Apple’s Surging Services Not Enough to Offset iPhone Weakness

Showing little immunity to macroeconomic headwinds crimping its hardware side, Apple services including payments and subscriptions showed strength in its fiscal 2023 first quarter.

On its FY23 Q1 earnings call on Thursday (Feb. 2), Apple CEO Tim Cook said revenue of $117.2 billion for the December quarter was down 5% year over year as COVID restrictions and global disruptions slowed shipments of the new line of iPhone 14 Pro and iPhone 14 Pro Max, among other hardware. However, subscriptions and services were largely unaffected by these issues.

“We set an all-time revenue record of $20.8 billion in services, which was better than what we had expected,” Cook said. “We achieved double-digit revenue growth from App Store subscriptions and set all-time revenue records across a number of categories, including cloud and payment services. All told, Apple now has more than 935 million paid subscriptions.”

Apple CFO Luca Maestri added that Apple’s current installed base of over 2 billion active devices drove up services and subscriptions, saying “We reached all-time services revenue records in the Americas, Europe, and the rest of Asia Pacific, and a December quarter record in Greater China.”

Maestri said services revenue grew “in spite of a difficult foreign exchange environment and macroeconomic headwinds impacting certain categories such as digital advertising and mobile gaming.”

See also: Apple’s Value Drops From $3T to Under $2T in Year

Pointing to strength in its subscriptions and services ecosystem, Maestri said transacting accounts and paid accounts grew double digits year over year, setting records for each, although Apple expects services to “face macroeconomic headwinds in areas such as digital advertising and mobile gaming.”

Paid subscriptions at over 935 million represents “an increase of more than 150 million during the last 12 months alone and nearly four times what we had just five years ago,” he said, adding that “For instance, Apple Pay is now available to millions of merchants in nearly 70 countries and regions. And we saw a record-breaking number of purchases made using Apple Pay globally during the holiday shopping season.”

Offering deeper detail, Maestri said growth is coming from “every major product category and geographic segment with strong double-digit increases in emerging markets such as Brazil, Mexico, India, Indonesia, Thailand and Vietnam,” and in the enterprise market, Apple saw greater adoption of business services including Apple Business Essentials, Apple Care, Tap to Pay and Apple Financial Services.

In retail, Apple is celebrating a quarter century of the Apple Online Store. In fiscal Q1, the company opened Apple Pacific Center in Vancouver and Apple American Dream in New Jersey.

In business products, Cook touted Apple Business Connect, a new tool that “gives business owners even more control over how billions of people see and engage with their products and services every day. Businesses of all sizes can now customize key information for users across Apple Maps, messages, wallet, Siri, and other apps.”

See also: Apple’s Business Connect May Be at Disadvantage vs Google and Yelp

While Apple announced deeper commitments to health-focused wearables and smart home products in 2022, including the HomePod, Cook noted that “revenue for wearables, home and accessories was $13.5 billion, which was down 8% year over year, driven by foreign exchange headwinds and a challenging macroeconomic environment.”

See also: Apple Plans New Push Into Smart Home Market