Apple shares jump on iPhone revival

Apple resorts to traditional tactics, such as discounts and generous trade-ins, to revive its prospects

SAN FRANCISCO • Apple Inc executives had a clear message for investors on Tuesday — demand for iPhones has begun to recover from a bruising holiday period.

The Cupertino, California-based company reported iPhone sales of US$31 billion (RM128.03 billion) in the fiscal second quarter (2Q), slightly better than analysts expected.

Apple’s projection for revenue in the current period also topped Wall Street estimates, and could result in the first sales increase in three quarters.

Shares jumped 5.5% in pre-market trading in New York yesterday.

Apple has rallied by 27% year-to-date, after dropping from a peak over the last quarter of 2018 as iPhone sales lagged.

Apple resorted to traditional tactics, such as discounts and generous trade-ins, to revive its iPhone prospects.

That dents hardware profit margins, but creates a larger base of device owners to support an expanding roster of digital services.

“iPhone pricing had gotten greedy in 2018 and it makes sense to trim prices in 2019,” said Neil Mawston, ED of the global wireless practice at Strategy Analytics Inc.

“Apple has the world’s most valuable user base of premium smartphones, tablets and smartwatches. It has potentially a billion people it can sell services to.”

During a conference call, CEO Tim Cook and CFO Luca Maestri explained how they stabilised iPhone demand, veering into the lexicon of used car salesmen on one occasion.

Toward the end of last year, when it became clear that the latest iPhones weren’t selling as well as expected, the company launched an internal “fire drill” to encourage more people to upgrade.

The trade-in programme led Apple to advertise lower iPhone prices on its homepage and on the windows of Apple Stores in many countries.

Apple retail technicians also suggested that consumers buy new iPhones instead of fixing them. The strategy worked.

Cook called the results of the programme “striking” on Tuesday and said the company handled four times as many trade-ins in the March quarter than the same period a year ago.

The CEO said Apple offered more than “the Blue Book” when people brought in older handsets to trade in. That refers to Kelley Blue Book, a publication that helps set the value of used cars.

Cook said customers are trading in various iPhone models — ranging from the iPhone 6 from 2014, to the iPhone 7 Plus from 2016 — but not as many iPhone 8 units, which launched in 2017.

He likened the trade-in offers to a subsidy, calling it a “way to offset the device cost itself”.

There’s a “reasonable number of people” who want to trade in devices and then combine it with Apple’s monthly financing programmes, he added.

The company has seen positive customer response to price cuts in emerging markets, Maestri said.

Services revenue grew 16% year-on-year in the fiscal 2Q. That was slower than some previous periods.

Analysts expect growth to re-accelerate as Apple launches new offerings.

It recently introduced an online news service for US$9.99 a month.

Other services coming this year include original video streaming and a mobile gaming subscription.

The executives noted the company has more than 390 million paid subscriptions, up 30 million from the previous quarter.

If the company is going to continue to increase that number, it needs to keep expanding its device user base, and Cook seems to think he’s figured out how. — Bloomberg