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Apple Is Taking Matters Into Its Own Hands

By Ashraf Eassa – Updated Apr 25, 2019 at 12:30AM

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If you want something done, do it yourself.

Apple's (AAPL 0.19%) iPhone business saw revenue decline 15% last quarter from the same period a year ago. While not unexpected given the company's Jan. 2 business warning, that's still not a result investors should be happy with. The company's overall revenue outlook for the current quarter of between $55 billion and $59 billion -- down from $61.1 billion in the same period a year ago -- wasn't great, either. 

Although things are clearly rough for the company's iPhone business, CEO Tim Cook explained a key move that the company is making to try to rejuvenate interest in those products -- one that's, frankly, quite smart.

Apple CEO Tim Cook.

Image source: Apple.

Let's take a closer look.

No carrier subsidies? We'll handle it

In his prepared remarks, Cook said that "iPhone subsidies are becoming increasingly less common" -- something that's apparently one of the factors behind the company's disappointing iPhone business. 

Cook explained the problem nicely during the question-and-answer session of the call: "But also, even in this country, even though the subsidy has gone away for a period of time, if you're a customer that your last purchase was a 6S or a 6 or, in some cases even, a 7, you may have paid $199.00 for it. And now, in the unbundled world, it's obviously much more than that."

The executive also outlined the company's strategy to try to compensate for the evaporation of subsidies, noting that "[beginning] last week, we started making it easier for people to pay for their phones over time with installment payments and we're working on rolling out this program to more geographies as soon as we can." 

He also talked about how the company is facilitating iPhone trade-ins to help defray the high up-front costs of the company's new iPhones. In fact, CFO Luca Maestri indicated that "[following] the launch of the new iPhone trade-in campaign, our stores more than doubled the volume of iPhones traded in compared to last year, reaching an all-time high in Q1."

It'll take time, but it's the right move

To be clear, I don't think that Apple's work here will cure all of the company's iPhone woes. While things like monthly installment programs and trade-in programs can certainly make it easier for customers to buy new iPhones, the company still fundamentally has to keep innovating its iPhone product portfolio in the face of increasingly intense competition to ensure that those prospective customers want to buy the company's products to begin with. 

For what it's worth, Cook said during the call that the company has "a very strong pipeline of products and services with some exciting announcements coming later this year."

Moreover, Apple doesn't operate in a vacuum; if the macroeconomic environment is slackening, that's going to have some impact on the company's iPhone business. And, on the flip side, if it gets better, that rising tide could lift all boats -- including Apple's.

Nevertheless, I like that Apple is taking action to try to improve the performance of its all-important iPhone business. This isn't enough to make me positive on the stock -- I still think that there are other, better opportunities in megacap tech -- but for those who remain bullish, seeing management publicly acknowledge a problem and outline strategies to try to fix it should serve as a source of encouragement.

Check out the latest Apple earnings call transcript.

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.

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