Apple's iPhone revenue down 15% in holiday quarter

The Phone XR went on sale in more than 50 countries and territories in October. (Apple)

Apple’s declining revenue from iPhone sales fueled concerns about the company’s smartphone business, but CEO Tim Cook used Tuesday’s earnings conference call to highlight Apple’s success in other areas, including wearables.

Apple said its iPhone revenue declined 15% while revenue from other areas grew by 19%. Services revenue reached an all-time high of $10.9 billion, up 19% over the prior year, and revenue from Mac and Wearables, Home and Accessories also reached all-time highs, growing 9% and 33%, respectively. Revenue from iPad grew 17%.

In prepared statements, Cook referenced the Jan. 2 letter he sent to shareholders signaling Apple’s revenue for the quarter would be lower than originally guided. He reiterated the factors that went into that assessment, including a drop in revenue in parts of China where it saw declines across iPhone, Mac and iPad products. However, he emphasized that the company remains optimistic about its business in China and areas in which it sees growth there.

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Asked whether perhaps Apple priced the latest iPhones too high and might have to bring prices down in the future, Cook said the iPhone XS initially cost the same in the U.S. as the iPhone X was priced a year prior. It priced the XR in the middle of where the entry iPhone 8 and 8+ had been listed, so it was a small difference in the U.S. compared to the year-ago period. However, a foreign exchange issue amplified the difference in international markets and in emerging markets in particular, he said.

“What we have done in January, in some locations in some products, is essentially absorb part or all of the foreign currency” moves and get close to or right on the local price from a year ago. “So yes, I do think price is a factor,” Cook said. In some developed markets, such as Japan and the U.S., even though the subsidy has gone away for a period of time, the subsidy is probably the bigger of the issues.

“We are working through those and we’ve got a number of actions to address that,” including trade-ins and installment payments, Cook said.

Of course, some people are just holding onto their iPhones longer.

“We do design our products to last as long as possible,” Cook said, noting the some people hang onto their phones for the life of the product and others trade them in. There’s no doubt that the upgrade cycle has extended and the upgrades for the quarter were less than anticipated for several reasons. Where that goes in the future, “I don’t know, but I’m convinced that making a great product that is high-quality product is the best thing for the customer and we work for the user," Cook said.

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As for Apple’s plans for video, Cook said the company participates there in a variety of ways, including through Apple TV. Airplay 2 has support on a number third-party TVs. Apple also will participate in the original content world, having signed a multiyear deal with Oprah. But Cook’s not ready to talk about it too much. “We’re hired some great people” who are working very hard, and there will be more to say about that later.

Apple shares were up about 5% in after-hours trading, at around $163.50. That compares to its closing price of $157.92 on Jan. 2, when Apple lowered its revenue projections for the quarter.

"Apple’s Q1 (holiday) earnings report didn’t hold many surprises,” said eMarketer Principal Analyst Yoram Wurmser in a written statement. “The headline number is the 15% YoY drop in iPhone revenue, which Apple largely attributed to problems in the Chinese market. On the bright side, many of its other devices did well, including iPads, wearables and iMacs. But the iPhone has been the big driver for Apple’s earning for the past decade, so investors will likely be curious to see how Apple plans to regain its momentum."