Apple results: an inconvenient iPhone 11 recovery

It isn’t always helpful to Apple when its biggest product does well.

The iPhone is doing well for Apple again Picture: AP

It isn’t always helpful to Apple when its biggest product does well.

The company’s fiscal first-quarter results prove that its iPhone 11 family is a bona fide hit. Apple said iPhone revenue jumped 8 per cent year over year to nearly $US56bn ($82.8bn), surprising analysts who had been expecting a 1 per cent decline.

Wearable-device revenue also came in ahead of expectations at $US10bn — a 37 per cent jump from the same period last year, reflecting booming demand for products like the popular AirPods.

The iPhone’s revenue growth was the best the company has logged in more than a year, following four straight quarters of declines. Apple also issued a strong outlook for the current quarter ending in March. The period’s fortunes are expected to get a lift from the yet-to-be-confirmed launch of a new lower-priced smartphone to succeed its iPhone SE. The midpoint of Apple’s revenue forecast for the March quarter was 4 per cent higher than Wall Street’s projection.

It clearly is important that the iPhone, a product responsible for more than 60 per cent of Apple’s revenue, is doing well again. But the results and forecast also contradict the continuing narrative of a company transitioning to services. Service revenue grew 17 per cent year over year to $US12.7bn, marking a slight deceleration from the previous quarter and nearly 3 per cent below Wall Street’s consensus forecast.

That complicates things for investors who have run Apple’s stock price up more than 100 per cent over the past 12 months, lifting them to more than 24 times forward earnings — their highest valuation in more than a decade. The underpinnings of that run-up have been the strong growth of the company’s services, which carry higher gross margins, and strong hopes for a 5G iPhone later this year.

But service growth has slowed notably of late, and a strong performance by the iPhone 11 now suggests Apple has a large base of customers not interested in waiting for a 5G device. Apple’s shares rose barely 1 per cent after hours following the results.

Complexity doesn’t always sell.