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Apple optimistic as iPhone price cuts help in China, watches pull in new buyers

(Reuters) – Apple Inc on Tuesday forecast stronger-than-expected third-quarter revenue and Chief Executive Tim Cook said iPhone sales had begun to stabilize in China, a sign that Apple’s price cuts are there to help reduce revenue decline.

FILE PHOTO: 3D printed Apple logo is seen in front of a display stock graph in this image April 28, 2016. REUTERS/dado Ruvic/Illustration

IPhone sales marked their biggest decline ever, falling 17 percent in the second quarter from a year earlier and missing analyst expectations. But Apple executives said a pick up in iPhone sales in the direction of the end of the second quarter, along with growth in the sales of services and portable devices, has made them optimistic about the current quarter.

Apple beat analyst expectations for the portable company, with a revenue of $5.13 billion, compared with estimates of $4.79 billion, according to FactSet data.

Wearables are the Airpods wireless headphones and the Apple Watch. Chief Financial Officer Luca Maestri told analysts on a call that 75 percent of the Apple Watch buyers were new to the product.

Shares rose more than 5 percent in after-hours trading after Apple announced the results and the plans for a new $75 billion share buyback. (Image: tmsnrt.rs/2WdDgyh)

Apple said it expects revenue between $52.5 billion and $54.5 billion for the current quarter that ends in June, above the analysts’ average estimate of $51.93 billion, according to the IBES data of Refinitiv.

In an interview, Apple Chief Executive Tim Cook said that iPhone sales have started to strengthen during the last weeks of the second quarter.

“If we look at the iPhone results by means of Q2, the results were stronger on a year-on-year basis for the last few weeks of the quarter. We also saw a similar result in China,” Cook told Reuters in an interview. “This, together with the continued success with wearables and so on, gives us confidence that it’s getting a little better.”

Apple reported net earnings per share of $2.46 for the March quarter, compared with Wall Street’s average estimate of $2.36.

Apple said that the iPhone revenues were $31.05 billion euros, slightly below analyst estimates of $31.10 billion, according to data from FactSet.

Services revenue, which includes sales of Apple Music, the App Store, and other businesses, reached $11.45 billion, compared with the analyst estimate of $11.32 billion, according to FactSet.

Apple has struggled with a slowdown in iPhone sales in key markets such as China saw its first year-on-year decline in the iPhone revenue for the holiday shopping season.

The delay stems in part from the iPhone to the high costs and competition from rivals such as Huawei Technologies Co Ltd, Xiaomi Corp, Oppo, and Vivo – all of which sell cheaper phones with features similar to the iPhone.

The Cook, however, said, price adjustments in China, together with lower Chinese tax on the iPhone and the trade-in and financing offers from Apple offered, helped iPhone sales start to recover towards the end of the quarter. Cook also said that he is “optimistic” that the United States and China will soon reach a trade agreement.

“The trade relationship, compared to the previous quarter, is better. The show is better,” Cook told Reuters. “The sum of all this together, it has helped us.”

Investors are looking at Apple’s business to fuel growth as iPhone sales slow. Last month, Apple unveiled a new credit card offer and the subscription services for news, television and gaming, but only the news subscription is currently available to buy.

Apple on Tuesday said it has 390 million subscribers for both its own and third-party services on the devices. The company has a goal of 500 million in 2020.

Tom Plumb, founder of Wisconsin Capital Management and an Apple shareholder, said that the results looked good, especially the uptick to the end of the quarter. But the other shareholders, such as Brian Pirri, one of the most important in the Apple shareholder New England Investment and Retirement Group, said they took the results with a “grain of salt” because the expectations were low on the way to the report.

“I don’t think the phones are the answer. (Apple) are going to need to continue to innovate, and I don’t see a ton from this report is that fascinates me,” Pirri said.

For the fiscal second quarter ended in March, Apple reported a revenue of € 58.02 billion, above the analysts’ average estimate of $57.37 billion, according to Refinitiv data.

FILE PHOTO: Apple CEO Tim Cook speaks at the Anti-Defamation League “Never is Now” summit in New York City, New York, USA, 3 December 2018. REUTERS/Brendan McDermid

Apple said that it spent $27 billion on share buybacks and dividends in the course of the second quarter, which is a record for the company. Apple has also said that the board authorized an additional $75 billion in the purchase of own shares and increased the dividend by 5 per cent.

“I think people extrapolate the positive developments in China in the near quarter end, and look forward to a better environment there,” said Hal Eddins, chief economist at Apple’s shareholder Capital Investment Counsel. “For me it is the driver for tonight (the course) to move the dividend hike … and, more importantly, the 75 billion dollar buy back. Either way, I take it.”

(Image: Apple profit link: here)

Reporting by Stephen Nellis in San Francisco; Additional reporting by Sayanti Chakraborty in Bengaluru; Editing by Lisa Shumaker

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