Apple's services, wearables shore up results as iPhone drops below half of sales

iPhone sales dropped to less than half of quarterly revenue for the first time in seven years, but CEO Tim Cook on Tuesday described the change as successfully diversifying away from a single product and forecast results above Wall Street targets.

That strategy proved especially useful in China, the world’s largest smartphone market. Investors feared

a drumbeat of negative shipment data from the Chinese government and analysts meant problems for the iPhone maker.

Apple’s greater China sales, which had gone into a near free fall earlier this year, dipped only slightly, assuaging concerns that trade tension were undermining Apple’s standing in one of its most important markets. Shares rose 4.25% after hours.

Moribund global mobile phone sales have led Apple to focus on accessories like the Apple Watch and growth in music, apps, gaming, video and a credit card coming in August. In mainland China, Cook said the overall number of Apple device users had grown in the fiscal third quarter, helping to increase the market for its services, whose sales were up by more than 10% there.

“We actually grew in mainland China,” Cook told Reuters. “Non-iPhone revenue grew 17%. We grew in every category outside of iPhone.”

But globally, iPhone sales fell 12% to $25.99 billion, after dropping 17% in the previous quarter, and matched Wall Street targets.

Graphic: iPhone fade - tmsnrt.rs/2yAEoCh

Wearables and other accessories revenue rose nearly 50%, topping expectations.

Services revenue rose 12.6% to $11.46 billion, slowing and slightly missing expectations but setting a new record.

Apple said it expects revenue for the current fiscal fourth quarter of between $61 billion and $64 billion, compared with analyst estimates of $61.02 billion. At the high end of Apple’s forecasted range, sales would beat the prior year’s $62.90 billion in sales, despite the fact that analysts expected continued lackluster iPhone sales until 5G models arrive in 2020.

 For the fiscal third quarter ended in June, Apple reported a 1% rise in revenue to $53.8 billion and a 7% drop in earnings per share to $2.18, compared with expectations of $53.39 billion and $2.10 per share, according to Refinitiv data.

• Reuters