Apple barely tops estimates, falls short on iPhone sales

Net profit fell less than 1% to $19.97bn for the three months ended 31 December, with earnings per share coming to $4.18 - just ahead of the $4.17 expected by Wall Street.

The California-based firm's revenues fell 5% year-on-year to $84.3bn, the first sales drop in more than two years but above the recently lowered consensus estimates of $83.97bn.

Breaking down by geography, the Chinese market cratered, with net sales down from around $18bn to nearer $13bn.

Revenues from Apple's services segment — which includes the likes of Apple Pay, Apple Music and iCloud — were a bright spot as they soared 29% year-on-year to $10.9bn.

Apple's service segment reported a gross margin of 62.8%, significantly ahead of the 38% turned in for the business as a whole.

Chief executive Tim Cook, who warned earlier in the month that iPhone sales had again weakened, revealed iPhone sales of $51.98bn in the quarter, 15% lower year-on-year and below the $52.67bn estimated.

Cook also pointed to the tech giant's continued woes in China as the principal reason for the device's declining sales.

Looking forward, Apple revealed that investors will not receive information about iPhone unit sales or average sale prices of its devices.

Apple said it will no longer use those metrics, prompting concerns regarding the state of its iPhone business, and will instead report services margins.

Revenue guidance for the second quarter was for a further fall to $55-$59bn, at least 3% lower on last year, with gross margins between 37% and 38% as management says they will cut selling prices in some markets.

By Wednesday morning, Apple shares had climbed almost 6% in after-hours trading to above $163.

“Apple earnings delivered enough for investors to come back on board," said market analyst Neil Wilson at Markets.com. "Although Apple still faces big questions like pricing structure, upgrade cycles, FX headwinds and weaker Chinese demand, we did get a positive answer to the key question on whether Services margins can help rerate the stock higher."

Wilson added that there was still no clear sign of improvement in key emerging markets in the near future, with management offering up weaker guidance for the March quarter.

"Lower margins are a symptom of discounting, and we note there is a worry that Apple gets sucked into a discount cycle that diminishes its status as the premier smartphone brand. Discounting is a matter of context of course – you could equally argue that Apple had overreached itself with high prices and is simply coming back to the mean. I think Apple simply needs to accept that it raised prices too far too fast for products that were not radical improvements on what came before."