iPhones have weak quarter, but wearables are doing great

As anticipated, Apple’s hardware numbers were a mixed bag during today’s fiscal Q3 earnings report. Apple continues to shift much of its resources to services and content, including a billion-dollar push into Apple TV+. But while iPhone number were down, things weren’t all bad on the device front.

Notably, wearables are up in a big way. The category hit $5.5 billion for the quarter, up from $3.7 billion, year-over-year. The boost came in no small part due to the arrival of new AirPods, featuring wireless charging functionality, in spite of the company DOAing its AirPower charging pad.

“The wearables category is doing extremely well.” said Tim Cook on today’s earnings call. “We stuck with it when others perhaps didn’t.”

Apple CFO Luca Maestri pointed out that the revenue of the wearables division alone would make for a Fortune 200 company.

Meanwhile, iPad revenue is up 8% year-over-year, Mac revenue is up 11% and the services category it’s been putting so much focus into is up 13%.

“This was our biggest June quarter ever — driven by all-time record revenue from Services, accelerating growth from Wearables, strong performance from iPad and Mac and significant improvement in iPhone trends,” Tim Cook said in a press release tied to earnings. “These results are promising across all our geographic segments, and we’re confident about what’s ahead. The balance of calendar 2019 will be an exciting period, with major launches on all of our platforms, new services and several new products.”

The optimism around iPhone isn’t entirely universal at the moment. The quarter marked another year-over-year decline for iPhone revenues, from $29.5 billion in fiscal Q3 2018 to $25.9 billion in fiscal Q3 2019, with the category dipping below 50% of the company’s total revenue for the time period. The past several quarters have seen a decline in iPhone sales, thanks to an overall stagnation in the global market, coupled with slower than expected sales in China.

That, in turn, is the result of slowed economic growth in the country. In fact, few manufacturers have been able to buck the trend in China, save for Huawei. The embattled hardware giant has increased domestic sales through aggressive pricing strategy and an increased push for patriotic purchases as it sees political headwinds abroad.

On this evening’s call, Cook said there’s some cause for optimism when it comes to China. “I’d like to provide some color on our performance in Greater China, where we saw significant improvement compared to the first half of fiscal 2019 and return to growth and constant currency,” the exec said. “We experienced noticeably better year-over-year comparisons for our iPhone business there than we saw in the last two quarters. And we had sequential improvement in the performance of every category.”

Apple, of course, will be announcing new phones later this year, though it remains to be seen whether a new feature set will be strong enough to kickstart sales. 5G is expected to be a key driver in smartphone numbers in the year ahead, though Apple isn’t expected to offer the capability until 2020.

The company also recently agreed to purchase Intel’s modem division in an effort to build more components in house.