đź”’ Is Apple losing its bite? Headwinds for iPhone company – The Wall Street Journal

Five years ago I was a serious Apple fan. I was totally committed to the brand, with my sons owning iPads and several MacBook Airs and iPhones in the house. But my last experience, which was late last year, at the Apple shop in Edinburgh put paid to that. I found myself standing in a queue for the best part of a day alongside other Apple fans whose devices weren’t working and were having no joy in getting their equipment fixed quickly and without hassle. It was a stark contrast to previous visits to Apple stores, where I experienced Apple genius folk as being highly customer-focused and with a can-do approach. I eventually got my MacBook Air back about 10 days after having the touch pad replaced – and with a warning that the next time my three-year-old lap top packs up I’ll need a new one because Apple won’t have replacement parts for this particular model. That day, I also saw a woman literally weeping in the store because her new laptop had malfunctioned, taking valuable data with it, and a phone owner very disappointed because a clause in the small print meant she was not eligible to get a fault fixed for free. I came away thinking that it was time for me to wean myself off Apple. Apple CEO Tim Cook is apparently delighted by his company’s results, with a return to growth. Maybe he should visit his Edinburgh store some time as a mystery shopper for a genuine glimpse into what it’s like being an Apple customer these days. – Jackie Cameron

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Revenue rose 1% to $53.81bn for the three months ended June 29, Apple said Tuesday, an improvement from back-to-back revenue declines in the previous quarters. Profit slid for the third straight quarter, dropping 13% to $10.04bn, though per-share earnings of $2.18 exceeded analysts’ expectations.

Apple offset a 12% decline in iPhone sales during the period with revenue growth in every other area of its business, including iPad and Mac. Sales from services – a closely watched business that includes App Store sales, mobile payments and device insurance – rose 13% to $11.46bn in the period, the smallest quarterly increase since 2015.

“We’re thrilled to report a return to growth,” Apple Chief Executive Tim Cook said on an earnings call.

The iPhone business, which posted sales of $25.99bn, continued to weigh on results as customers hold on to smartphones longer and competition increases from rivals in China offering lower-price, feature-rich handsets. It was the first time since 2013 iPhones didn’t account for the majority of Apple’s revenue in a quarter, according to eMarketer.

Apple said it expects revenue in the current quarter of between $61bn and $64bn, above consensus expectations. It returned $21bn to shareholders during the quarter, including $17bn in share repurchases.

Shares of Apple rose more than 4% in after-hours trading to $217.45. Before the report, the stock fell 0.4% Tuesday to $208.78.

Service with a smile

Apple’s services business, which includes App Store sales, mobile payments and device insurance, helped offset weak iPhone sales.Quarterly revenue, change from a year earlier.
China’s economic doldrums also hurt Apple, which counts on the country for about a fifth of its revenue. Sales in Greater China, which includes Hong Kong and Taiwan, sank 4% to $9.16bn. The decline was a marked improvement from the prior two quarters, when revenue in China fell more than 20%.

Apple has reduced iPhone prices in China to be more competitive with lower-price handsets from rivals like Huawei Technologies Co. and Xiaomi Corp. , but its share of the country’s smartphone market fell 0.6 percentage point to 5.8% during the June quarter, according to Canalys, a market research firm.

Huawei has been gaining share from rivals in China, including Apple, by touting itself as the patriotic choice to Chinese consumers willing to weigh politics as they make a smartphone purchase, Canalys said. The Trump administration in May attacked Huawei, blocking sales of US technology to the Chinese smartphone giant.

“It’s not a matter of if but when Apple gets hit in China,” said Richard Kramer, an analyst who tracks the company for Arete Research. “They have a material brand and reputation issue to face, thanks to the Trump administration and Huawei.”

Huawei said on Tuesday that revenue rose sharply in the first half of the year despite its blacklisting issues with the US.

Tuesday’s report followed a string of strong results from tech giants, which continue to deliver huge profits amid intensifying regulatory scrutiny. Facebook Inc., Alphabet Inc. and Amazon.com Inc. last week delivered revenue growth of about 20% or more behind sustained dominance of their core businesses: social media, digital advertising and e-commerce.

The tech titans’ supremacy has put them in the crosshairs of regulators on both sides of the Atlantic. The Justice Department is opening a broad antitrust review into whether the companies unlawfully stifle competition, and the European Union in March penalised Alphabet’s Google for limiting how websites displayed ads sold by its rivals.

Apple has largely avoided being drawn into the fray. It fielded fewer questions earlier this month than its peers during a House Judiciary Committee hearing on the power of online platforms. Still, it faces lawsuits from customers and developers in the U.S. over its control of the App Store, which serves as the only software distribution system for the more than 900 million iPhones world-wide. And Spotify Technology SA filed an antitrust complaint in Europe, alleging Apple has made it difficult for rival subscription services to market themselves in the App Store, which the company denies.

The legal challenges could undermine Apple’s growing services business, which counts on the App Store for about a third of sales. “History has shown these things tend to take a long time to play out, but we have to be aware that risk is out there,” said Trip Miller, founder of Gullane Capital Partners, a Memphis, Tenn.-based firm that counts Apple among its largest holdings.

Apple is mired in one of the weakest years of Mr. Cook’s tenure. In April, it reported its first back-to-back decline in quarterly revenue and profit in more than two years. That followed the slashing of its quarterly revenue forecast in January for the first time in more than 15 years, a move prompted by the sharp downturn in iPhone sales and struggles in China.

The company’s business challenges have come amid turnover in its executive ranks. Last month, it said its chief design officer, Jony Ive, was departing to form his own independent design company. His departure came less than three months after retail chief Angela Ahrendts left the company. Apple also has lost several members of its close-knit industrial design team and some key engineers earlier this year.

Mr. Cook has charted a new path forward, shifting the company’s focus from a business defined by hardware hits to one that aims to sell software and services. It plans to release new subscription services for original TV shows and video games this fall, as well as a credit card in August.

Analysts say Apple’s plan for three iPhones – two with triple rear cameras and one with a double-rear camera – lacks the sizzling features that compel customers to upgrade, especially at prices of $1,000 or more.

It isn’t expected to deliver features that drive upgrades until 2020, when analysts expect Apple to release its first iPhones with 5G chips.

Apple faced criticism last week from President Trump, who said his administration wouldn’t provide waivers from tariffs for parts of its Mac Pro computers.

Mr. Cook told analysts Apple is seeking those exclusions because it wants to make its new Mac Pro in the US. It recently began manufacturing that high-end, desktop computer in China after making its previous Mac Pro model in Austin, Texas.

“We’ve been making the Mac Pro in the US. We want to continue doing that,” Mr. Cook said. “We’re working and investing currently in capacity to do so because we want to continue to be here.”

Write to Tripp Mickle at [email protected]

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