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Apple Sees Business Decrease During Holiday Quarter; iPhone Revenue Down 15%

For years, continuous growth has been a given for Apple investors. On Tuesday, that success story came to a screeching halt: The iPhone maker generated billions less in revenue during the quarter ending on Dec. 29 than it did during the same time in 2017.

The sole culprit for this decline was the company’s iPhone business, where revenue dipped 15% year-over-year. “Our customers are holding on to older iPhones a bit longer than in the past,” said Apple CEO Tim Cook during the company’s earnings call Tuesday afternoon.

That’s not to say that Apple isn’t still a very profitable business. The company generated $84.3 billion in revenue during the holiday quarter, compared to $88.3 billion in revenue during the same quarter in 2017. Diluted earnings per share came in at $4.18, compared to $3.89 a year ago. In fact, those earnings per share represented a new record, which resulted in investors sending the stock up 8.5% in after-hours trading.

Apple had previously warned investors that a decline in its China business would lead to lower-than-expected revenue for the quarter. The company revised its revenue guidance for the quarter from $91 billion to $84 billion in January, at the time leading to a massive sell-off from investors.

“While it was disappointing to miss our revenue guidance, we manage Apple for the long term, and this quarter’s results demonstrate that the underlying strength of our business runs deep and wide,” Cook was quoted saying in the company’s earnings release.

Adding to the uncertainty was the fact that for the first time, Apple didn’t disclose the number of iPhones it sold in the quarter. The company had announced this step during its fiscal Q4 earnings report in November, with chief financial officer Luca Maestri telling investors at the time that the average sale price of an iPhone was ultimately more material to the company than the total number of devices sold. “A unit of sale is less relevant to us today than it was in the past,” Maestri said.

But even without those numbers, Tuesday’s release showed that the company missed on iPhone sales. The company sold close to $52 billion worth of phones during the quarter, down from $61.1 billion a year before. Mac and iPad revenues, on the other hand, were both up, 8.7% and 16.9% respectively. Service revenues were also up 19% year-over-year, at close to $10.9 billion.

The company also disclosed that it now has 1.4 billion active devices in the market, including 900 million iPhones. “Our ecosystem is stronger than ever before,” Cook said.

Apple’s earnings report came a day after reports about a serious security flaw involving the company’s Facetime video chat software emerged. That flaw allowed users to spy on unsuspecting iPhone owners simply by giving them a call, with microphones capturing audio even if a call wasn’t picked up. Apple has since temporarily disabled group calling, but has yet to roll out a software update for a more permanent fix.

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