Apple Beats Q1 Estimates Despite iPhone Sales Drop Thanks To Service Growth

Apple Inc. AAPL surprised investors Tuesday with a slight earnings beat that showed off what some think may be the future of the company as it reported record revenues on Services despite an expected drop in sales of its signature iPhone.

Q1 Highlights

Analysts, on average, expected the iPhone maker to report EPS of $4.17 on revenue of about $84 billion.

• Apple Q1 EPS $4.18, Sales $84.31B
• Sees Q2 Sales $55B-$59B vs $58.99B Est.
• Net sales China $13.1 billion vs. $17.9 billion a year ago
• Gross Margin 37%-38%
• Q1 Operating Cash Flow $26.7B
• Net Cash Balance At End Of Q1 $130B

Apple, which had become the first $1-trillion company last summer, had already set expectations lower for a disappointing quarter due to sluggish iPhone sales, lowering its revenue forecast one month ago.

"While it was disappointing to miss our revenue guidance, we manage Apple for the long term, and this quarter's results demonstrate that the underlying strength of our business runs deep and wide," CEO Tim Cook said in the release.

Products

Apple said iPhone revenue dropped 15 percent from the prior year. But all other revenue grew 19 percent, and services revenue reached a record $10.9 billion, up 19
percent from the prior year.

Revenue from the company's Mac computers, Wearables, and Home and Accessories also reached all-time highs, growing 9 percent and 33 percent, respectively, Apple said. Revenue from iPad grew 17 percent.

The report came without specific numbers on iPhone sales, following Apple’s announcement in November that it will no longer report unit sales for the signature iPhone, or for Macs and iPads.

Apple officials have said services — such as App store downloads — are a better indicator of how the company is performing. It's a market the company believes is a big part of its future as the smartphone market becomes saturated.

What's Next

Cook hit on the shift to Apple as a service model that many believe the company wants to focus on.

"Our active installed base of devices reached an all-time high of 1.4 billion 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."

The earnings print followed a report over the weekend that Apple's contract iPhone manufacturer, Foxconn Technology Group, will move manufacturing out of China and to a new production facility in India.

Click here to see how Apple shares typically move following an earnings print.

Related Links:

Apple Lowers Revenue Expectations As China's Market Slows

Apple Earnings Preview: Investors Brace For Update On Turbulent Quarter Marred By iPhone Weakness

Photo courtesy of Apple.