Apple Reports Falling iPhone Sales Due to Late Launch, Sees Services Revenue Rise

Investors anticipated lower sales from Apple's bestselling product, but the hold-back was worse than expected.

By Reuters | Updated: 30 October 2020 13:00 IST

Apple Reports Falling iPhone Sales Due to Late Launch, Sees Services Revenue Rise

Photo Credit: Apple

iPhone 12 announcement was pushed back by pandemic-induced delays

Highlights

Since 2013, Apple has delivered new iPhones each September like clockwork
Apple has mostly beaten sales expectations this year
Apple did not provide a revenue growth forecast

The late launch of new 5G phones caused Apple customers to put off buying new devices, leading the company on Thursday to report the steepest quarterly drop in iPhone sales in two years.

Apple fell over 5 percent at one point in after-hours trade, wiping $100 billion (roughly Rs. 7,45,300 crores) from its stock market value.

Since 2013, Apple has delivered new iPhone models each September like clockwork. But pandemic-induced delays pushed the announcement back a month, with some devices still yet to ship.

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Even as booming sales of Mac products and AirPods boosted overall revenue and profit above what analysts had expected, iPhone sales dropped 20.7 percent to $26.4 billion (roughly Rs. 1,96,759 crores).

Investors anticipated lower sales from the Cupertino, California company's bestselling product, but the hold-back was worse than expected, especially in China, where more consumers have access to 5G than in the United States or Europe.

Apple has mostly beaten sales expectations this year and released a slew of new products and services that its customers have embraced while largely homebound during the pandemic.

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Apple said revenue and profits for the fiscal fourth quarter ended on September 26 was $64.7 billion (roughly Rs. 4,82,209 crores) and 73 cents (roughly Rs. 50) per share, compared with analyst estimates of $63.7 billion (roughly Rs. 4,74,756 crores) and 70 cents (roughly Rs. 50) per share, according to IBES data from Refinitiv.

But the flagship iPhone 12's announcement was delayed until October 13, several weeks later than usual, meaning no opening-weekend iPhone sales are included in the fourth-quarter results.

In an interview with Reuters, Apple Chief Executive Tim Cook said that he was "optimistic" about the iPhone 12 cycle based on the first five days of shipping data.

"5G is a once-in-a-decade kind of opportunity. And we could not be more excited to hit the market exactly when we did," Cook said. "At least in the US, the carriers are being very aggressive."

The iPhone 12 release timing drove down sales in Greater China by 28.5 percent to $7.95 billion (roughly Rs. 59,310 crores). Cook said he expects the new 5G devices to help iPhone sales recover in China.

"What we're seeing in the early going in the first five days gives us a lot of confidence that China will return to growth in our fiscal Q1," Cook told Reuters.

Apple did not provide a revenue growth forecast, but Chief Financial Officer Luca Maestri said revenue from services and non-iPhone products would grow by double-digit percentages in the fiscal first quarter, in line with analyst expectations. He said iPhone revenue would also grow, implying the rate would be in the single digits. Analysts expect iPhone revenue to rise 6.45 percent to $59.56 billion (roughly Rs. 4,44,347 crores) in the first quarter, according to Refinitiv data.

Logan Purk, an analyst with Edward Jones, said that "while iPhone sales will grow this cycle, it will be disappointing compared to elevated expectations, as we do not believe the 5G presents a compelling reason for a wave of upgrades."

Apple has offset volatile iPhone sales in recent years with steady growth in its services segment, which includes streaming music and television. Services revenue rose 16.3 percent to $14.5 billion (roughly Rs. 1,08,170 crores), compared with analyst estimates of $14 billion (roughly Rs. 1,04,440 crores). Cook told Reuters that Apple One, a bundle of Apple's paid services, will launch on Friday.

Cook told Reuters that Apple has 585 million paying subscribers across its platforms, up from 550 million the previous quarter and closer to the goal of 600 million subscribers that the company set out for the end of calendar 2020.

Apple's shares have soared in the past two years as it has diversified its revenue streams to lessen its dependence on the iPhone. The share tumble on Thursday raises the question of whether Apple is still more dependent on iPhone sales than some investors had hoped.

"Apple needs to be able to keep the upgrade cycle going or the share price will wobble because there's no real room for forgiveness in the current valuation," said Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown.

Apple said revenue from its accessories segment was up 20.8 percent to $7.9 billion (roughly Rs. 58,934 crores), compared with analyst estimates of a 13.5 percent rise to $7.4 billion (roughly Rs. 55,204 crores), according to Refinitiv data. Mac and iPad sales rose to $9 billion (roughly Rs. 67,140 crores) and $6.8 billion (roughly Rs. 50,733 crores), compared with estimates of $7.92 billion (roughly Rs. 59,089 crores) and $6.12 billion (roughly Rs. 45,659 crores), according to Refinitiv data.

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