First quarter results were in-line with the company's warning from January 2. First quarter earnings rose 7.5% to $4.18/share as revenue fell 4.5% to $84.3 bln.
Apple guided for second quarter revenue down 3.5-10% yr/yr to $55-59 bln vs. the $59 bln consensus and gross margin 37-38% vs. 38% consensus.
Perhaps guidance can best be described as 'better than feared' given that sentiment was quite poor heading into this report.
While this iPhone cycle has certainly been disappointing, the rest of the company's businesses are doing quite well. iPhone revenue fell 15% to $52 bln, but total revenue from all other products and services grew 19% to over $21 bln.
Revenue from Greater China fell 27% to $13.2 bln as the iPhone XR missed the mark in very competitive, down smartphone market. Revenue fell 5% in Japan, 3% in Europe, but grew 6% in the Americas. Again, a weak iPhone cycle was the culprit.
Wearables, Home and Accessories revenue grew 33% to $7.3 bln. Both the Apple Watch and AirPods are doing extremely well and are the envy of any other electronics company. iPad revenue was up 17% to $6.7 bln following the launch of the new iPad Pro. Mac sales grew 9% to a record $7.4 bln.
Apple is most eager to discuss its services business, where revenue was up 19% to a record $10.9 bln. The company disclosed its services gross margin for the first time at 62.8%, which is very strong and was in-line with expectations.
Chief Executive Tim Cook: "Our active installed base of devices reached an all-time high of 1.4 bln in the first quarter, growing in each of our geographic segments. That's a great testament to the satisfaction and loyalty of our customers, and it's driving our Services business to new records thanks to our large and fast-growing ecosystem."
Investors can find solace in growth of the installed base despite the lackluster iPhone cycle.
A quick sum-of-the-parts analysis reveals that a 5x sales multiple on the high-margin software business and the ~$140 bln net cash balance account for roughly half of the company's market cap.
Earnings are now expected to fall ~5% in the second quarter and ~1% in fiscal 2019.
That said, the below-market multiple (less than 14x fiscal 2019 EPS or 12x ex-cash) is desirable given the company's dominant market position and growth prospects over the long term.