UK and Latin America gave Telefónica a steady Q1

Telefónica’s otherwise flat quarter was bolstered by strong performance in its UK and Latin America South units, which delivered 5.3% and 15.2% organic growth rates, taking the group level growth rate to 3.8%.

Telefónica reported its first-quarter results, with the total revenue at €12.611 billion, an increase of 3.8% in organic terms. This means adjustments were made to the reported numbers considering impacts of exchange rate moves, regulation and reporting standard changes, and special factors, for example adjustment made to the Argentina numbers on account of the hyper-inflation. Otherwise, the total revenue would have reported at € 11.979, or a 1.7% decline from a year ago. The quarterly operating income before depreciation and amortisation (OIBDA) reached €4.264 billion, up by 10.3%; and the net income grew by 10.6% to reach €926 million.

The Telefónica group is now serving a total of 332 million subscriber accounts (“accesses”), 6 million less than a year ago. The total mobile accesses by the end of the quarter stood at 267 million, down by 4 million from a year ago. But the good news for Telefónica is that it actually grew the contract customer base by 7.5 million over Q1 last year, meaning the loss is mainly on the pre-paid market, down by 11.5 million. It also grew its fixed broadband (including FTTx and cable) customer base by 2.1 million over the course of the year.

“The first quarter results showed a significant improvement in revenue growth trends and double-digit growth in net income and earnings per share. Strong cash generation, which was three times higher than the figure reported in the first quarter of the previous year, allowed for an acceleration in debt reduction, for the 8th consecutive quarter, further strengthening our balance sheet,” commented José María Álvarez-Pallete, Chairman and CEO of Telefónica. “We have started the year by extending our leadership in fibre and 4G deployment, testing new 5G capabilities and making progress in the UNICA virtualisation programme, allowing us to continue gaining customer relevance through better experience and higher average lifetime.”

Ángel Vilá, Chief Operating Officer of Telefónica, introduced the Q1 results and its outlook to 2019 annual outlook in more detail in the video clip at the bottom (in Spanish, with English subtitle).

While the its two biggest markets, Spain and Brazil, managed to stay stable, delivering modest organic growth of 0.3% and 1.7% respective (+0.3% and -5.2% in reported terms), Telefónica’s UK business registered a strong 5.3% organic growth to reach €1.67 billion (£1.47 billion). Excluding the exchange rate impact, the UK business would have reported a 6.6% revenue growth to reach €1.691 billion (£1.488 billion). The company is now serving 32.7 million mobile subscribers, up 2.3% over Q1 last year, which includes both customers on O2 (25.1 million) and those on the MVNOs using Telefónica networks (Sky Mobile, giffgaff, Lycamobile, and Tesco Mobile).

“This is another good set of results building on our momentum from 2018. We have delivered further revenue and customer growth underpinned by our award-winning network and market-leading loyalty,” commented Mark Evans, CEO of Telefónica UK. “We are committed to making every day better, providing customers with compelling reasons to join and stay with us through attractive propositions such as O2 Custom Plans.”

Looking across all the Telefónica markets, the UK registered the lowest churn rate of 0.9% among in its postpaid customers. In comparison, in Telefónica’s other European markets, the churn rate of contract customers was 1.6% in Germany and 1.7% in Spain. Comparable churn rates in markets like Chile and Mexico ran around 3%.

Telefónica attributed high customer loyalty, among other things, to its aggressive investment to improve its networks. The company claims it is investing equivalent to £2 million a day to strengthen its network and increase its reach.

One of O2’s focus investment areas in 2019, in addition to the planned launch of 5G, will be high density venues, including sports arenas, shopping centres, hotels, and conference centres. Already serving the Anfield Stadium in Liverpool and the Lord’s cricket ground in London with improved networks, in collaboration with the Wireless Infrastructure Group (WIG), an infrastructure company, O2 is planning to upgrade and improve its coverage and capacities in other high usage venues.

“While we look ahead to 5G we also continue to focus on our existing network capability. We strive to deliver a great network experience to all our customers, including some of the UK’s busiest locations where network demand is at its peak,” said Brendan O’Reilly, O2’s Chief Technology Officer. “Our multi-million pound investment with our partners at WIG should provide O2 customers with even better connectivity in the places they love to visit.”

Here’s more commentary from COO Ángel Vilá.

Samsung’s profit crashes on weak semiconductor sales

Samsung Electronics reported a net profit decline of 57% in Q1, with total revenue going down by 14%. The semiconductor unit suffered the worst.

Samsung’s quarterly revenue went down from KRW60.56 trillion ($52 billion) a year ago to KRW52.39 ($45 billion) in Q1. The gross margin level came down from 47.3% to 37.5%. The operating profit dropped to KRW6.23 trillion ($5.3 billion) from KRW15.64 trillion ($13 billion), a decline of 60.2%. The net profit came down by 57% to KRW5.04 trillion ($4.4 billion).

 Samsung 2019_1Q_income

On business unit level, Device Solutions reported a 27% drop in revenue, the sharpest decline among all the business units. Inside the unit, Memory chips declined by 34%. Samsung attributed the weakness to “inventory adjustments at major customers”, indicating its customers including other smartphone makers, have been selling slower than expected.

IT & Mobile Communications, Samsung’s largest business unit by sales, the business was more stable. Revenue from the handset business dropped by 4% from a year ago, but grew sequentially by 17%. Samsung saw strong demand for its Galaxy S10 products, but the de-focus of mid-range and lower products limited the volume growth. The recent debacle of S10 fold, high profile as it may be, should not have had any material impact on Q1 as it was scheduled to launch in Q2. Samsung’s network business, though small in comparison to its competitors, reported a strong revenue growth of 62% to reach KRW1.28 trillion ($1.1 billion), benefiting from the “accelerating commercialization of 5G in Korea”.

Samsung 2019_1Q_BU

Samsung gave cautious lift to its outlook for Q2 but more optimistic with the second half of the year. It foresees the memory chip market stabilising in Q2 and stronger growth in the second half due to seasonality and product line refreshing. On the mobile side, Samsung sees growth in shipment in Q2 thanks to continued demand for the S10 products and positive market response to its new mid-range A series. It sees the 5G products and the fold form-factor making material contribution in the second half.

Defiant Huawei reports 20% revenue growth

In spite of the growing geopolitical spat it has found itself in the centre of, Huawei reported $107 billion in total revenues for the 2018 financial year, up 20% year-on-year.

The consumer business unit is now clearly the most successful, though there is still minor momentum in the carrier business. This is the unit which has been suffering the most through the political scrutiny, though there have been some rays of sunshine.

Although the consumer business unit grew 45%, astronomical growth in an overarching sluggish segment, revenues in the carrier business declined by 1% year-on-year. This business unit has declined, but when you consider context, few will complain with these figures.

A 1% decline is still a decline, but Huawei has now collected 39 5G commercial contracts and shipped 50,000 5G base stations globally. In the month since Mobile World Congress, Huawei has collected an additional five contracts and shipped 10,000 base stations. Not a bad return for a business which has become the political punching bag of the world.

“Through heavy, consistent investment in 5G innovation, alongside large-scale commercial deployment, Huawei is committed to building the world’s best network connections,” said Guo Ping, Huawei’s Rotating Chairman (pictured).

“Throughout this process, Huawei will continue to strictly comply with all relevant standards to build secure, trustworthy, and high-quality products. As we work towards this goal, we have been explicitly clear: Cyber security and user privacy protection are at the absolute top of our agenda.”

Looking at the numbers, total revenues hit roughly $107 billion, year-on-year growth of 20%, while profits jumped 25% to $8.8 billion. This is a slight dip on the 27% growth from twelve months ago, but it is still a very strong performance. The consumer unit clawed in roughly $51.98 billion, the carrier business accounted for $43.80 billion and enterprise brought in the majority of the rest. A very small fourth business unit focusing on cloud is worth keeping an eye on, but today this is less than 1% of the group’s total revenues.

Taken in isolation, you wouldn’t think this is a company which is facing intense scrutiny and aggression from US politicians. The numbers tell a healthy story, but we all know there is a political storm brewing around the vendor.

This week has seen another hurdle thrown in front of the Huawei thundering train, with the Huawei Cyber Security Evaluation Centre (HCSEC) releasing a new report questioning the ability of the vendor to fix software mistakes. The HCSEC has stopped short of calling for a ban, however it is a damning opinion on Huawei’s security credentials.

As we understand it, Huawei was informed of the report 48 hours prior to its publication and while it will not necessarily be thrilled with the outcome, it will have to swallow the opinion. Huawei’s DNA is built in the hardware world therefore it is unsurprising the firm is suffering some complications in the software segments. However, Huawei is unlikely to be alone in with this challenge.

Huawei’s competitors are facing the same challenge having also evolved from the hardware businesses. All of these vendors are learning the ropes, adapting business culture and attempting to link up different acquisitions into a fluid, cohesive offering. Huawei is facing criticism, partly as it is a proxy for the Chinese government, though software is a difficult business which everyone is finding challenging.

Ultimately these numbers tell a story which we have suspected might been the case for a while. Huawei is not a company which will be killed off by the political climate, but it will not dominate the 5G era in the same way it championed the 4G.

Despite a $1 billion loss ZTE is seeing light at the end of the tunnel

The Chinese telecom vendor ZTE reported a total annual net loss of over $1 billion from its business in 2018 but is foreseeing returning to profit in Q1 2019.

After a roller-coaster year, ZTE reported a total operating revenue of RMB 85.5 billion ($12.7 billion, at the exchange rate $1=RMB6.7233) in 2018, a 21.4% decline from a year ago. The net loss amounted to RMB 6.9837 billion ($1.04 billion), down from a net profit of RMB 4.57 billion from 2017, or a decline of 253%. After pulling off a surprising return to profit in Q3 last year,  the net profit in Q4 came down to RMB 276 million, narrowed by more than a half from the RMB 564 million from the previous quarter, despite that the quarterly revenue increased by over 38%.

When looking at the results by business lines and by sector, we can see that its consumer business, mainly smartphones, which account for more than a quarter of ZTE’s business before the US sanction, suffered the heaviest decline. The unit’s total revenue came down by 45%, and only accounted for 22% of the total business in 2018. The revenue from carrier’s network business shrank by 10.5%, and that from B2B business including public sector was down by 6%.

When it came to its performances in different markets, the heaviest decline came from its business in mature markets in Europe, Americas and Oceania, where the revenues dropped by 45%, followed by that from Asia, which was down by 25%. The domestic market, representing 63.7% of ZTE’s total business, suffered a decline of 12%. Its business in Africa actually registered a growth of 8.4%, despite that it only accounted for less than 5% of ZTE’s total business. Incidentally, it was in Africa that ZTE reaped the highest gross margin of 48%, compared to 38% in China, and only 13% in Europe, Americas and Oceania.

The decline of the annual total business could largely be attributed to the heavy fines of $1.4 billion ZTE had to pay the US government for the settlement in the middle of last year, in addition to the wholesale change of management and the board. The market has chosen to look at the upside after the ban was lifted. Its share price had already gone up by over 50% by the end of last year and has now more than doubled the low of last July.

Looking forward, ZTE predicted that it would generate between RMB 0.8 billion and RMB 1.2 billion ($119 million to $178 million) net profit during Q1. To power future growth, the company spent 12.8% of its income on R&D during 2018 and will continue to do so this year. In particular, ZTE “has continuously concentrated on the core 5G technical fields and further intensified 5G R&D investment.”

However, 5G is a long play, and is a game that there is no guarantee ZTE will win. The prospects in China, by far ZTE’s biggest market, are less than certain, as the Chinese operators are among the cautious ones when it comes to 5G investment. Africa and Pakistan, where the company has a relatively strong position, are not going to deliver results from 5G very soon. In Europe and North America, where its customer base is already limited, ZTE has been included in the list of “Chinese vendors” which the US government is lobbying to ban, despite the limelight is often on Huawei, ZTE’s arch-rival.

Samsung warns profit could half on weak chip and display demand

The world leader in smartphones and chips has released a profit warning for its Q1 results, due to be announced next month. Analysts estimate its operating profit could halve from a year ago.

The company announced that it would miss market expectations, due to hard hits for sales in its key display and semiconductor business units. “The company expects the scope of price declines in main memory chip products to be larger than expected,” said Samsung.

Semiconductor and display have been the major revenue and profit generators for Samsung Electronics over the last few years. In 2018, these two business lines, combined to form Samsung “Device Solutions” (DS) business unit, delivering 49% of total revenues and 79% of its operating profit. However, it has already come under pressure. In Q4 last year, the operating profit of DS dropped by 29% from a year ago.

This communication should not come entirely as a surprise. In the company’s AGM on 20 March, Samsung already outlined its 2019 outlook for both the overall business and for individual business units. On the macro business environment, Samsung predicted “In 2019, we expect business conditions to remain difficult as global trade conflicts persist and changes in monetary policies of developed nations may lead to financial uncertainties in emerging economies.”

On the semiconductor front, especially for NAND business, Samsung warned “uncertainty persists over supply-demand dynamics caused by capacity expansions in the industry and a potential slowdown in demand following inventory stocking by customers.” On the display business Samsung expected “conditions to worsen in 2019 as competition rises amid a relatively stagnant market.”

Samsung did not give more specific indicators on the level of miss, but investment analysts predicted the company to report a $6.4 billion operating profit for Q1, down from $13.8 billion in Q1 last year, with revenues expected to come down to $47.4 billion from $53.5 billion, according to Refinitiv SmartEstimate.

“Inventories piling up on its memory chip side and the weak performance of its display panels business due to bad sales of Apple’s iPhones are hurting profitability for Samsung,” said Lee Won-sik, an analyst at Shinyoung Securities, quoted by Reuters.

The soft smartphone market including that experienced by Apple, Samsung’s main rival as well as customer, has been attributed the main reason behind the difficulty. But Samsung believed it could turn things around, especially the demand for memory products, in the second half of the year, as it told the shareholders last week.

Samsung Electronics share price went down by 0.55% at the time of writing.

Oracle reports flat growth as cloud segment booms

As a late-comer to the increasingly profitable cloud segment, Oracle has yet to make more than a minor dent, and this quarter appears to be another demonstration of mediocrity.

The company stopped reporting its cloud business revenues as a standalone during last year, so it is difficult to give a complete picture, though total revenues tell a part of the story. Total Revenues were $9.6 billion, down 1% year-on-year, though once constant currencies are applied the boost was 3%. Combined with a outlook which promises a range of 0% growth to negative 2% (1% to 3% growth in constant currency), its not necessarily the prettiest of pictures.

This is not to say Oracle is in a terrible position, the company is still profitable, and the growth prospects of the cloud segment encourage optimism, but it is not capturing the fortunes of its competitors.

Despite the heritage and continued influence of this business, perhaps we should not be surprised Oracle is not tearing up trees today. Back in 2008, CTO and founder Larry Ellison described the technology industry as the only segment “which is more fashion driven than women’s fashion”, suggesting cloud was nothing more than a passing fad.

Hindsight is always 20/20, but after this condemning statement about the embryonic cloud industry you can see why Oracle is reporting average numbers while others are hoovering up the cloud cash. Despite this late start, in 2016 Oracle felt it had caught up, with Ellison declaring “Amazon’s lead is over” during an earnings call.

While executives can make all the claims they like, reeling off various customer wins and pointing towards heritage in the technology industry, the numbers speak for themselves. Oracle is not profiting from the cloud bonanza in the same way competitors are.

Alongside the effectively flat revenue growth, Non-GAAP net income in Q3 was down 8% to $3.2 billion, while the merged cloud revenues and license support unit grew, it was only by roughly 1.1%. When you consider AWS, Google, IBM, Microsoft and Alibaba are all quoted numbers which are notably higher than this, it does paint a relatively gloomy picture.

Recent data from Synergy suggests revenues for 2018 passed the $250 billion across seven key cloud services and infrastructure market segments, operator and vendor revenues, representing a 32% increase year-on-year. Oracle will of course not be applicable for all of these segments however the overarching cloud trends are incredibly positive.

That said, perhaps the most damning piece of evidence is these numbers met analyst expectations. The team should be applauded for this fact however, it does suggest the analyst community no-longer consider Oracle a front-runner in the technology world. If the estimates are mediocre when the ingredients for success are so abundant, it doesn’t make for the most positive perception of one of yesteryears heavyweights.

Investment bank backs the BT waiting game

Don’t expect BT to give too much away over the next couple of months, but investment bank Jefferies thinks there is enough there to make the telco a good bet.

The arrival of new BT CEO Philip Jansen has sparked the prospect of the telcos revival, at least from a share price perspective, though Jefferies believes cards will be held very close to the chest for the moment. Don’t expect too much insight on future strategies over the near-future, but the foundations seem steady enough to put BT in a solid position.

The last few years have not made for comfortable reading for many BT investors. In November 2015, share price stood at £4.99. This was not a historical high, but it was a peak in recent memory. Since that point, share price has declined 56% after gains from EE remained elusive, the Openreach position was challenged and a disastrous entry into the content game. Under former-CEO Gavin Patterson, BT entered a slump.

That said, in January BT reported positive results, suggesting the restructuring process implemented over the last 12 months was setting the foundations for recovery. Jansen was entering a business which was in a reasonable position.

“BT welcomes its new CEO with foundations to build on, not a slate to wipe clean,” the Jefferies investor note states.

However, with Jansen’s first earnings call just weeks away, don’t expect too much insight on BT’s future strategy. With Ofcom’s Access Review still yet to see the light of day, it would be “illogical” for BT to make too much of a commitment in the near future.

Depending on the outcome of this review, there might be room for Openreach to consider premiums on FTTP, there might be demands to increase CAPEX, there might be a need to cut Dividend Per Share (DPS). There are too many maybe’s floating around the regulatory uncertainty created by government ambitions to fibre-up 15 million UK homes by 2025.

While there is a suggestion DPS growth might freeze or reverse, this could allow BT to redirect funds towards the CAPEX column at Openreach. This could assist the telco in creating a friendlier relationship with Ofcom, an outcome which would be beneficial for everyone involved.

Jefferies feels there are too many unknowns for the telco to make any concrete commitments moving forward, but in encouraging customers to Buy BT, there is seemingly a lot of confidence.

Ciena bags 20.5% growth perhaps thanks to Huawei dilemma

Optical networking company Ciena posted positive results for the first quarter of 2019, with total revenues of $778.5 million beating analyst expectations.

There have been whispers in corners of various conferences that a Huawei ban could benefit some, and it may well be having a positive impact for Ciena. While there are numerous other companies which would compete with Huawei in the optical equipment segment, with Ciena one of the few ‘pure-play’ companies it might have a more notable impact on the financials.

That said, irrelevant of where the favourable fortune has come from investors will be happy. $778.5 million represents a 20.5% year-on-year increase for the first quarter, while nearly all geographical markets have shown healthy growth.

“We began fiscal 2019 with a very strong first quarter performance, including outstanding top and bottom line growth as well as continued market share gains,” said Gary Smith, CEO of Ciena. “We believe that the combination of our leading innovation and positive industry dynamics will enable us to further extend our leadership position.”

Net income for the quarter stood at $33.6 million, though this is incomparable to the same period of 2018 which registered a loss of $473.4 million thanks to President Donald Trump’s US tax reform.

Looking at the regions, in the US, a market which now accounts for 62% of the company’s total revenues, the earnings grew just over 20% to $485.5 million, while 20% growth was also registered in the APAC region. The big success story however was in Europe, where the team grew the business by 32% to $129.2 million. This is still only 16.6% of the total haul for Ciena, but more geographical diversification will certainly be welcomed.

For Ciena, Europe could be a very interesting market over the next couple of months. With Huawei coming under increasing scrutiny globally, telcos will look to further diversify supply chains to add more resilience and protect themselves from potential government bans. While the anti-China rhetoric being spouted out by the White House is losing momentum, the European Union is reportedly looking some sort of ban, even if this puts the Brussels bureaucrats at odds with some member states.

For such vast investments, telcos will be looking for certainty and consistency from government policies. When looking at Huawei as a potential vendor, telcos will naturally be nervous, even if they don’t want to admit it.

With Huawei’s ban set to have little impact on the US market, it is not a major supplier to the market historically, the Europe could be a hidden goldmine for Ciena.

Interestingly enough, this scenario also seems to be paying off dividend in the APAC markets as well. Smith notes the success in the APAC region has come from Australia, Japan and Korea, three markets where Huawei has either been explicitly banned or is receiving a rather frosty welcome.

If you thought your January was tough, Vodafone Idea just lost 35mn subs

Most people consider January one of the worst months of the year, but Vodafone Idea could potentially trump your misery after reporting a year-on-year decline of 35 million subscriptions.

As is now commonplace with any CEO of a major business, Balesh Sharma was all a twirl spinning off the tough times of the quarter as positives, and in fairness there are some valid points. From a financial perspective, total revenues decreased 2% year-on-year to roughly £1.27 billion, while total subscriptions declined from 422.3 million in Q3 to 387.2 million for the last three months.

“We are progressing well on our stated strategy,” said Sharma. “The initiatives taken during the quarter started showing encouraging trends by the end of the quarter.

“We are moving faster than expected on integration, specifically on the network front, and we are well on track to deliver our synergy targets. We remain focused on fortifying our position in key districts by expanding the coverage and capacity of our 4G network, and target a higher share of new 4G customers, while offering an enhanced network experience to our customers. The proceeds from the announced capital raise will put us in a strong position to achieve our strategic goals.”

Looking at Sharma’s reasons, firstly on the revenues it might not be as bad as it looks. The most recent figures are being compared to a period where the two firms accounting policies were not aligned, while there was always going to be a bit of heavy going through the initial integration process. On the subscriptions front, the team blamed the fact that various customers consolidated spending from multiple to single SIMs.

On the 4G side of things, the total subscription base did increase to 75.3 million, up 9.5 million during the quarter, while coverage has also increased. The combined business is starting to generate notable benefits, national roaming was introduced on both networks, with each brand now offering 4G across all 22 service regions. During the three months, 11,123 4G sites were added to the network.

At first glance, this might not be the most comfortable reading, but you have to bear in mind this is a business which is starting to find its feet. Merging two businesses is never the easiest of jobs, but with the threat of Reliance Jio causing havoc everywhere Indian telco executives look, the pressure is certainly higher.

Reliance Jio has forced evolution onto the Indian telco industry, with victims scattered all over the landscape. The Telenor evacuation was first, Airtel is flagging, Reliance Communications has been decimated and the merger between Vodafone and Idea was the other major casualty. The team has to be given time to create a business which can provide suitable resistance to the Reliance Jio momentum, but Sharma will be wary he doesn’t have much.

Weak iPhone sales take bite out of Apple revenues

It might not come as a huge surprise, but the Apple financials are not as glorious and fruitful as the quarterly bonanza of yesteryear.

The devices market is plateauing, China’s economy is slowing, Indian consumers are more interested with other brands, iPhone sales are down, as is revenue and operating income, expenses are up. It doesn’t exactly paint a picture of serenity and profitability, but share price increased more than 5% in overnight trading.

CEO Tim Cook and his team did manage the situation quite effectively with a recent profit warning and have seemingly tabled a plan which has caught the interest of investors but let’s just put this overnight surge into perspective. The last couple of months have not been good for Apple. At the beginning of September, Apple share price was hovering around the $228 mark, while at the time of writing, it has declined more than 30% to $154. Cook should be nervous.

“Last night’s results beg the question, are investors falling out of love with Apple?” said Christopher Dembik, Head of Macro Analysis at Saxo Bank.

“The results of the former favourite stock – Apple was the fifth most traded stock by clients at Saxo Bank, behind Facebook, Amazon, Alibaba and Tesla – signalling a tough climate for traders right now with a gloomy global economy, weak returns across the board and whispers of another recession on the way.”

Apple Topline

Overall revenues were down to $84.3 billion, 5% lower than the same period in 2017, though it was in-line with the revised forecast from a few weeks back. For the next quarter, revenue is expected between $55 billion and $59 billion, with a gross margin between 37-38%.

Looking at the results, the iPhone weighed Apple down heavily. Shipment numbers will no-longer be released by the team, though revenues for the cornerstone product declined an almost inconceivable $9.1 billion, a 15% year-on-year drop, to $51.982 billion. This is still a huge amount of cash, but such a dramatic decline indicates someone got something very wrong somewhere.

The last couple of months of 2018 were a scrap for Apple to justify the pricing of its flagship devices. Cook and his cronies seem to have accepted what many people were telling them; the devices have become too expensive. Moving forward, the team seem to have indicated there will be price reductions.

This is what Apple have specialised in over the last few decades; customer loyalty and sweating the brand. There aren’t many cults out there who can count on their followers as loyally as Apple can count on the iLifers, but when the company was innovating they could justify marking a premium on products and rely on the Apple followers to make purchases. This doesn’t seem to be the case anymore.

If you look through the portfolio, none of the products are particularly mind-blowing. Yes, they might be high-spec and feature the Apple brand, but there has been little innovation in the last few years to justify the increasing prices. Married with consumers becoming more cash conscious, Apple has seemingly pushed its customers over the breaking point of what they are willing to spend.

That said, it isn’t just innovation which is to blame here, Apple is losing out to competitors in key markets. The Americas grew, though Europe, Japan and Greater China all declined. In the European and China markets, Chinese brands such as Huawei and One Plus has been gaining greater traction, with the price much more palatable for consumers. These are good devices which are offering just as technologically advanced features, suggesting Apple is losing the vice-like grip which it has on its customers.

Apple Breakdown

“And so, what we have done in January and in some locations and some products is essentially absorbed part or all of the foreign currency move as compared to last year and therefore get close or perhaps right on the local price from a year ago,” said Cook during the earnings call.

How much of an impact the price reductions will have remains to be seen, but what is worth noting is that there was some good news from the call. iPhone revenues might have plummeted over the period, but all other categories grew, including the much-valued software and services unit.

This is where Cook has been pinning his hopes, and there have been some gains. The software and services unit grew revenues by 19% year-on-year taking the total to $10.8 billion. Apple is attempting to evolve itself into a very different type of business, with recurring revenues as the ambition, though success has to be put into context. Yes, there have been gains, but it seems the dangers of the hardware world are being realised much faster than the benefits of software evolution.

Apple has largely struggled in the world of software and services, perhaps because its traditional business model is not suitable. When you look at where Apple has been successful in software and services, iTunes, AppleCare and iOS for example, these are all areas which tie the customer into the Apple ecosystem. They are products which build on the Steve Jobs mantra of ‘closed is better’. However, Apple will have to embrace a new mentality is it wants to succeed in the new world.

At CES, Apple captured most of the headlines without actually being there as it announced a content-based partnership with Samsung. Beginning in the Spring, new Samsung Smart TV models will offer iTunes Movies & TV Shows and Apple AirPlay 2 support for Apple customers. This is a good move from Apple, embracing the concepts of openness and collaboration which will be critical moving forwards.

Another interesting development, which has remained unconfirmed, is the creation of a Netflix-like gaming platform. Apple would herd developers and gaming content behind a paywall which will offered as a bundle service for customers. The subscription service would take Apple into a potentially profitable segment, which is set to boom over the coming years. However, this cannot be tied exclusively to Apple products and would have to demonstrate openness.

The last few months have shown that Apple is not immune to global trends and the need to evolve as a business is overdue. The reason companies like Google and Amazon never report revenue dips like this is they are constantly searching for the next idea. Apple might have been slow to react, but there is some progress being made. It just needs to be made quicker.