(Bloomberg) – Apple Inc. executives lent their typical praise to iPhone's elegant design and breakthrough technology on Wednesday for more mundane topics such as installment plans, trade-in programs and gifts.
The fourth quarter results, reported Wednesday, suggested that the strategy is beginning to work. While iPhone sales dropped 9%, sales increased and the company forecasted more top line growth for the most important holiday season.
Services and revenue from accessories jumped to the records as users purchased apps for their existing iPhones, attached portable devices such as AirPods and Apple Watches, and subscribed to services such as Apple Music and iCloud storage.
But the plan will only continue to work if the installed base of active Apple devices grows regularly, led by the iPhone. It will be a challenge because consumers do not upgrade to newer handsets as often as they once did. Over the past three years, the average age of a smartphone has increased more than three months to 19.5 months, according to research from UBS. In a survey by the investment bank, respondents said they plan to replace their units every 28.5 months, or almost two and a half years.
During a conference call with analysts on Wednesday, Apple Chief Executive Officer Tim Cook and CFO Luca Maestri described a potential solution to this upgrade problem: A new feature for the Apple Card that lets users pay for their iPhones over 24 months without interest and manage it payout program directly from iPhone.
"One of the things we do is try to make it easier and easier for people to come up with this kind of monthly funding," Cook said. "We are aware that there are many users out there who want some sort of recurring payment like receiving new products."
The CEO boasts the latest iPhone camera, but the conversation soon turned to more prosaic topics. Morgan Stanley analyst Katy Huberty asked if it was realistic to expect the iPhone business to return to growth in 2020. Cook refused to be drawn into a long-term prediction, but said he was encouraged by the initial reaction to the new phones .
When asked about China, Cook said that new iPhone prices, a monthly payment program and barter offerings have helped improve performance in the country.
Other analysts asked whether offering Apple's new TV + streaming service for free for a year with a new device purchase was the start of a broader package of hardware and services. Cook said he wanted to expand the TV + audience quickly and saw this as a way to do it. He will not rule out linking a new free service offering to hardware purchases in the future.
Maestri said that Apple continues to push its exchange program, which allows users to get an old iPhone to get a credit against a new model. The sales volume through this program is five times greater than in the fourth quarter last year, the CFO noted.
Cook also indicated that portability continues to keep the Apple ecosystem strong. He said that three-quarters of Apple Watch purchases in the fourth quarter were from users who had never purchased the device before. The CEO wouldn't say how sales were driven by existing iPhone owners, but the underlying message was clear: Wearables like Apple Watch and AirPods keep people tied to their iPhones and help Apple squeeze more money into a product that's still struggling to grow .
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