Apple reports flat earnings; CEO says China tensions ease

Apple Inc on Tuesday reported flat earnings during the December quarter because of plunging iPhone sales and a decline in revenue from China.

Apple’s revenue in China was $13.17 billion, a drop of nearly $5 billion from a year ago, when Apple reported $17.96 billion.

China contributed about 15.6 percent of Apple’s total quarterly revenue. During the year-ago quarter, sales from China were $17.96 billion, comprising 20 percent of total revenue.

Apple reported the worst holiday sales for its iPhone in a decade: $51.9 million, down 15 percent from the same period a year earlier.

CEO Tim Cook, who said on Jan 2 that a slowdown in China’s economy and US-China trade tensions had caused a drop in iPhone sales in China, told Reuters on Tuesday that those tensions were easing: “If you were to graph up trade tension, it’s clearly less in January than it was in December. I’m optimistic that the two countries will be able to work things out.”

In a conference call with investors after the earnings report, Cook said: “We are as confident as ever in the fundamental strength of our business, and we have an exciting pipeline with announcements coming later this year. We’re not taking our foot off the gas.”

Apple delivered earnings of $4.18 per share on revenue of $84.3 billion for the quarter ending in December, exceeding expectations of $4.17 per share and revenue of $83.97 billion, according to estimates compiled by Bloomberg.

The company said it expects to post revenue of between $55 billion to $59 billion for the fiscal second quarter of 2019 ending in March. The midpoint of this range fell below consensus expectations, which called for $58.97 billion.

The company’s shares rose 6 percent to $163.50 in after-hours trading.

Tuesday’s earnings call was different because Apple is no longer disclosing how many units it has sold of each of its most popular products, including the iPhone. Instead, it gave gross margin figures for its services segment for the first time to shift focus from the iPhone to other growth metrics.

That service business, which includes such things as its commissions on sales through its app store, the money Google pays it for directing web searches its way, and subscriptions to its iCloud and Apple Music offerings, saw its revenue grow 19 percent from the first quarter of 2018 to $10.9 billion.

That business’s operating margin amounted to 62.8 percent of sales in the just-completed period, up from 58.3 percent a year earlier.

“The services number is good, and that is the growth engine going forward that people will continue to focus on,” Ivan Feinseth, an analyst with Tigress Financial Partners, told Reuters.

Apple said that there are currently 900 million active iPhone users in the world — the first time the company has disclosed the size of its so-called installed base for iPhones.

Beyond falling sales for the iPhone, the company is dealing with a security flaw in the phone. It was revealed on Monday that a bug in Apple’s Face Time app allows an iPhone user to listen in on another iPhone caller’s conversations through the device’s microphone even if the recipient did not answer the call. The company promised to have a fix by the end of the week.