Apple sales beat estimates, iPhone stabilises

New York

APPLE'S quarterly profit and revenue beat Wall Street targets on Tuesday and its forecast for fourth-quarter sales topped expectations as well, with chief executive Tim Cook saying that "marked improvement in greater China" drove the results.

Services revenue in the fiscal third quarter rose 12.6 per cent to US$11.46 billion, a new record, but missed expectations of US$11.73 billion, according to IBES data from Refinitiv.

Mr Cook said that after factoring out a one-time payment from lawsuits a year ago and foreign-exchange effects, the services segment growth rate would have been 18 per cent.

IPhone sales fell 12 per cent to US$25.99 billion, about in line with expectations of US$25.96 billion, according to Refinitiv data. Apple shares were up 3.5 per cent to US$216.10 in after-hours trading on Tuesday after the news.

China sales fell 4 per cent to US$9.16 billion, after declining 22 per cent in the fiscal second quarter. The Chinese smartphone market shipments declined 6 per cent in Apple's fiscal third quarter, according to market research firm Canalys.

Trade tensions between the US and China have weighed heavily on Apple because it has slowed down economic growth in China, a major market for Apple. Apple effectively cut iPhone prices in China earlier this year after currency exchange rates had made its phones too expensive for many Chinese consumers. Mr Cook said that results for mainland China, a subset of Apple's greater China region, were positive, and that the numbers "actually grew" in mainland China. "Non-iPhone revenue grew 17 per cent. We grew in every category outside of iPhone," he said.

Apple said it expects revenue for the current fiscal fourth quarter of between US$61 billion and US$64 billion, compared with analyst estimates of US$61.02 billion.

For the fiscal third quarter ended in June, Apple reported a 1 per cent rise in revenue to US$53.8 billion and a 7 per cent drop in earnings per share to US$2.18, compared with expectations of US$53.39 billion and US$2.10 per share, according to Refinitiv data.

"With regards to iPhone, the most important thing for us is that we continue to grow the installed base," said Mr Cook. "We did that on iPhone. So the fact that people are hanging onto them a little longer, it's not something I worry about in the 90-day clock."

Hal Eddins, chief economist for Apple shareholder Capital Investment Counsel, said he was pleasantly surprised to see iPhone sales declines slowing down versus the prior quarter. "You really don't hear people talk about their phones like they did several years ago," he said. But, "the key is that when people want to splurge on a phone, they do it with an Apple product."

Apple did not give the number of active Apple devices, but in January said it was 1.4 billion, with 900 million of those being iPhones. Investors used the number, called the installed base, as a proxy for how many subscribers it can gain for its services business.

Mr Cook told investors on a conference call on Tuesday that Apple has 420 million paid subscribers to its own services and third-party apps. The company has set a goal of 500 million by 2020.

Trip Miller, managing partner at Apple shareholder Gullane Capital Partners, said he wants to see services growth return to the 20 per cent range and thinks Apple needs to use its billions in cash to buy media properties to fuel its forthcoming television service. "You have to have a bigger installed base and have services that people get value from," he said.

Apple reported results as US and Chinese trade negotiators met in Shanghai for their first in-person talks since a G-20 truce last month, after which US President Donald Trump said he would not impose new tariffs on a final US$300 billion of Chinese imports if China agreed to make purchases of US agricultural products.

Apple's most important products, such as the iPhone, are primarily made in China but so far have avoided tariffs. But the iPhone would be included in the final US$300 billion round as it is currently written.

"I don't know what the journey will be, but over time I'm optimistic that we'll all get to a good conclusion and everybody will win from it," said Mr Cook when asked about the trade talks.

Apple's market share in China declined to 5.8 per cent from 6.4 per cent, according to market research firm Canalys, in part because smartphone rival Huawei Technologies gained market share to become the top handset seller in the country.

But Apple experienced a smaller market share loss than competitors such as Xiaomi Corp, Oppo and Vivo, according to Canalys data. Mr Cook said that iPhone price adjustments, plus the Chinese government's move to cut phone taxes, helped keep iPhone sales in China from eroding further.

Apple said it returned more than US$21 billion to shareholders during the fiscal third quarter, including US$17 billion in share repurchases. It declared a dividend of 77 cents per share. REUTERS