By Stephen Nellis
(Reuters) – Apple Inc said sales for its fiscal second quarter would most likely be lower than Wall Street expected, a signal that it continues to face weak demand for its iPhone, especially in China, the world’s biggest smartphone market.
However, Chief Executive Tim Cook, who is in regular contact with U.S. President Donald Trump, told Reuters he sees some hope that trade tensions between the United States and China have eased.
He also made upbeat comments about Apple’s fast-growing services business and said the company is considering pricing its phones in local currency in China and other international markets, which may spur sales.
Apple shares rose 2.5 percent to $158.55 in after-hours trading.
The company said it expects revenue between $55 billion (£42 billion) and $59 billion for the current quarter ending in March, largely below analysts’ average estimate of $58.83 billion, according to IBES data from Refinitiv.
For the quarter ending in December, Apple’s busiest due to the holiday shopping season, Apple reported revenue of $84.3 billion, slightly above analysts’ average estimate of $84 billion. Apple warned in early January that the quarter’s sales would miss targets it gave in November.
Apple reported earnings per share of $4.18 for the December quarter, compared with Wall Street’s average estimate of $4.17, according to Refinitiv data.
The company said revenue from services such as Apple Music, the App Store and others – which investors are counting on to fuel growth – reached $10.8 billion, in line with Wall Street estimates. Services gross margin hit 63 percent.
The company said it now has 360 million subscribers to both its own and third party services, and set a goal to expand that to 500 million by the end of 2020. It said it now has 1.4 billion active devices, an increase of 100 million from last year, and that 900 million of those are iPhones.
Apple’s iPhone revenue declined 15 percent year over year to $51.9 billion. Cook said China’s economic weakness hurt iPhone sales there.
He said Apple is rethinking how it prices the iPhone outside the United States after largely setting the price in U.S. dollars, which made the phones more expensive in local currencies.
“When you look at foreign currencies and then particularly those markets that weakened over the last year those (iPhone price) increases were obviously more,” Cook told Reuters. “And so as we’ve gotten into January and assessed the macroeconomic condition in some of those markets we’ve decided to go back to more commensurate with what our local prices were a year ago in hopes of helping the sales in those areas.”
Cook said he was optimistic that the United States and China can resolve trade tensions that have weighed on the Chinese economy and that the situation seemed to improve this month.
“As we’ve gotten down in to January, January looks better than December looked. And I think if you were to graph up trade tension it’s clearly less in January than it was in December,” Cook told Reuters. “I’m optimistic that the two countries will be able to work things out.”
(Reporting by Stephen Nellis; Editing by Bill Rigby)