Tim Cook explains declining iPhone sales on CNBC

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Tim Cook talks diversity, sustainability, and coming out as gay
Tim Cook probably wasn't in quite such a jubilant mood yesterday.
Photo: Apple

Tim Cook elaborated on some of the reasons for Apple’s declining iPhone sales during an interview with CNBC Fast Money’s Josh Lipton.

Cook said that the shortfall on Apple’s part is entirely related to the iPhone, and primarily its performance (or lack thereof) in Greater China. However, he also touched on several other issues — including the challenges of Apple’s battery replacement program.

Cook noted that, as far as China goes,

“As the quarter went on, things like traffic in our retail stores, traffic in our channel partner stores, the reports of the smartphone industry contracting, particularly bad in November — I haven’t seen the December number yet, but I would guess that wouldn’t not be good either. And so that’s what we’ve seen. And now there are a lot of things we can do to turn our — to sort of turn our business around in terms of the, both in China and more generally across.”

Cook called out recent reports suggesting that there is a backlash against Apple in China. According to some, businesses have been taking steps to boycott Apple devices, particularly in favor of homespun alternatives such as Huawei. While Cook didn’t deny the veracity of these reports, he said that they are just a small number of users.

“Certainly Apple has not been targeted by the government so let me take away any kind of doubt of that right up top. There are reports, sort of sporadic reports, about somebody talking about not buying our products because we’re American, maybe a little bit on social media, maybe a guy standing in front of a store or something. My personal sense is that this is small. Keep in mind that China’s not monolithic. Just like America’s not monolithic. You have people with different views and different ideas. And so do I think anybody elected not to buy because of that? I’m sure some people did. But my sense is the much larger issue is the slowing of the economy and then this — the trade tension that’s further pressured.”

Other challenges at play

Intriguingly, Cook also alluded (but didn’t elaborate on) to Apple’s worldwide battery replacement program as being part of the problem. He wasn’t clear on whether this meant dented consumer faith as a result of accusations about iPhone slowdown accusations, reduced profitability from cheaper battery replacements, or something else.

He did, however, say that he would have liked to “done better in some of our developed markets.” He additionally expressed some minor regret at the gap between the iPhone XS and iPhone XR going on sale, saying that, “would I have liked some of them to be ready a few months earlier? Of course.”

Finally, he offered reassurance about Apple’s Services business which he said has grown an “incredible amount.” In the upcoming earnings, Cook said that Apple will report around $10.8 billion for the quarter from Services. This represents a “new record.” It’s also widely distributed across Apple’s whole Services portfolio:

“This is incredibly exciting for us because so many things hit records in there. The App Store did. Apple music hit a new record. Apple Pay hit a new record. Our search ad product from the App Store hit a new record. iCloud hit a new record. And so, you know, it’s very wide and each of the geography — geographies hit a quarterly record. So even in China the App Store hit a quarterly record. Why is that? It’s because it’s driven by the installed base and our installed base grew, you know, nicely year over year in China as well. And as I say in the letter, we’ve picked up 100 more million active devices over the last 12 months alone. So this is an incredible number.”