A Partner's Guide To Apple Earnings: 10 Takeaways From Q1

Apple Bites Into A Tough Quarter

Cupertino, Calif.-based Apple reported lower-than-expected iPhone sales during its first-quarter earnings call, indicating the company's struggles in a shaky economic atmosphere.

The company's slow-growing iPhone sales powered $18.4 billion in profit on a nearly 1.7 percent increase in sales, to $75.9 billion, for the quarter. Those results fell below expectations of analysts surveyed by Thomson Reuters, who had forecast $3.23 a share on sales of $76.6 billion. Apple shares slipped 2 percent in after-hours trading.

Despite Apple's troubles, the smartphone company showed some optimism about its Mac and iPhone devices and enterprise platform. Following are 10 takeaways from Apple's first-quarter earnings report for partners.

Slowing iPhone Shipments

Apple's earnings highlighted slowing growth in shipments of the company's flagship device, the iPhone.

Apple reported lower-than-expected iPhone sales -- 74.8 million -- in its latest quarter. The first-quarter shipment level for the iPhone was only 0.4 percent higher than the same quarter the year before -- the lowest shipment level since the product launched in 2007.

Apple released its upgraded iPhones -- the iPhone 6s and iPhone 6s Plus -- in September.

"We continue to see very strong interest in iPhone not only with consumers but also with business users," said CFO Luca Maestri. "Among corporate buyers planning to purchase smartphones in the March quarter, 451 Research found that 79 percent planned to purchase iPhones. That is the highest iPhone purchase intent in the eight-year history of the survey."

Another Declining Quarter For iPad

Although Apple released its newest tablet, the iPad Pro, in November, that did little to save the company's iPad segment from another quarter of decline in Q1.

The company shipped 16.1 million iPads in the first quarter, a drop from the 21.4 million shipments in the year ago quarter.

Despite Apple's struggles with the iPad, Cook pointed out that the iPad accounts for 67 percent of the U.S. commercial tablet market, comprising enterprise, government and education, and Apple was making strides in enterprise accounts using the tablet.

"Corporate buyers reported a 95 percent satisfaction rate for iPad and a March quarter purchase intent of 73 percent," he said.

Mac Shipments Slowly Declining In Struggling PC Market

The Mac, which is a big product for channel Authorized Device Resellers, also faced a 4 percent decline in the first quarter, according to Apple.

Apple sold 5.3 million Macs in Q1, compared with 5.5 million in the same quarter the year before. However, that figure is not too bad, considering the state of the overall PC market -- according to research firm Gartner, the PC market shipments in the holiday quarter dropped 8.3 percent year over year.

"We continued our long running trend of PC market share gains, based on IDC's latest estimate of an 11 percent global market contraction, and we were especially happy with 27 percent year-over-year Mac sales growth in mainland China," said Maestri.

Third-Party Vendor Partnerships

Maestri discussed Apple's third-party partnerships with IBM and Cisco, which the device company formed to further deploy its iPhones and iPads into the enterprise market.

While he said that IBM has released 48 new IBM MobileFirst for iOS apps in December, adding onto the partnership's total of more than 100 enterprise apps for iPhone, iPad and Apple Watch, Maestri did not offer any further details on the Cisco-Apple partnership.

"Our partnership with Cisco has gained significant momentum since we announced it at the end of August," he said. "Our engineering teams are on track to deliver exciting new capabilities that create a fast lane for iOS business users by optimizing Cisco networks for iOS devices and apps, integrate iPhone with Cisco enterprise environments, and provide unique collaboration opportunities on iPhone and iPad."

Mobility Partners For The Enterprise

Maestri added that Apple is continuing to grow its mobility partner program in order to further deploy its devices into the enterprise market.

According to Maestri, Apple has added 25 partners to its mobility partner base during the first quarter, ended Dec. 26, as part of its drive into the enterprise market, which means the company now has 90 partners deploying solutions to businesses.

New Focus On Apple Services

While its iPhone, iPad and Mac shipments were not the best, Apple highlighted its services, including the App Store, Apple Music, Apple Pay and iCloud, as a revenue driver.

"The growth of our services business accelerated during the quarter to produce record results, and our installed base recently crossed a major milestone of one billion active devices," said Cook.

Services generated almost $6.1 billion in revenue for Apple, including $548 million the company received in a patent infringement dispute. According to Cook, this represents an all-time record and a 15 percent increase over the same quarter of the previous year. He added that strong growth from apps helped drive the strong services revenue.

A Shaky Second Quarter

Apple said that it expects second quarter revenue between $50 billion and $53 billion, while the average analyst estimate had been for $55.61 billion, according to StreetAccount.

Lower-than-expected revenue expectations for Q2 are partly attributable to economical issues, said Cook.

"We do think that iPhone units will decline in the quarter," he said. "We aren't projecting beyond the quarter, as Luca [Maestri] mentioned earlier. But at this point in time, we see that Q2 is the toughest compare."

Virtual Reality

One analyst asked Cook about his thoughts on virtual reality. The question comes after Apple made an array of investments in virtual and augmented reality, including hiring esteemed virtual reality and augmented reality researcher Doug Bowman (pictured), and acquiring Emotient, a San Diego startup that makes artificial intelligence technology for analyzing facial expression to detect emotions, in the beginning of January.

"In terms of virtual reality, no, I don't think it's a niche," Cook said. "I think it can be -- it's really cool and has some interesting applications."

Cloud Enterprise Services

After Cook discussed Apple's services revenue, one analyst suggested that with the help of IBM and Cisco, Apple could eventually move more into cloud services for the enterprise, and asked Apple about this possibility.

Cook avoided answering the question, but said it was important "not to rule out" services and their implications for Apple.

"In terms of our future plans, I wouldn't want to comment about any particular thing, but obviously, with breaking this out, we wouldn't be breaking it out if it wasn't an area that was very important to us in the future," he said.

Dealing With China And Slowing Economic Growth

Cook blamed "a challenging global macroeconomical environment" and slowing economic growth in major markets, including China, for the company's results, saying he remains bullish on Apple's future.

"Our results are particularly impressive, given the challenging global macroeconomic environment. We're seeing extreme conditions unlike anything we've experienced before just about everywhere we look," he said. "We've faced economic challenges in the past and we've always come out stronger on other side."