Iphone

Facing iPhone Troubles, Apple Tries to Change the Story


When Steve Jobs took a swipe at

Amazon.com
Inc.’s

Kindle in 2009, he pointed to the online retailer’s decision not to report unit sales of its reading device as evidence it wasn’t selling many.

Nearly a decade later, Apple is following a similar path. The company said it would stop disclosing data on the number iPhones, iPads and Macs it sells, eliminating a performance metric it has provided since the 1980s.

The change comes as growth in the number of iPhones sold slows, with customers increasingly holding on to smartphones longer. Apple has responded by promoting software and services across its devices and raising prices on new gadgets.

Investors balked at the reporting change, and at revenue projections that fell short of Wall Street estimates. On Friday, the elimination of unit-sales data contributed to shares falling 6.6% as the company shed $71.19 billion in market value in a single day.

Apple’s “privacy commitment now extends to iPhone unit disclosure,” Amit Daryanani of RBC Capital Markets wrote in a note to investors. In an interview, he said the change means many shareholders now believe Apple is hiding something. “It’s a monkey on their back,” he said.

Mike Levin, co-founder of Consumer Intelligence Research Partners LLC, a market-research firm that surveys Apple customers, said the change shows Apple executives are thinking about their business in ways they haven’t wanted to say aloud.

“When Apple was doing great, unit sales told a wonderful story. Now that the story isn’t so good, they’re saying, ‘Let’s change it,’” he said.

Mr. Jobs might agree. “Usually, if they sell a lot of something, you want to tell everybody,” the Apple co-founder told the New York Times nine years ago when criticizing Amazon’s Kindle.

Apple remains an immensely profitable company and rode recent price increases to its best year ever. Chief Executive Tim Cook told analysts Thursday the change better reflects how Apple’s business has evolved in the wake of its new pricing strategy. When a cashier rings up a shopper, the register doesn’t show how many units the shopper buys—only what the shopper spends, he said.

Other companies also have altered the way they report longstanding business metrics.

In April,

General Motors
Co.

abandoned a decades-old practice of reporting monthly vehicle sales and joined

Tesla
Inc.

in reporting such figures quarterly.

Walmart
Inc.

and

Target
Corp

over the past decade have moved to reporting same-store sales quarterly instead of monthly to eliminate volatility.

“This is new territory,” said Peter Bible, chief risk officer at accounting advisory firm EisnerAmper LLP and former accounting chief at GM. “Whether it be monthly unit sales of cars or unit sales of iPhones or iPads, are they afraid it’s not going to be favorable?”

Apple finance chief Luca Maestri, who previously worked at GM, said Apple would continue to provide “qualitative commentary,” such as noting that unit sales of flagship iPhones are strong and attracting customers with new features.

Apple will now report gross margins separately for its hardware and services.

How gross margins perform between hardware and services will become an important metric, said Gene Munster, managing partner at Loup Ventures, an investment and research firm.

Investors will look at the margins in hardware to determine the health of iPhones. “All Apple needs to do is keep hardware gross margins stable,” said Mr. Munster, who thinks the reporting changes are positive for investors because of the recurring revenue the services business offers.

The change also forces Apple’s fast-growing services business to center stage.

Apple has 1.3 billion iPhones and other devices in active use and earns an estimated $30 for each device annually from app sales, music subscriptions and other offerings, according to Morgan Stanley. The firm expects services to account for about 60% of Apple’s revenue gains over the next five years. By contrast, the iPhone accounted for 86% of sales growth in the previous five-year period, it estimates.

Over the past year, services grew by 24% to $37.19 billion. Still, they represented only about 14% of Apple’s total revenue of $265.6 billion in fiscal 2018. Apple hasn’t broken out revenue for its various services.

Pushing the business forward will test Mr. Cook, an operations expert who turned Apple into a profit-spewing machine by controlling hardware costs and inventory. Now, the company’s direction increasingly will depend on the leadership of Eddy Cue, who is in charge of internet software and services, and Phil Schiller, who oversees the app store.

It could take a year or more before Mr. Cook’s team shows services and higher-priced devices can make up for flat or declining unit sales, said David Yoffie, a professor at Harvard Business School, who has written Apple case studies. “Apple obviously wants to change the narrative on the Street, but lower transparency will reduce confidence in the short run,” he said.

Write to Tripp Mickle at Tripp.Mickle@wsj.com



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