61.1 billion

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Comments (56)

56 responses to “Apple Quarterly Earnings Report Includes a Huge iPhone Shortfall”

  1. Daekar

    Ouch. We're solidly into the "not growing anymore" phase of things, that's for darn sure. I bet Wall Street lost its collective mind, never mind the fact that they're still making more money than some entire countries.

  2. RobertJasiek

    The current decrement might be short-term or the start of a long-term development.

    Short-term explanations: battery trade-in program, current political problems (USA trade restrictions, China's politics, growing Chinese competition, Brexit), available earlier mid-price models, no current SE successor in the low end of the mid-price range.

    Long-term explanations: the prices have become too high, not everybody swallows the notch (e.g., I would never buy a phone rather than any with notch), not everybody prefers tall displays (e.g., I would never buy a phone rather than any with a ratio taller than 16:9), smartphones have become good enough for many so many think that they only need to be replaced when they do not do their job reasonably any more, low price Android devices have become sufficiently attractive for more people.

  3. martinusv2

    Maybe we will see more affordable phones this year?

  4. SvenJ

    Seems they may have found the inflection point for price x volume.

  5. Awhispersecho

    So they raised prices by 20% and other hardware grew by 19% which means that essentially cancels out. But iPhone revenue still dropped by 15% even while raising the prices 20%, is that a 35% drop in unit sales for the iPhone?

  6. sentinel6671

    "Game over man, game over!

    "We're in some pretty shit now man!"


    #AliensFTW


    :)

  7. Michael_Miller

    So, a net margin of over 20% is outstanding any way you cut it. Cash flow of 27 billion is phenomenal.

  8. zybch

    I wonder how they define "active installed base of devices".

    We know MS only counts devices active within the previous 28 days, but apple's claim of 1.4billion 'active' devices? I call bullpoop on that.

    • steenmachine

      In reply to zybch:


      Considering Apple was close to eclipsing the 2 billion mark on total iOS devices sold back in September, I don't think the figure is far off. I know a few folk still using their iPad 2 (albeit slowly), and these were sold back in 2011.


      But fair question...not sure how 'active' is defined.

  9. dontbe evil

    poor paul he tried to defend and push iPhones so hard

  10. madthinus

    I guess if you finally refresh products that has sit idle for years, surprise, people buy them again. To me the weakness of Apple is the little attention it pays to all it's other products. Recently watched that 1997 Macworld presentation of Steve taking about Apple straights as they are putting things in place to turn the company around. It is almost if they need to do this. Letting products sit for years is just terrible. They should be able to refresh Macbooks with the latest Intel chips without delay.

    • wocowboy

      In reply to madthinus:

      You have hit the nail on the head. The vast majority of the products Apple sells are 3-4 years old, some are 4-5 years old. Other manufacturers have continued updating their products on an annual basis over this time period, so their offerings are naturally far more up to date, tech-wise. On the other hand, people keep their Apple devices for many years in some cases. I just bought a new iMac because my 6 year old model was getting really long in the tooth and could not be upgraded to OS X Mojave. It had reached the "vintage" stage where updates stop. But, the iMac I replaced it with is a model introduced 3 years ago and not upgraded since then. I really did not want to buy a new computer yet but with no idea of when a new iMac with today's components inside will be coming, I pulled the trigger. The same scenario can be said of any number of other Apple products. All this said, none of these problems will make me switch to a Windows machine. With Microsoft's recent record on updates that bork one's machine, like just happened to Paul this week, I am just fine with Apple's spotless track record in this regard. And I will never purchase an Android phone that might never receive a single OS update over its lifespan. I value my personal security, identity, and privacy far too much to risk such stupidity.

  11. Thomas Parkison

    Who would have thought that making an iPhone that costs nearly $1000 would have been a bad idea? /sarcasm

  12. provision l-3

    What is interesting, or what I find interesting, is that of Apple's remaining product segments Services had the smallest growth year over year. The Wearables, Home and Accessories (Formerly "Other") blew up with 33% growth and now is just a tad smaller than the Mac business and iPad is Apple's smallest business segment. I'm guessing this is largely driven by Apple Watch (Didn't Paul declare this a failure of a product?) and the increased pricing on iPad and MacBook Air didn't seem to stop people from buying those products.

  13. lvthunder

    Is there a reason why last years was so high? The X came out later then the XS and XS Max did this year. Also what were some of the numbers of the other makers. Did Samsung go down 10% compared to Apple's 15% or did they go down 2%.

  14. Bdsrev

    Considering Apple is basically The iPhone Company, this is seriously bad news for them. Hopefully price cuts will bring sales back up

  15. remc86007

    Apple could double their services revenue overnight if they made all of their services cross-platform. I have an iPhone, but I don't use any Apple services because nothing else I use is Apple. Heck, I'd pay monthly if they brought imessage to Windows.

    • JoePaulson

      In reply to remc86007:

      Right? Imagine the corporate investment if they worked with MS to create an SSO solution based on Active Directory.


      Imagine a world where iMessage was available for PCs... (I can see them not allowing it on Android)


      come on Apple....integrate better than Android with PCs and be rewarded.

    • provision l-3

      In reply to remc86007:

      Unfortunately Apple doesn't breakout its services by income but I think we can kind of spitball this one:


      These are what I can think of:

      Apple Music: Currently on iOS, Mac, Windows, Android and Alexa.

      iTunes: Currently on iOS, Mac, Windows and some upcoming Samsung TVs

      iCloud: Currently on iOS, Mac, Windows and via the Web.

      Licensing (Airplay and whatever): by definition this is on multiple platforms.

      Apple Pay: iOS, Mac.

      App Stores: Mac and iOS

      Maps: iOS, Mac and Duck Duck Go

      AppleCare: Apple Products only


      I'm sure I'm missing something there but those are the "services" I can think of that generate revenue. iMessage may but I'm not sure how. Looking at the list three are pretty well represented on multiple platforms. I guess Apple Pay could be expanded as well as Maps. The App Stores doesn't make much sense and AppleCare is an extended hardware warranty so that wouldn't make any sense. So, I am not convinced expanding the existing services that aren't on other platforms would actually gain much in the form of revenue. Am I missing something here?


      Personally, I think making the Apple Watch work with Android phones would be an opportunity for growth given that the majority of phone are Android based. To me this would be similar to when they brought the iPod to Windows. But I have been known to be completely wrong on these things.

    • robincapper

      In reply to remc86007:

      The reason I suspect iMessage will not appear on Android (or elsewhere) any time soon is it's the lock-in mechanism for lots of iPhone users. They might lose more (revenue wise) than they'd gain

  16. JoePaulson

    Make cheaper iPhones with the current tech investment....The age of huge profits is over...You can make good profits though and take $300 off your top of the line...and at least 200 off the CR.

    • BrianEricFord

      In reply to JoePaulson:


      If, as you say, there’s no innovation coming from Apple, there’s no innovation coming from anyone.


      Apple’s chips alone are enough to show you’re wrong, though.

      • MikeGalos

        In reply to BrianEricFord:

        Innovations that don't provide features to the user don't drive sales.

        Innovations that only provide cheaper and more controllable manufacturing costs don't drive sales unless those savings are, at least in part, passed on to the user.


        Producing your own chipset does not add features and any cost in manufacturing or licensing clearly hasn't been passed on to the users. And, no, including a different bundling of features into the chips than the OEMs you used to buy chips from is not innovation, it's just packaging.

        • BrianEricFord

          In reply to MikeGalos:


          Jesus — are your arms tired from carrying those goalposts, because they’ve moved quite a lot.


          We’ve gone from a claim that Apple isn’t innovating (which seems to have disappeared, oddly) [edit to add it appears my original reply is attached to the wrong thread, for whatever reason] to “innovation doesn’t count if it does not add an obvious feature for consumers.”


          That’s a ludicrous statement on its face before you even get to how crazy it is to say Apple’s custom chips provide no features that are meaningful to consumers.

          • provision l-3

            In reply to BrianEricFord:

            Right, above when responding he dismisses sales because marketshare, then down here it's innovation doesn't matter because it does't drive sales. Anything Apple related is like the Bat Signal for him to come out spouting loopy crap. Its gotta suck being mentally stuck in an insipid platform war that people loved to argue two decades ago.

    • MikeGalos

      In reply to JoePaulson:

      That's never been Apple's business model, though. They count on huge profits and use their pricing as a differentiator for their product lines.

  17. Piyer

    Apples current strength in iPhone design and sales will be its weakness in the long term.


    They do not have strength in Data center and cloud operations like Microsoft, Amazon, Google and Facebook. Already lost the race to accomplish anything with Siri. The Social battle is also lost for Apple. The services component is directly tied to the iPhone users which will dwindle over a period of time.


    Apart from exquisite hardware design with integrated software and supply chain credentials, Apple's track record of creating apps in other platforms is nothing to write home about. They do not have other inherent strengths for pivoting to additional channels of revenue, unless they buy companies. But integration and aligning with the Apple culture may take time.


    Consumers are fickle, as Apple is seeing the signs now. Apple will continue to be a niche player, like when they used to be with the Mac Vs. PC days. Except singing to the choir, convincing a new generation of users to buy premium products is going to be difficult.


    Ultimately the unthinkable may happen. To compete against Google, Amazon and Facebook, Apple may merge or join forces with Microsoft! Now, that would make a great Team!

    • BrianEricFord

      In reply to Piyer:


      This is a nonsense fever dream of a comment.

    • provision l-3

      In reply to Piyer:

      "Apple will continue to be a niche player"


      Just to be clear, Apple had a "huge iPhone shortfall" in this quarter and made 84 billion dollars. For perspective, Amazon makes around 180 billion a year, Microsoft and Google make about 110 billion dollars a year and Facebook brings up rear at 40 billion. So Apple, the niche player, in a bad quarter made over double what Facebook does in an entire year, almost as much as what Google and Microsoft make in an entire year and over 40% of what Amazon makes in an entire year. If that is a niche player I'm curious who you think is a big player.

      • MikeGalos

        In reply to provision l-3:

        (All data from December 2018 NetMarketShare figures)


        Vendor platform usage

        Google - 38.9%

        Microsoft - 37.9%

        Apple - 21.3%


        By Operating System

        Android - 38.9%

        Windows - 37.9%

        iOS - 17.1%

        macOS - 4.15%


        Mobile (phone) share (51.8% of computing devices)

        Android - 70.1%

        iOS - 28.5%


        Desktop/Laptop share (43.2% of computing devices)

        Windows - 87.7%

        macOS - 9.61%


        Tablet share (4.9% of computing devices)

        Android - 52.3%

        iOS - 47.7%


        Looks pretty niche when you actually look at numbers other than apparently unsustainable profit margins...


      • Piyer

        In reply to provision l-3:

        Appreciate your point of view. Yes, Apple makes and keeps lots of money. That does not reflect its long term competitiveness. It is worth mentioning that even though Apple is the world's most profitable company, the credit rating for apple is AA+ and never achieved AAA rating. Maybe Moody's know something others do not.

        • Greg Green

          In reply to Piyer:

          Apple is still profitable and has enough cash to keep warm for several winters. I doubt much innovation will come from current management, but there’s always hope for later.

        • rm

          In reply to Piyer:Basically Apple if iPhone implodes (it continues to lose market share year after year), that is all but about $22 billion in sales. If Surface were to implode (so far they continue to increase market share), Microsoft would only lose about $2 billion in sales. Being diverse pays huge benefits and because Apple is so depending on a product that is losing market share, it is a risking investment.


        • provision l-3

          In reply to Piyer:

          Wow, Moody's credit is just grasping at straws. But if you see that as an issue then you must really be concerned for Google, Amazon and Facebook (all companies you mentioned as being more competitive) because they all have a worse credit rating.

  18. TechnologyTemperance

    US carriers (Thanks T-Mobile!) moving to financing phones, instead of 2-year contracts, have changed the game. With 2-year contracts, you always got the newest phone, because you paid the same amount anyways. It took a few years, but now that everyone knows exactly how much phones really cost (NOT $200), people are keeping their phones longer because they have a lower monthly bill.

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