Apple's Tim Cook: 'We're returning to growth'

Apple CEO: We're confidently investing in the future
Apple CEO: We're confidently investing in the future

After reporting three straight quarters of lower year-over-year sales, Apple says it is returning to growth.

"Looking forward, the response to the iPhone 7 and 7 Plus has been very positive," Apple CEO Tim Cook said. "It's very hard to gauge demand, as you know, when you're selling everything you're making. So we'll find out more through the quarter, but we're confident enough to give you guys guidance that we're returning to growth this quarter, which obviously feels very good for us."

During its first fiscal quarter, the company said it expects revenue in the range of $76 billion to $78 billion, beating the $74.9 billion expected by analysts polled by StreetAccount. That would compare to $75.9 billion in January of last year.

While Apple has suffered constrained iPhone supply and softness in China, executives said on Tuesday that is set to turn around, in part thanks to its growing influence in software.

iPhone 7

Hardly any sales of the iPhone 7 were be reflected in the company's quarterly earnings report on Tuesday. It was unveiled in early September and since then, supply has been tight, executives said.

But it's clear that upgrade programs from carriers have had a "robust" result and are a "win" for Apple, Cook said on Tuesday. Indeed, while iPhone unit sales fell year-over-year in the fourth quarter, they turned into positive territory on a sequential basis.

Still, executives declined to forecast a precise iPhone figure for the next quarter.


Apple also has growing momentum from its services division, where it has been investing heavily in research and acquisitions to makes Siri and its smart watch apps smarter. That's already starting to pay off: Services revenue grew 24 percent to an all-time quarterly record of $6.3 billion, the company said.

Apple's software and services division — including the App Store — is one of the company's brightest and most ambitious areas. Last quarter it grew 19 percent year over year, faster than any other category, as the App Store logged its highest-ever revenue amid game craze "Pokemon Go."

Cook told CNBC last quarter that he hoped the company's services division would become the size of a Fortune 100 company by next year. Apple has also released a new, easier to learn coding environment, Swift Playgrounds, and a new revenue sharing model, to lure more developers to the App Store.

On top of that, Apple has increased its reach in original content, with exclusive Apple music offerings and shows like "Carpool Karaoke" and "Planet of the Apps." Entrants in the "Planet of the Apps" competition were required to publish their apps last week.

"Going into the quarter AND for long term, we continue to believe that the software and services at Apple are the most underappreciated aspect of the Apple story, particularly the App Store," Macquarie Capital analyst Ben Schachter wrote in a note to clients Tuesday.


China saw another weak quarter from Apple, seeing revenue fall 30 percent from a year ago in the fourth quarter. But Cook told CNBC he expects the situation there to improve in the next two quarters, citing LTE data adoption in the region.

"From a longer-term point of view, out of the 90-day clocks and so-forth, we are very bullish on China," Cook said. "We continue to see a middle class that's booming there. There might be some sort of a new normal in the economy. But a new normal there is still a good growth rate."

As one of the company's biggest markets, greater China has been been a sore spot for Apple as that nation's economy mounts a transition away from manufacturing and toward services.

The world's second-largest economy grew 6.7 percent year over year during the July-September quarter, unchanged from the previous three months, government data showed earlier this month.

Last quarter, Apple took its biggest revenue hit in China, where sales fell 33 percent from a year ago. At $8.8 billion, China was the third-largest market in the company's fiscal third quarter behind Europe at $9.6 billion, and the U.S. at nearly $18 billion.

Apple faces increasing competition from local Chinese vendors that have edged into the premium market. In the second calendar quarter, Chinese companies Oppo and Vivo saw year-over-year worldwide smartphone shipments increase 136.6 percent and 80.2 percent, respectively, according to IDC.

With regulatory hurdles like a brief ban in Beijing, Apple has tried to steady its presence in China.

In May, Apple invested $1 billion in Chinese ride-hailing service Didi Chuxing, a move Apple CEO Tim Cook said would help the tech giant strategically and teach it about the Chinese market. Cook made a visit to Shenzhen, China earlier this month to announce a new research and development center.