iPhone sales crater 15% in Apple’s worst holiday results in a decade, and the forecast looks just as grim

• Apple‘s fiscal Q1 saw its worst performance during the holiday quarter in roughly a decade.
• The results were largely in line with a preannouncement Apple provided earlier this month.
• But Apple’s forecast for Q2 sales were at the low end of expectations.
• Apple said its installed base of iPhone users is 900 million, and it’s the first time it’s disclosed the figure.

Sales of Apple’s flagship iPhones plummeted 15% during the holiday period, a sharp deterioration in a business that the company said Tuesday will continue to struggle in the coming months.

Apple gave a weaker-than-expected sales-and-profit forecast for its fiscal second quarter, citing a slowdown in consumers upgrading to new iPhone models and an uncertain economic environment.

Perhaps breathing a sigh of relief that the forecast wasn’t worse, investors reacted positively, bidding the stock up to $160.12, or 3.5%, in after-hours trading Tuesday.

Apple said there were 900 million active iPhone users in the world – the first time the company has disclosed the size of its “installed base” for iPhones. The large number of active users is critical to Apple’s plan to shifts it business focus to selling paid services, such as warranties and music subscriptions, to iPhone users.

“We are as confident as ever in the fundamental strength of our business, and we have an exciting pipeline with announcements coming later this year. We’re not taking our foot off the gas,” Apple CEO Tim Cook said in a conference call with investors on Tuesday.

Read this: Why Apple’s China situation is at ‘code red,’ and why it needs to take dramatic action to plug up a key weakness in the business

Here’s what Apple reported and how it compared with analyst expectations and the company’s year-earlier results:

• Fiscal first-quarter (FQ1) revenue: $84.3 billion. Wall Street was looking for $83.97 billion. In FQ1 2018, Apple posted $88.29 billion in sales.
• FQ1 earnings per share (EPS): $4.18. Analysts had forecast $4.17 a share. In FQ1 2018, the company earned $3.89 a share.
• Fiscal second-quarter (FQ2) revenue guidance: $55 billion to $59 billion. Prior to the report, Wall Street had predicted $58.97 billion. In FQ2 2018, Apple saw sales of $61.14 billion.
• FQ2 EPS guidance: Apple didn’t offer specific EPS guidance, but its outlook for its second quarter implies that it expects to post earnings of between $2.13 and $2.51 a share, assuming its share count falls by about the same amount it did in its first quarter. Analysts had forecast $2.62 a share before its report. In FQ2 2018, the company earned $2.73 a share.

Apple’s results were weighed down by plunging sales of its iPhones, its most important product line. The company posted $51.9 million in iPhone revenue, which was down a whopping 15% from the same period a year earlier.

For the first time, the company did not report the total number of iPhones it sold. The company controversially announced in November that it would discontinue reporting unit sales of its products, which many analysts took as a sign Apple expected the number of iPhones its sells to decline.

With this report, though, the company did offer investors more insight into the performance and profitability of what it sees as its two major business lines – products and services.

“Within this installed base the percentage of users who are paying for at least one service is growing very strongly,” Apple CFO Luca Maestri said on the conference call Tuesday.

Apple’s services business, which includes such things as its commissions on sales through its app store, the money Google pays it for directing web searches its way, and subscriptions to its iCloud and Apple Music offerings, saw its revenue grow 19% from the first quarter of 2018 to $10.9 billion.

That growth rate is at the low end of the services-business growth rate over the past two years, which has ranged between 17% and 34%. Apple CFO Maestri cited a recently adopted change in accounting rules for some of the slowdown in the service’s business growth.

Tim Cook, the company’s CEO, already warned investors and analysts earlier this month of disappointing results, saying that its revenue would likely be about $84 billion for the holiday period. Previously, the company had expected to post sales of between $89 billion and $93 billion.

Apple’s shares closed regular trading down $1.62, or 1%, to $154.68.