Apple reported Q3 2019 financial results, generating a net profit of $ 10 billion ($ 2.18 per diluted share) on revenue of $ 53.8 billion. The company's revenues increased slightly by 1% compared to the previous year, but net profits were reduced by 7% (see “Apple's Third Quarter 2018 Results Break Records Again,” July 31, 2018). Apple CEO Tim Cook said:
This was our largest June quarter ever – driven by record revenue from services of all time, accelerating growth from Wearables, strong performance from the iPad and Mac, and significant improvement in iPhone trends.
Apple's financial picture was brightened by a successful quarter in China, which Cook affixed to the confluence of a VAT reduction in China, Apple's "price action" and Apple's launch of trade-in and financing programs in the Chinese stores. Cook also cited strong growth in the App Store in China.
To no surprise, Apple's iPhone sales fell well below sales for the same quarter last year, bringing in $ 25.9 billion in revenue compared to last year's $ 29.5 billion, a 11.8% decline. The iPhone accounted for just 48% of Apple's revenue in Q3 2019, the first time since 2013 that has been true. This decline would have been far more alarming if other income categories had not moved in to pick up the slack.
Apple's Mac business seems to be healthier than ever. Mac sales exceeded its product line revenue from 10.7% a year ago, with Apple taking in $ 5.82 billion compared to $ 5.26 billion last year.
The company's focus on the iPad in recent months also appears to yield welcome earnings, with iPad sales of $ 5.02 billion compared to $ 4.6 billion in the quarter a year earlier, up 8.39%.
Apple's increasingly important Services businesses continue to pay well as well. Service revenues increased by 12.6% in the quarter compared to last year's results. The category, which includes revenue from software, storage and media, raised $ 11.5 billion during the quarter, more than total revenue from iPad and Mac.
Fill in some details about the Services category increase, CFO Luca Maestri noted that Apple now has 420 million paid subscriptions, a source of ongoing revenue that gives rise to the future. He also noted increases in "attach rate" for AppleCare, which is also a profitable business, and of course assumes that Apple product quality does not decrease significantly.
Cook took advantage of the quarterly earnings call to announce that Apple Card, Apple's upcoming credit card, is coming in August, and that it is currently being tested by thousands of Apple employees. When the card becomes available to the public, it will generate yet another revenue stream. (See "Apple Cards: More Than Just a Credit Card," March 28, 2019)
Apple's smallest products had the largest percentage increase in revenue: the Wearables, Home, and Accessories product category (which includes devices like Apple Watch, watch on bands , AirPods, Apple Pencils, and all of Apple's various cables and dongles), increasing revenue by 48%. The $ 5.5 billion the category raised now puts it at the same level as Apple's product and iPad product lines. Tim Cook noted that 75% of Apple Watch buyers last quarter were new buyers, indicating that the device is becoming increasingly attractive to consumers, and he said the Wearables business is now equivalent to a Fortune 50 company. Cook also noted another indication of growth in this category: Apple TV viewership has increased 40% year over year, even before the slate of new Apple shows and channels comes later this year, a sign that the streaming media device is far from slow. (See "Apple Reveals Its Vision for Television," March 26, 2019.)
If you've been following Apple's quarterly reports for the past couple of years, the decline in Apple's iPhone business coincided with the increase in both Services and Wearables businesses come as no surprise, and that's why Apple has introduced so aggressively new services like Apple News +, Apple Card, Apple TV + and Apple Arcade.
With hardware revenue inevitably leveling off, Apple is making the best growth to monetize its existing installed base. That's good news for Apple investors, as it shows forward-thinking thinking: many companies have begun a march towards irrelevance when core product sales slowed. But many Apple users may be less enthusiastic, as we are increasingly expected to give Apple more money on a monthly basis to get the most out of our Apple devices.