Apple shocks with news it will stop reporting iPhone unit sales

Brief:

Apple's revenue and profit hit records for the fourth straight quarter as higher iPhone prices and strong App Store sales led to the best year ever for the technology giant, according to an announcement. Revenue rose nearly 20% to $62.9 billion in its fiscal Q4 2018 from a year earlier while profit soared 32% to $14.13 billion. Services revenue, which includes App Store sales, Apple Pay and music-streaming subscriptions, reached an all-time high of $10 billion, growing 27% from $7.9 billion a year earlier.
During Apple's Q4, it sold 46.89 million iPhones. Unit volume was flat compared to a year ago but revenue grew 29%. The numbers disappointed analysts, who had expected 47.5 million iPhones to sold during the quarter. Apple's shares dropped more than 5.5% following its earnings release.
The company also announced that it will stop reporting unit sales for its products, raising questions about the company's plans for sales of new gadgets, per The Wall Street Journal.

Insight:

The news that Apple will stop reporting unit sales was not greeted well by analysts, some of whom suggested the company may be trying to hide softness in iPhone sales. However, the company will also start reporting gross margins on services for the first time, another indication that the services side of the business is being positioned as the growth engine going forward.

While sales growth of its iPhones is flat, Apple's services business continues to grow. That growth rate was slower than in recent quarters, but the company is on track to reach CEO Tim Cook's annual goal of $50 billion in services revenue by 2020. Apple’s business of selling ad space in its App Store may surge four-times from $500 million this year to $2 billion by 2020, per a report from Bernstein analyst Toni Sacconaghi.

Apple reported strong growth in the past year, but tempered its outlook as the tech giant faces more difficult comparisons with last year. Apple this year introduced its most expensive iPhones in September, earlier in the year than in 2017, when the pricier iPhone X started selling in November. The company had raised the price of the flagship iPhone by about 50% to nearly $1,000 last year.

Also notable in Apple's earnings report is that its China business improved even as the Asian country's economy weakened. Sales in Greater China including Hong Kong and Taiwan rose 16% to $11.41 billion in the quarter from a year earlier. Apple avoided tariffs enacted by the Trump administration, but the outlook for future tariffs is unclear. The United States may expand tariffs to all Chinese imports, including iPhones, smartwatches and other electronics. That would raise the possibility that Chinese would retaliate by punishing Apple's business in China, per CNBC.