Apple just reported strong financial results for the first quarter of 2017. “We’re thrilled to report that our holiday quarter results generated Apple’s highest quarterly revenue ever, and broke multiple records along the way. We sold more iPhones than ever before and set all-time revenue records for iPhone, Services, Mac, and Apple Watch,” said CEO Tim Cook. “Revenue from Services grew strongly over last year, led by record customer activity on the App Store, and we are very excited about the products in our pipeline,” the company wrote in its letter to investors.
The company took in $78.4 billion in revenue and sold 78 million iPhones. The last few quarters have marked the end of an incredible growth spurt for Apple. After more than a decade of record setting sales and revenue gains, the momentum around iPhone sales finally tapered off. Business around the iPad has also been sluggish. The introduction of the iPhone 7 has helped to end that slump, and Cook said on today’s earnings call that the Apple Watch had its best quarter ever.
Customers are picking the more expensive models
Apple reported a profit of $17.8 billion, and said its earnings per share were boosted by the high demand for the larger models of its iPhones, which have higher margins. On the earnings call, Chief financial officer Luca Maestri said that customer satisfaction with iPads, and the new iPad pro, was very high. He predicted strong growth in that category. But the sales figures don’t reflect that optimism, with unit sales and revenue from iPad both down around 20 percent year over year.
With over a billion iOS devices active around the world, Apple has been able to shore up its flagging hardware sales growth with an increase in revenue from services to those devices. This includes money from Apple Pay, iCloud storage, Apple Music, and App Store sales. It was by far the fastest-growing segment of Apple’s revenue this quarter, climbing 18 percent to $7.17 billion since the same period last year. Cook said Apple is aiming to double service revenue over the next four years. Maestri said Apple’s App Store had double the revenue of Google’s Play Store in 2016.
The story of Apple business during 2015 was the incredible expansion of its business in China. Revenue surged over 100 percent during certain quarters, and Apple laid out ambitious plans for retail stores across the country. All that has changed over the last year, however, with increasing competition from Chinese brands like Huawei, ZTE, Oppo, Vivo, and Lenovo. "Once Apple's most promising geographical growth opportunity, the Chinese market has actually transitioned into its biggest geographical sales deficit,” said Clement Thibault, a senior analyst with Investing.com. That trend continued this quarter, with revenue from China declining 12 percent year over year.
Apple has more than $200 billion in cash parked overseas. Cook said on today’s call that he was optimistic about tax reform in the US happening this year, and that this might allow Apple to bring a lot of that money back home. “With our toe in the water, we’re learning a lot about the original content business,” Cook said, hinting at one way Apple might deploy all that capital.