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Apple Tops Earnings Expectations as iPhone Sales Fall 17% in March Quarter

Apple posted better earnings and revenue than Wall Street expected for the March 2019 quarter — even as sales of its flagship iPhones were $6.5 billion lighter in the period, down 17%.

For the quarter ended March 30, which is Apple’s fiscal year 2019 second quarter, the company reported revenue of $58.0 billion, down 5% from the year-ago quarter, and earnings per diluted share of $2.46, down 10%.

Wall Street analysts’ consensus estimates had projected Apple to report revenue of $57.37 billion and EPS of $2.36. Apple’s stock rose over 5% in after-hours trading.

While iPhone revenue fell, to $31.05 billion, Apple’s Services segment — which includes the App Store, Apple Music, iCloud, Apple Care and Apple Pay — generated quarterly record revenue of $11.5 billion, up 16%. According to CEO Tim Cook, Apple had 390 million paid subscriptions at the end of March, up 30 million in the last quarter.

Other bright spots: Revenue in the company’s Wearables, Home and Accessories segment jumped 30%, to $5.13 billion, and iPad sales hit a six-year high of $4.87 billion (up 22% year over year).

As in the 2018 holiday quarter, Apple’s sales in Greater China declined, dropping 21% year-over-year, to $10.22 billion. The tech giant had warned of weaker sales in China earlier this year. On the earnings call, Cook said there’s an “improved trade dialog” between the U.S. and China.

“Our March quarter results show the continued strength of our installed base of over 1.4 billion active devices, as we set an all-time record for Services, and the strong momentum of our Wearables, Home and Accessories category, which set a new March quarter record,” Cook said in announcing the earnings.

Apple expects revenue to continue to shrink: For the June 2019 quarter, it expects revenue between $52.5 billion and $54.5 billion — down 11%-14% compared with $61.1 billion in the year-earlier period, but higher than the Wall Street consensus estimate of $52.1 billion.

As iPhone sales have slowed, Apple is looking for new growth areas, including from its new foray into the entertainment biz.

In March, the company announced Apple TV+, a subscription-streaming service with a slate of content from Hollywood partners, including Oprah, Steven Spielberg, Jennifer Aniston, Reese Witherspoon, Steve Carell, and J.J. Abrams, who talked about their projects for the forthcoming streaming service. But Apple didn’t announce pricing, saying only that Apple TV+ is set to debut in the fall of 2019 in over 100 countries.

“We think that most users are going to get multiple over-the-top products, and we’re going to do our best to convince them that the Apple TV+ product should be one of them,” Cook told analysts Tuesday.

At the same March event, it announced Apple News+, a $10-per-month service with access to over 300 publications; Apple Arcade, a new game-subscription service to hit in the fall; and Apple TV channels, a storefront for subscriptions to third-party streaming services including HBO, Showtime, Starz and CBS All Access set to debut in May. And the company revealed plans to intro a credit card, Apple Card, in partnership with Mastercard and Morgan Stanley, rolling out in the summer.

Cook declined to shed light on what kind of revenue Apple is expecting from the new services, but said, “These aren’t hobbies” — a reference to his once calling the Apple TV device a “hobby.”

“We wouldn’t do a service that we didn’t think could be meaningful,” Cook said. The CEO said Apple will share more information on the company’s initiatives at its 30th annual Worldwide Developers Conference, set for June 3-7 in San Jose, Calif.

Asked about Apple’s recent patent-litigation settlement with chip-maker Qualcomm, Cook said on the earnings call, “We’re glad to put this litigation behind us… We feel good about the resolution.” Under the agreement, Apple will license Qualcomm chips for six years and the company also agreed to pay a one-time undisclosed amount for past use of Qualcomm’s technology.

In announcing earnings, Apple CFO Luca Maestri said the company’s board has authorized an additional $75 billion for share repurchases. To that end, the company declared a cash dividend of 77 cents per share, an increase of 5%, payable to shareholders on May 16, 2019.

Apple ended the quarter with $225 billion in cash and marketable securities and $90 billion in debt.

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