On Jan. 2, Apple (NASDAQ:AAPL) admitted that it wouldn't be able to hit its previously stated revenue guidance for the first quarter of its fiscal 2019, revising its revenue outlook down to $84 billion from a prior range of $89 billion to $93 billion. The shortfall, the company claims, is due to weaker-than-expected iPhone shipments, primarily in its Greater China geography.
Although I'm not particularly optimistic about Apple's financial performance over the course of its fiscal 2019 -- there could, indeed, be more pain ahead for investors -- there are some ways in which the Mac maker continues to execute superbly that I'd like to highlight.
It's well-known that Apple builds amazing chips to power its products and those chip chops continue to be a source of strength for the company. The A12 Bionic inside of Apple's latest iPhones -- even if customers aren't buying the phones in droves -- offers best-in-class CPU and GPU performance and significantly raised the bar in terms of dedicated artificial intelligence performance with the company's second-generation Neural Engine.
Additionally, the performance that Apple was able to deliver with the A12X Bionic chip inside of its latest iPad Pro tablets is nothing short of incredible -- the company is simply miles ahead of the competition.
On top of that, Apple continues to make significant advances in the chips that power products like the Apple Watch (the latest iteration received a massive performance boost) and its chip efforts allow it to develop unique and innovative products like AirPods, which incorporate the company's W-series chips.
There have been reports of Apple scaling back its hiring in certain areas, but I hope that the company doesn't let its foot off the proverbial gas in chips, as its investments here are critical to the competitiveness of the bulk of its future products.
Building out services
Apple is critically dependent on the iPhone for its revenue and profits. In its fiscal year 2018, iPhone generated nearly 63% of the company's overall revenue. While the iPhone franchise is certainly one that Apple should continue to invest heavily in (and, if possible, get back onto a growth trajectory), the company would be wise to look to cultivate other sources of revenue.
The company has been doing just that with a number of efforts, with the most successful being its attempt to build out its services business. To be clear, Apple's services business still isn't anywhere near the size of its iPhone business, but it's now the company's second-largest business segment. Services generated $37.19 billion in revenue during fiscal 2018 -- a figure that was up 24% from the prior year. This segment also made up 14% of Apple's fiscal 2018 revenue, up from 13.1% in the prior year.
Indeed, while Apple hasn't yet released its results for the first quarter of fiscal 2019, the tech titan did reveal in the earnings warning that this segment generated $10.8 billion in revenue during the quarter, something that the company claimed hit "a new quarterly record in every geographic segment." The figure that Apple disclosed suggests that services revenue rocketed nearly 27.1% during the quarter from the same period a year ago.
Success in wearables
Apple has been killing it in wearables. Apple Watch is a smash hit that not only generates billions of dollars in revenue for the company, but it's a product category that's continued to deliver robust growth. Apple's success with its AirPods wireless earbuds is certainly laudable as well -- it's crazy to think that a product as simple as wireless earbuds could go on to be as successful as they've ultimately proven to be.
Need proof that the momentum continues for Apple's wearable efforts? The company disclosed in its earnings warning that "[wearables] grew by almost 50 percent year-over-year, as Apple Watch and AirPods were wildly popular among holiday shoppers."
What's even more encouraging is that both of these product categories -- Apple Watch and AirPods -- likely have significant room for innovation. DIGITIMES, for example, recently claimed that the company is planning second-generation AirPods with "health monitoring functions."
While wearables revenue isn't large enough to offset significant shortfalls in iPhone revenue, this is nonetheless an area in which Apple's execution has been excellent.
Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.