People experience new Apple's iPhone XS and iPhone XS Max during a media tour at an Apple office in Shanghai, China September 21, 2018. REUTERS/Aly Song - RC1E5DE4EB70
Apple said there had been an ‘improvement’ in iPhone sales, particularly in China © Reuters

Apple’s stock market value briefly broke back through the $1tn barrier on Wednesday as Wall Street breathed a sigh of relief at signs that it has put the worst of the recent iPhone slump behind it.

Late the day before, the US consumer tech giant had predicted a quicker rebound than expected from a six-month revenue slide, caused by weaker handset sales, particularly in China.

The news brought a 6 per cent rally in Apple’s shares early on Wednesday, pushing it through the $1tn mark it first crossed last summer, though the autumn tech stock slide and the iPhone’s problems later wiped $330bn from its value.

The company issued revenue guidance of $52.5bn to $54.5bn for the quarter to the end of June, the third of its fiscal year. At the midpoint of the range, that was $1.5bn above most analysts’ estimates and pointed to a slight revenue increase from the $53.3bn in sales of the same quarter the year before.

Speaking in an interview ahead of the company’s earnings call with analysts, Luca Maestri, chief financial officer, said the guidance reflected growing confidence in the prospects for the iPhone after the company’s shock profit warning at the start of the year.

“We saw during the course of the quarter an improvement in our iPhone performance, particularly in the last few weeks,” he said.

The recovery was particularly notable in China, he added, thanks partly to price cuts and the introduction of new instalment programmes for buyers.

Tim Cook, chief executive, also pointed to broader economic and political factors that are likely to be seen as encouraging for other companies that sell to consumers in China. These included a boost caused by Chinese government actions to stimulate the economy, including a cut in the value added tax rate. 

“The stimulus programmes, I believe, are having an effect on consumers,” he said on the earnings call.

He also attributed the stronger China sales late in the first quarter to a reduction in trade tensions. “There’s an improved trade dialogue between the US and China. From our point of view, that has affected consumer confidence on the ground there in a positive way,” he said.

At $10.2bn, Apple’s sales in greater China still fell nearly 22 per cent in the latest quarter compared with the year before. However, that was an improvement from the 27 per cent drop it reported three months ago.

The partial recovery late in the quarter failed to prevent iPhone revenues from tumbling 17 per cent, to $31.1bn. The decline left iPhones accounting for less than 54 per cent of Apple’s overall revenue, down from 62 per cent the year before and their smallest second-quarter contribution in six years.

Despite that, the figures were taken on Wall Street as confirmation that the iPhone business had stabilised, after a sharp downturn that began with what many saw as over-aggressive price increases last year to make up for a lack of unit volume growth.

Mr Cook said Apple’s price cuts in China had covered the higher costs caused by the rising US dollar “and then some”.

Apple typically sees a sequential revenue decline of 13 per cent to 15 per cent in the quarter to June as customers start to anticipate the next iPhone release. But its revenue guidance for this year pointed to a seasonal fall of only 8 per cent.

The forecast of a possible return to growth came as Apple registered a 5 per cent fall in revenue in the latest quarter, to $58bn, at or slightly above most analysts’ expectations and matching the decline of the preceding three months. Its earnings per share of $2.46, though down 10 per cent from a year before, still came in 10 cents above Wall Street forecasts.

Reported revenue would have been 2 per cent higher had it not been for the appreciation of the US dollar. Apple also said it had set its revenue forecast for the current quarter after taking account of an anticipated 3 per cent currency impact.

The easing of worries about the iPhone freed Wall Street to focus on other parts of Apple’s business where strong growth could soon outweigh the revenue declines in the handset. These included a 22 per cent jump in iPad revenue — the best in six years — after a product overhaul last year.

Revenue from services climbed 16 per cent, to $11.5bn. While accounting for only 20 per cent of sales, services brought in a third of Apple’s gross profits, said Mr Maestri. Apple said it had added 30m subscription accounts in the past three months, taking the total to more than 390m.

The company also announced a $75bn increase in its stock buyback programme, in line with expectations, and a 5 per cent increase in its quarterly dividend payments.

Apple’s $1tn valuation is based on its most recently disclosed share count. After recent stock repurchases it was due to issue a new share count on Wednesday, potentially pushing it back below the $1tn level.

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