Trade-ins spark iPhone revival
Apple executives had a clear message for investors yesterday: Demand for iPhones has begun to recover from a bruising holiday period. The company reported iPhone sales of $31bn (€27bn) in the fiscal second quarter, 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.
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. The stock rallied 5pc in extended trading.
"IPhone pricing had gotten greedy in 2018 and it makes sense to trim prices in 2019," said Strategy Analytics Neil Mawston. "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.
l The company pushed its iPhone trade-in programme in several regions, and offered higher trade-in values for older handsets
l The executives mentioned discounts, likely referring to price cuts at third-party retailers in China
l Apple introduced new financing offers for iPhone purchases
l China recently cut its value-added tax, effectively lowering the price of iPhones
l Improved trade dialogue between the US and China boosted consumer confidence
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. Technicians also suggested consumers buy new iPhones instead of fixing them. The strategy worked.
Cook called the results of the programme "striking" and said the company handled four times as many trade-ins in the March quarter than the same period a year ago. Cook said Apple offered more than "the Blue Book" when people brought in older handsets to trade in. That refers to Kelley Blue Book, a US 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 8s, which launched in 2017.
Services revenue grew 16pc, year-over-year, in the fiscal second quarter. 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 $9.99 a month.