Apple Q3 2019: Services revenue grows, iPhone sales decline

Apple's Q3 report
Image: YouTube | Apple

On Tuesday, Apple released its fiscal third-quarter earnings, and CEO Tim Cook mostly had good news for investors. The firm generated $53.8 billion in Q3 2019, which represented a one percent increase from its Q3 2018 earnings. However, as The Burn-In previously reported, the corporation’s revenues and framing of its financials indicate that it’s moving past its origins as an electronics manufacturer.

Robust Services Revenue

In a statement, Tim Cook noted Apple just experienced its best June quarter ever. The executive attributed the company success to the strong performance of its services and wearable categories. In the period ending June 29, the company’s services segment generated $11.5 billion in revenue, an 11 percent year-on-year increase.

Apple stated it now has 420 million paid subscribers across all its services platforms. Furthermore, the firm noted it’s on track to double that segment’s revenue by next year. Though Cook did not offer detailed breakdowns of the performance of Apple Music or iCloud offerings, he did note one billion Apple Pay transactions were processed monthly in the last quarter.

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Later this year, Apple will expand its services portfolio with a subscription streaming platform and a branded credit card.

The Big Tech firm also reported strong growth in its wearables division. In the third quarter, the category earned $5.52 billion in revenue, a 49.1 percent increase from the same period last year. Cook noted the segment outperformed analyst expectations of $4.85 billion in revenue because of strong demand for the Apple Watch, AirPods, and Beats headphones.

The company also sold $5.02 billion in iPads last quarter and generated $5.82 billion in Mac sales, a nine percent year-on-year increase.

Stagnant Smartphone Sales

While most of Apple’s offerings did well in the third quarter, the company’s core iPhone business experienced a year-on-year decline. The corporation’s smartphone segment generated $25.98 billion in the last quarter, down 11.8 percent from Q3 2018. As such, the iPhone only represented 48 percent of the firm’s revenue last quarter.

Notably, Apple has derived at least 50 percent of its income from iPhone sales in 2012.

The company’s smartphone revenues were down for three reasons. One, the ongoing U.S.-China trade war has hurt the device’s sales in the Sino region. Two, despite U.S. sanctions, rival Huawei has sold more phones than Apple in the international market. And three, the uninspiring latest iterations of the iPhone haven’t convinced cost-conscious consumers they need to make an upgrade.

On the one hand, Apple’s Q3 2019 performance can be interpreted as a resurgence after an underwhelming Q2. Moreover, the fact the firm’s revenue stream is now more diverse than ever is a good thing.

But on the other hand, Apple’s latest financial report highlights some long-term issues. For one thing, the performance of the company’s wearable segment is inextricably linked to its iPhone division. If the corporation’s smartphone sales keep slipping, its Apple Watch and AirPods income will start eroding.

Despite Tim Cook’s optimism, its next generation of iPhones predicted to be released in the fourth quarter likely won’t set the market on fire. The firm’s 5G handsets aren’t coming until 2020, and its new devices are unlikely to have a bold redesign.

Accordingly, Apple will depend on growth in its services segment to offset the softening of its handset revenue through 2019. Barring the unexpected end of the trade war or the rapid deployment of 5G networks, that trend will continue into 2020 and beyond.